These seven key decisions will help you frame your approach and acquire the right tool and method.

(‡  the FullCost approach)

1. GOALS

Rates and investment-based budget: ‡  all the benefits of investment-based budgeting, plus consistent rates with no additional effort

Rates only: ‡  quick, easy; no demand management or managing expectations; doesn't plan or justify the budget

FAQ: Why budgeting and rate setting should be an integrated process....

2. TYPE OF COST MODEL

Service cost build-up: ‡  highly accurate; permits scrutiny of internal support services; every manager is an entrepreneur accountable for service delivery (internal as well as external)

Cost pools:   quick, easy; many distortions; internal support functions not viewed as entrepreneurs with products/services

Research report: Second-generation Cost Models
going beyond ABC, new product/service cost models improve accuracy and encourage entrepreneurship

3. WHERE TO BUILD YOUR COST MODEL

Plan: ‡  supports budgeting; forward looking rates, based on demand forecast, stable for the year; transparency builds trust where it counts most (funding decisions)

Actuals (historic data):   rates represent actual costs, fluctuating month to month; no published catalog with rates; doesn't support investment-based budgeting

White paper: Where To Build Your Product/Service Cost Model
within your planning tool or your actuals-tracking (internal invoicing) system?

4. BUDGET BASED ON

Proposed products/services: ‡  true demand management; clients defend your budget; clear expectations for given level of funding; accommodates new projects/services, zero-based

Cost and utilization trends:   quick, easy; may help justify total level of spending

Why budgeting is more than projecting trends....

5. LEVEL OF ANALYSIS

Each group in organization: ‡  accurate treatment of internal support services; management ownership and accountability; transformational impacts

Organizationwide analysis:   done by finance group alone for entire organization

6. INTENT OF TOOL AND METHOD

Management planning: ‡  engage management team (now, or eventually) in planning their own businesses

Financial analysis: ‡  for use by finance group only, with some management input

Differences in tool design based on primary intent....

7. BENCHMARKING

Rates and/or towers: ‡  compare both rates for individual services, and spending by "tower" with Gartner, ISG, Educause, or Apptio statistics.

Towers only (or none): compare just spending by "tower" as an entirely separate exercise.