SHOPPING AROUND? Here's what to look for....

"Investment-based budgeting" means submitting a budget that forecasts the costs of the deliverables your organization plans to produce in the coming year (proposed "sales" of products and services) -- not just what you plan to spend (a traditional budget).

This allows you to negotiate your budget based on business needs and investment opportunities, not last year's spending plus/minus a percentage. And it clearly explains what can, and cannot, be delivered for a given level of funding.

The essential functionality needed to implement investment-based budgeting includes:

• All costs are associated with deliverables, at a level of granularity that is decisionable (customers can choose whether or not to buy each item).

• Indirect costs are apportioned to the right products/services. Corporate-good services and investments in your own organization are not apportioned into the cost of client deliverables.

• Each deliverable can include a mix of expense and capital. Labor can be capitalized (in whole or in part).

• The cost of planned deliverables includes all the contributors to the project team (various groups in your organization, i.e., the "prime contractor" and all internal subcontracts), each at their own cost structures. Costs should also include reimbursable expenses (pass-throughs).

• Costs are future-looking and based on a business plan, not prior years' spending projected out plus/minus percentages.

• For accuracy, the cost model should be service-based costing (not activity-based costing), and should recognize internal support services as product/service sales to peers within the organization. The tool should provide reporting to manage the circularity in such a model.

• The apportionment of indirect costs should not require programming or entering formulas, to make it easy for leaders to enter and to maintain the model year-over-year.

• Compensation costs should account for differing billable-time ratios across groups, and across the types of people within each group.

• Compensation costs should be based on a blend of employees and contractors, as appropriate in each group.

• The same cost model should produce rates (unit costs), which may or may not include subcontracts, and which exclude pass-throughs.

• Rates should be calculated in a manner such that they won't have to be revised during the fiscal year, even if volumes fluctuate and additional (higher-cost) contractors are needed.

• Pricing may be set at the calculated full cost, pre-determined fixed prices, or with margins over/under calculated costs.

• The tool should support scenarios, i.e., what the business gets for various levels of funding.

• The tool should report planned deliverables and their costs by client business unit (for client budget presentations), as well as by purser (priority-setting committee), application suite, and enterprise strategy.

• The tool should produce reports that allow the executive to quickly scan the model for key cost drivers for each leader.

• The tool should produce pro-forma P&Ls for each IT manager, product/service, and client.

• The tool should produce summaries by Gartner Towers for benchmarking.

• The product should come with a well-documented, step-by-step method that engages and guides IT leaders in the business and budget planning process (each planning their own areas). That method should include clear guidelines for the definition of service catalogs and appropriate billable-time ratios by function.

• You should acquire perpetual-use rights to the software and method, with affordable annual support services (maintenance).

• Training services should be available to teach leaders the planning process and the tool.