FFM is a practical tool for making your business and budget planning processes more effective. This chapter explains how to put the model to practical use.

FMM Assessment and Implementation

To apply FMM, consider the following steps:

Step 1. Assessment: Assess your current planning, budgeting, and costing practices, and determine the level that best describes your current state.

Step 2. Target level: Determine your target level. This may be simply the level assessed in step 1. However, your governance and tracking processes may force you to a higher level.

• If you've already implemented allocations, you must be at least at Level 2.

• If you've already implemented a product/service catalog, contracting (SLAs), or portfolio management, you must be at least at Level 3.

• To respond to an outsourcing challenge or to use external benchmarks of specific services, you must be at least at Level 4.

• If you've already implemented chargebacks, you must be at Level 5.

Step 3. Identify gaps: Compare your current capabilities with all of the required mechanics up through your target level, and identify any missing tools, methods, competencies, and cultural perspectives. Gap analysis becomes the basis for selecting new tools and implementing new methods -- your project plan.

Appendix 3 provides the details on required mechanics.

Step 4. Implement: Acquire and implement any needed tools, methods, training, and cultural change. You may optionally include, as part of this project plan, adjustments to governance and tracking systems to utilize the results of your improved cost planning process.

Step 5. Next step: Assess the organization's need and will to progress to the next level.

Time Required

With the experience of more than two dozen implementations of FMM, we've found that implementing a full-cost planning process for the first time (with the inherent learning curve) requires from six to ten months, depending on level and the dedication of the management team.

Generally, participants (including the organization's top executive) spend a day or two each week working on the plan, not too different from most business planning and budget processes. The project manager (perhaps a budget director) typically spends half time throughout the process, and full time in the last month of preparation and during the negotiation process.

This is a lot of time, but it's more than an investment in the mechanics. The length of time is driven by managers' learning curves, and the shift in paradigm -- to the business-within-a-business organization -- that occurs through the process. Organizations which are already entrepreneurial will find the process easier and move through it more quickly.

Of course, once the business model is set up, subsequent years' planning becomes easy. With the right tools and methods, a full-cost planning process takes no longer than traditional Level 0 budget processes, and may even take less time.

Timing

If the implementation of a new process coincides with the next budget cycle, then the new process can produce the actual budget for the following year.

However, there's no need to wait for the next budget planning cycle to implement a new process. Indeed, there are a number of advantages to implementing mid-year.

A mid-year implementation of a new budget planning process replicates the current year's budget in the new tool and method -- essentially "reverse engineering" the current budget. This allows the management team to learn the process without the hard deadline of a budget submission due-date. It also allows them to tune the data to a known reality.

This mid-year recasting of the budget has the immediate effect of clarifying what's funded and what's not, an important benefit. It will match clients' expectations to available resources, and bring immediate relief on that issue. Of course, the amount of the budget won't be affected until the following year.

The mid-year implementation prepares the organization to do the following year's budget quite easily. The conversion of the data to the following year's budget is relatively straightforward: Some deliverables are deleted; a few new deliverables are added; and the numbers are revised.

Broader Resource Governance System

A business and cost planning process has powerful benefits in itself, but it's only one piece of comprehensive resource governance system.

During the year, business conditions invariably change and new investment opportunities arise. Once the budget is established, an ongoing, dynamic process is required to adjust priorities to match ever-changing business strategies.

Consider the planning process as a means of filling up "checkbooks." The amount put in the checkbook is based on the investment opportunities known at that point in time.

Checkbooks are held on the clients' books if the internal service provider charges for its services (chargebacks, or fee for service). Alternatively, checkbooks are held on the books of the internal service provider if it receives the budget (directly or via an allocation). But in either case, it represents spending power that's intended to benefit clients.

Throughout the year, clients should be empowered to "write checks" based on their needs at that point in time. This may be termed a "portfolio management" or "priority setting" process. From the perspective of market economics, it may be termed the "purchase decision" process.

Of course, clients must live within their means. If the checkbook is not sufficient to fund their requests, it's up to clients to either provide more funding or adjust priorities to fit within available budgets. This is the key to matching clients' expectations with available resources.

Note that approving a deliverable in the budget does not, in itself, mean that the project will be approved. It means that the purser (the one who controls the checkbook) has the funds to do the project if he or she wishes. During the year, the purser must still approve the project, and has the right to use the funds for other, higher-priority projects.

So, what is the incentive for a client to defend a project in the budget (when the purser may use the money for something else)? If the funds are not available, the purser will have difficulty funding the project during the year. Furthermore, pursers generally favor those clients who helped them acquire funds through this budgeting process.

Also throughout the year, accounting (tracking) systems capture costs. In an effective resource governance system, they also measure the delivery of products and services, invoice customers, and decrement thjifmmov

e checkbook.

All these dynamic systems (which operate throughout the year) can be effectively implemented only after product and service costs are known -- that is, after the implementation of FMM level 3 or above.

Conclusion

Knowing the full cost of an organization's products and services is a fundamental component of an effective resource governance process. It impacts shareholder value, client relationships, strategic alignment, staff job satisfaction, and organizational performance. And it enables the implementation of an effective client-driven portfolio management process.

Getting the planning process right is not a small investment, but the very high payoff makes it a worthwhile organizational improvement initiative.

The Full-cost Maturity Model offers a clear vision of the end point. FMM documents the detailed mechanics needed to develop an effective process. And it describes an evolutionary path forward that permits an organization to mature, step by step, gaining benefits quickly while implementing the right foundation for the future.