Summary of what goes into "full cost"....

A key part of FMM is the definition of full cost. It says that every product and service should carry not only its direct costs, but also a fair share of all the internal service provider's indirect costs.

Indirect costs include all of the following:

• Unbillable time: Time spent on activities that are done for the benefit of your organization, at your discretion, and not directly billable to customers. Examples include holidays, vacations, personal leave, administration, professional development, business development and customer relations, product research, planning, process improvements, and organizational improvements.

• External indirect costs: Money spent outside your organization (on vendors) that is not directly related to a particular product or service, but rather maintains or enhances the capabilities of your organization.

• Internal indirect costs: Money spent on peers within the department for the support services that are not directly related to a particular product or service.

• Overhead within the department: Costs of support services that apply to all groups within your organization.

• Corporate costs: Costs for support services acquired from other departments within the corporation.

But FMM goes on to state that not all costs are embedded in the price of clients' project and services. Even if an organization is expected to fully recover its costs through allocations or chargebacks, it still must receive direct funding (budget) for two special kinds of deliverables:

Subsidies are things an internal service provider does for the good of the corporation as a whole, not for individual business units. This includes services like policy and standards facilitation, coordination of decentralized functional counterparts, and unrelated activities like corporate committees and community-action initiatives -- all things which your competitors (decentralization and outsourcing) don't necessarily have to do.

Ventures: On occasion, a department needs one-time funding for significant investments that improve its effectiveness. Examples include the purchase of infrastructure, the costs of starting up a new line of business, and significant organizational improvements.