Value

"Show-backs" are mock invoices that show the cost of products and services delivered. Shared-services organization do show-backs to build clients' understanding of the value received for the budget provided.

Show-backs also build trust through transparency, and provide data on current costs for benchmarking.

Not Real Demand Management

Show-backs may also be used to cut costs by helping clients identify products and services they can do without.

However, they're not a comprehensive approach to demand management and governance, since show-backs present only past deliverables. They don't give clients the option to shift spending from lower-payoff deliverables to new, high-payoff projects and services. And they don't show what's about to be spent in the future. As a result, there's down-side (cost cutting), but no up-side (investing in new projects and services).

In fact, one of the dangers of show-backs is that it implies that clients can control what they buy, without understanding how much is in the "checkbook" (their share of the organization's core budget) and without a well-designed governance process.

Not Rate Setting

Show-backs should not be used to set rates. Rates set purely on historic data may not cover future costs, and may not include indirect expenses which have been under-funded in the past. This can lead to perpetuation of problems like a lack of sufficient funding for infrastructure, innovation, and critical sustenance activities.

Also, if show-backs lead to cost cuts, rates based on historic data will not entirely recoup fixed costs. This is likely to create a negative budget variance.

Even if costs aren't cut, rates set based on historic data do not account for growth and the increased proportion of contractors that induces. This may lead an organization to charge a higher rate for projects that arise mid-year (to cover the additional costs of contractors) -- a poor business practice. For rates to be stable throughout the year, they must be calculated in the context of a planning process that considers speculative as well as keep-the-lights-on funding.

Implementation Cost

Like Investment-based Budgeting, show-backs require the development of a comprehensive catalog of products/services, and a business model that links all costs (including indirect) to those products/services.

However, show-backs are much more expensive to implement than Investment-based Budgeting because they require systems to collect data on what's been delivered. That includes detailed staff time-cards, infrastructure utilization metrics, and feeds from corporate accounting systems. Show-backs also requires production applications to process large data sets into invoices. These represent significant investments of time and money.

A Better Alternative

The same benefits and many more can be achieved in less time and at a much lower cost with Investment-based Budgeting.

With Investment-based Budgeting, the entire budget is portrayed as the cost of planned products and services (as well as traditional expense codes by cost center). The budget proposal includes both essential and speculative projects and services.

This leads to a dramatic change in the budget dialog, and to funding decisions that are based on the needs of the business. Everyone understands what the agreed budget does (and does not) pay for, effectively building trust through transparency and an understanding of value to be delivered, while also managing expectations.

Rates are based on the plan, and can be held stable throughout the year despite fluctuations in funding. And Investment-based Budgeting provides the foundation for a governance process that treats the organization's budget as a checkbook belonging to clients, giving them the right to decide priorities within the limits of available resources.

Show-backs become relevant after such a business-driven governance process has been established, "invoicing" clients for the core-budget products and services delivered.

	Show-backs	Investment-based Budgeting
Perceived value	X	X
Trust through transparency	X	X
Benchmarks, internal	X	X
Cost cutting	?	X
"Checkbooks" as basis for governance		X
Demand management		X
Managed expectations		X
Budget decision-making		X
Allocation planning		X
Rate setting		X
Business planning		X
Funding for infrastructure, innovation		X

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