Cost models assign all a department's costs to its products and services as a basis for budgeting, demand management, chargebacks or allocations, and outsourcing benchmarking.

First-generation models, such as activity-based costing, treat internal support services as "cost pools" which are amortized to external products and services, with distortions often exceeding 30 percent.

In second-generation models, indirect costs flow through a web of internal "sales" until they ultimately are applied to external products and services.

Beyond greater accuracy, cost-savings are discovered when managers "buy" support from their peers, and support groups become entrepreneurial and customer focused.

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