| Excerpt from WWW.FullCost.COM, © 2020 N. Dean Meyer and Associates Inc.
Frequently Asked Questions
With Short Essays on Governance
What?
1. What is FullCost?
Why?
2. Why are people interested in FullCost?
3. What are the financial benefits of FullCost?
4. What are the transformational benefits of FullCost?
Methods and Processes
5. Why should business planning and budgeting be an integrated process?
6. Why should budgeting and rate setting be an integrated process?
7. Should a product/service cost model be built in the planning tool or the accounting/invoicing system?
8. How is FullCost related to portfolio management and demand management?
9. Some vendors advocate "show-backs" (mock invoices); what are the risks?
10. How is FullCost related to ITIL?
11. How does FullCost help me implement activity-based budgeting?
Related Systems
12. What's the difference between FullCost and corporate budget systems?
13. How is FullCost related to our existing accounting systems?
Alternatives
14. How is FullCost related to our existing budget spreadsheets?
15. What's the difference between FullCost and cost-modeling tools?
16. What's the difference between FullCost and the "budget modules" in financial accounting and invoicing systems?
17. Why FullCost is better than its competition?
When?
18. Don't we need to get our historic data in better shape first before we attempt FullCost?
19. How long does it take to implement FullCost?
20. How much time must our managers invest in implementing FullCost?
What?
1. What is FullCost?
FullCost is an integrated business and budget planning process, enabled by Excel®-based software, that helps an enterprise or shared-services department determine the full cost of all its products and services.
The outputs of FullCost fall in four categories:
- A business plan
- An investment-based budget -- a budget for your products and services (as well as the traditional expense codes by cost center)
- A service catalog with rates
- Management benchmarks, such as pro forma profit/loss statements
Investment-based budgeting is particularly valuable. It puts forward the full cost of the products and services you propose to "sell," as distinct from a traditional budget which only forecasts what you'd like to spend.
An investment-based budget allows you to negotiate your budget based on the needs of the business and the investment opportunities at hand.
Clients defend their projects and services, and enterprise-good activities can be separated from rates.
Budget decisions are better. Everyone understands the value to be delivered for a given level of budget. And everyone understands what can be expected of your organization for a given level of funding.
Executive Summary: Investment-based Budgeting....
List of the benefits of investment-based budgeting....
Overview of the FullCost tool and method....
Why?
2. Why are people interested in FullCost?
FullCost solves pressing problems such as managing expectations, strategic cost cutting, and funding for infrastructure and innovation.
What problems can FullCost solve?....
FullCost produces a comprehensive service catalog, with rates. Rates are the basis for chargebacks, show-backs, business-driven governance, and benchmarking.
More on service catalogs with rates....
Essay: Top ten reasons why internal service providers need to know the full cost of their products/services....
FullCost produces an investment-based budget.
More on investment-based budgeting....
List of the benefits of investment-based budgeting....
FullCost also provides a basis for business-driven demand management (aka priority setting, project intake, investment portfolio management, "governance").
More on demand management....
3. What are the financial benefits of FullCost?
FullCost forecasts the true cost of an organization's products and services. This has many far-reaching financial benefits:
First and foremost, budget decisions can be based on the investment opportunities at hand (not arbitrary benchmarks like "last year plus or minus a few percent"). Client executives can choose what they will and won't buy from IT. This improves the ROI on the entire IT budget.
With deliverables funded by senior executives, strategic alignment is automatic. This further improves ROI.
If costs must be reduced, cuts can be based on a rational discussion of what the IT organization will stop delivering. This is much healthier than the old-fashioned "take it out of hide" or "do more with less" approach, which cripples an entire IT organization and ultimately drives costs up and service quality down.
White-paper on strategic cost cutting (instead of "do more with less")....
Furthermore, comparisons with outsourcing are equitable. Corporations can avoid the costly mistake of falling for vendors who promise 50% of the deliverables for 80% of the cost, claiming a 20% cost savings! With the true cost of internal products and services known, fair comparisons allow a company to use vendors only where they offer a clear cost advantage.
List of the benefits....
4. What are the transformational benefits of FullCost?
Beyond financial benefits, FullCost improves client relationships and the IT organization's effectiveness.
Once an investment-based budget is approved, clients understand exactly what they can expect from the organization, i.e. commitments match available resources. In this way, FullCost manages clients' expectations and guarantees IT the resources it needs to deliver every commitment.
A more businesslike discussion of expectations combined with effectively delivering every commitment add up to better client relationships.
Internally, teamwork is enhanced. When executives fund deliverables, all participants on the project team are given the resources to contribute to the project. That includes the internal "prime contractor" and all the other groups needed to help with the project (internal subcontractors). When managers reliably get the support they need from peers, cross-boundary teamwork is enhanced.
Also, managers become more entrepreneurial. In the course of implementing FullCost, they learn to identify their product/service catalog. They identify their customers, and plan their business.
FullCost can be a cornerstone of a CIO's transformation process. It can change an entire organization's culture in a matter of months.
Methods and Processes
5. Why should business planning and budgeting be an integrated process?
Click here....
6. Why should budgeting and rate setting be an integrated process?
Click here....
7. Should a product/service cost model be built in the planning tool or the accounting/invoicing system?
Click here....
8. How is FullCost related to portfolio management and demand management?
Click here....
9. Some vendors advocate "show-backs" (mock invoices); what are the risks?
Click here....
10. How is FullCost related to ITIL?
ITIL version 3 addresses the financial management processes of an organization, and FullCost is a practical tool-kit for implementing them.
Service catalog, demand management, service management, service costing -- these are the key ITIL concepts that can put IT's clients in control of what they buy from IT while aligning IT's resources to fulfill those sales.
The key challenge in addressing these processes is being able to calculate the true cost of IT products and service. That's where FullCost can help.
More on the financial management processes within ITIL....
11. How can FullCost help me implement activity-based budgeting?
Activity-based budgeting (ABB) is an early generation of what's now known as investment-based budgeting (IBB).
ABB describes the cost of activities and processes (not things customers buy). Investment-based budgeting is more practical and powerful in that it describes the costs of the products and services the organization "sells."
Both replace the traditional budget that describes cost factors (expense codes) such as compensation, travel, and training.
Investment-based budgeting involves identifying all the organization's products and services, and assigning all the costs -- both direct and a fair share of indirect -- to each.
Investment-based budgeting is simple in concept, but the devil's in the details. Success requires a carefully designed method that addresses the complexities of across-the-board activity-based costing, crystal-clear definitions, practical tools, and consistency across all groups in the organization.
FullCost is a practical tool-kit that makes ABB and investment-based budgeting straightforward. It includes a detailed, step-by-step manual (a "cookbook") that walks an organization through the budget preparation process, step by step.
FullCost is all of ABB and more.
White paper: What is ABB, how is it different from ABC, and where does FullCost fit?....
Related Systems
12. What's the difference between FullCost and corporate budget systems?
FullCost does not overlap enterprise budget systems. It feeds them.
Enterprise budget systems roll up each department's proposed budget; and then once budget decisions are made, they document the decision and track actual spending.
FullCost comes earlier in the process. It helps you develop your business plan and budget, and then submit the resulting budget proposal into enterprise budget systems.
It also helps you during budget negotiations, explaining what you can deliver for various levels of funding. It enables a discussion of the needs of the business, and the investment opportunities which may be funded by the proposed budget. This dialog engenders business support for service providers' budget submissions.
If anything, FullCost replaces the spreadsheets you use to prepare your budget submission.
More on make versus buy....
Case Study: We've Already Got Budget Spreadsheets, Don't We?
how Sonoco Products discovered the value of a fully developed budgeting and product/service costing solution
More on the investment-based budgeting process and tool....
13. How is FullCost related to our existing accounting systems?
No changes are needed in production financial systems. Past investments in software and customization are secure.
FullCost is used during the budget preparation and negotiation process, prior to finalizing the numbers that then feed the accounting systems. FullCost is also used for creating a service catalog and implementing fair allocations or chargeback rates.
Historic data from existing accounting systems may be used as one of the inputs to the FullCost plan.
The budget that results from FullCost can be fed to existing accounting systems for the purpose of comparing actuals to plan.
These limited linkages are easy to implement, since FullCost produces appropriately formatted outputs. Also, since FullCost is built on Excel, data is easily imported and exported.
FullCost is not a chargebacks (invoicing) system. The outputs of the FullCost plan become the inputs to a chargeback system, including rates (for revenues) and the business model that associates costs with products/services (for expenses).
FAQ: Don't we need to get our cost tracking in line before implementing FullCost?....
White paper: The difference between planning and tracking systems....
Independent research report: IT as a "Business Within a Business"
Vision, Financial Processes, and Systems
(the difference between planning tools and actuals accounting systems, and analysis of planning software products)
Alternatives
14. How is FullCost related to our existing budget spreadsheets?
Budget planning tools may be replaced by FullCost. For example, home-grown spreadsheets can be replaced by this supported product, with all the ease of use of spreadsheets and far more power.
Why replace home-grown spreadsheets with FullCost....
15. What's the difference between FullCost and cost-modeling tools?
FullCost has a cost engine at its core. But it's so much more than a simple tool to allocate costs to product/service rates.
It produces a budget as well as rates, the basis for investment-based budgeting.
In the process, FullCost also produces the annual business plan, which explains how the organization will deliver the forecasted products and services.
Furthermore, the rates calculated by FullCost are more accurate than most ABC-based cost models. And since they're imbedded in a planning system, rates can be held stable throughout the year -- even if volumes go up or down.
White paper: The difference between planning and cost-modeling tools....
16. What's the difference between FullCost and the "budget modules" in financial accounting and invoicing systems?
Click here....
17. Why FullCost is better than its competition?
FullCost is unique, and currently does not have direct competitors.
Most other budget systems do not cost products and services. Those that do project historic data, not true investment-based budgeting.
Other product/service costing tools produce rates, but not a product/service budget. Their rates do not account for variability in demand, since they're not imbedded in planning systems.
Overview: The difference between planning systems and cost-modeling tools....
Other planning and performance-management systems require product/service costs as an input, not an output like FullCost.
FullCost is unique in its integration of business planning, investment-based budgeting, and rate setting capabilities.
Why FullCost is better than its competition?...
Independent research report: IT as a "Business Within a Business"
Vision, Financial Processes, and Systems
(the difference between planning tools and actuals accounting systems, and analysis of planning software products)
When?
18. Don't we need to get our historic data in better shape first before we attempt FullCost?
Click here....
19. How long does it take to implement FullCost?
It takes 6 to 10 months, depending on the level of granularity you choose.
Why does it take so long?
In the first month, you'll plan the project and deconstruct your organization chart into entrepreneurial lines of business -- the basis for developing a service catalog and planning a business. Worth a month of time? Most would be pleased to do this so quickly.
In the next month, you'll define (or refine) your product/service catalog. Note that many organizations have spent more than a year working on their catalogs. You'll finish it quickly in this practical process with our guidance and the templates we bring.
As you look through each phase of the process and consider all that's accomplished, you'll be hard-pressed to find any transformation process that delivers as much in so little time.
The FullCost planning process....
20. How much time must our managers invest in implementing FullCost?
During the 6 to 10 months of implementation, participating managers will spend 1 or 2 days per week in the planning process.
Does that seem like a lot? Consider this:
At the senior management level, how much time should you be spending on leadership versus management -- on "swamp-draining" versus "alligator fighting"? Most executives would answer between 20 and 40 percent (and more at higher levels). That's a day or two a week on improving the organization (leadership), the rest going to ongoing management of operations.
This is not a one-time event. Leadership is an ongoing responsibility.
Once a leadership team commits to making time for leadership, FullCost simply structures the day or two per week they've promised in a transformation process that delivers additional benefits with each step.
The FullCost planning process, and the lessons learned at each step....
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