Challenge

"We gave you all that money," they might say. "Now it's your job to figure out how to satisfy the needs of the business."

The problem is that the money in your budget can never be sufficient to fund all the things that clients want. But they have no way of knowing that. Even if they did, they have no way of getting what they need other than pressuring you to consider them a priority.

An associated problem is that your products and services appear free to clients, so there's no limit on what they'll ask for.

In a futile attempt to satisfy unrealistic expectations, some organizations make dangerous mistakes:

• Rob Peter to pay Paul, and everything comes in late. You're rightfully accused of being unreliable.

• Cut corners on quality and take risks. You're rightfully accused of poor workmanship.

• Overwork staff, and teamwork breaks down (no time to help one another) while turnover rises (with the best people leaving).

• Cut internal investments (training, innovation, infrastructure, process improvements), and productivity deteriorates in an unsustainable downward spiral.

A "governance" steering committee to set priorities among major projects won't solve this problem. After ordering the projects, they'll still expect them all (as well as all the little projects and ongoing services which consume the bulk of your budget).

How can you both mitigate demand and match expectations to available resources?

Solution

The truth is, all your products and services have a real, full cost to shareholders/taxpayers/donors. Your budget only pays for a finite set of products and services, and expecting more of you is unreasonable.

An investment-based budget defines exactly what clients can expect from your organization.

If clients want more, you willingly supply it -- at an additional cost. When clients supply additional funding, you can expand supply (eg, hire contractors and vendors) to satisfy incremental demand, far better than turning clients away.

Thus, expectations match available resources.

"I definitely would recommend FullCost to any organization where demand outstrips the corporation's ability to pay for it.... It really does align your resources to the strategic goals of the organization."

Bob Bender CIO, St. Mary's Hospital and Duluth Clinic

Challenge

Cost cutting may be necessary. But you're set up to fail if you're expected to deliver all the same things with a smaller budget.

To expect you to "do more with less" presumes that you've been wasting time and money in the past, and can now become more productive by edict.

The truth is, your staff are already working hard and you have not been wasting money. With budget cuts, you're going to do less with less.

But if you don't manage expectations up front, you'll be blamed when you can't deliver all that you did in the past despite the cuts.

How can you counter the unreasonable "do more with less" demand?

Solution

The enterprise will get from your organization what it can afford to pay for. It's as simple as that.

In a tough economy, the enterprise can no longer afford to buy from you all that it needs. Now, you've got to help the enterprise figure out what it will do without.

This involves facilitating a sober look at your deliverables, and a business-driven decision process that eliminates products and services of marginal value.

With reduced expectations, you can reduce costs and still have enough resources to deliver the products and services which the enterprise can afford and chooses to buy.

"My organization had been under-spending on information technology for years. With FullCost, at a time where other budgets were shrinking, my budget actually went up because clients favored the new process and were able to defend their worthwhile investments."

Lew Davison CIO, Missouri Highway and Transportation Department

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Challenge

Traditional approaches to cost cutting - across-the-board budget cuts, slashing expense codes like travel and training, or eliminating entire groups - can damage an organization's ability to deliver anything, even the important things.

The truth is, staff cannot magically "do more with less" on command. Your organization will do less with less. The key question is, how is that "less" decided?

Traditional approaches leave it to individual managers to decide independently what will fall through the cracks. The result:

• A patchwork quilt of failures not linked to strategy

• Collapse of teamwork as one manager's highest priority becomes a team-mate's lowest

• Critical sustenance activities are cut, and productivity deteriorates

• Staff won't take on anything new, even if it's highly strategic

The bottom line: widespread ineffectiveness, and deteriorating enterprise capabilities.

How can you cut your budget without undermining your organization's ability to deliver anything well?

Solution

Instead of cutting just the inputs (expenditures), cut the outputs and then let costs fall in line.

Strategic cost cutting begins with a deliberate look at the organization's deliverables, trimming what's expected of it.

Then, the full cost of eliminated deliverables can be removed, while the few things the organization must do well remain fully funded.

"We were able to cut cost fairly dramatically without jeopardizing our ability to keep the enterprise running."

Matt Frymire CIO, Riverside County, CA

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Challenge

As a shared-services provider, your budget limits the products and services you can deliver to clients. It's in their interests to help you get enough funding to satisfy their needs.

And, of course, business leaders add tremendous credibility when they vouch for your budget requests.

But clients may think it's your problem to defend your budget, not theirs. Then, they blame you when your limited resources aren't adequate to satisfy their demands.

Perhaps they support a few large, visible projects. But the bulk of your budget is left to you to justify (even though it pays for services they consume).

How can you induce business leaders to help you plan and defend your budget?

Solution

Clients can't defend your spending on costs like compensation, travel, training, and vendor services. But they can certainly explain why they need to buy your products (projects) and services.

An investment-based budget forecasts the costs of your products and services, as well as traditional general-ledger cost codes. It can be sorted by business unit, such that business leaders see exactly what you propose to "sell" them, along with the full costs of their purchases.

Then, they can defend their needs for your deliverables, and everybody will understand the value you'll deliver for different levels of funding. And if your budget is cut, you can explain exactly which services will be cut.

You may not get all the budget you'd like. But you have a far better chance of getting what you need when all your clients are on your side.

Challenge

Executives understand how much you cost; but they don't fully appreciate all the value they're getting for their money.

As a result, you're under pressure to cut costs and deliver more value. And your function isn't seen as strategic to the business.

How can you build widespread understand of the value your function delivers?

Solution

Building an understanding of value delivered takes more than a product/service catalog. Clients throughout the enterprise need to understand exactly what products and services their business units are getting.

The best time to do this is during the budget planning process. This is when perception of value translates into funding (or a lack of perception of value results in unreasonable pressures to cut your budget).

The solution is a budget that forecasts the costs of what you plan to deliver -- each and every project and service, to each business unit. This is termed an "investment-based budget."

Then, you can present to each business unit exactly what's in the budget that will benefit them. They can advise you what to include and exclude. Then, most will support your budget requests because they'll understand that you need the resources to deliver the value they demand.

"My budget is now much more realistic. [FullCost] has made the institution aware of what services we deliver and how much each of those services cost to deliver."

Dr. Joyce A. Mitchell Associate Dean University of Missouri Health Services

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Challenge

Clients may not understand the value you deliver and its relevance to their strategies. They think of you as a "necessary evil" and "overhead" -- something to be minimized -- rather than an investment opportunity that's critical to their success.

This may occur for two reasons:

• It may be that your priorities really aren't well aligned with the business.

• Or it may be that you are delivering strategic value, and people just don't know it.

In either case, clients don't feel that they are getting from you what they most need.

How can you ensure, on an ongoing basis, that your priorities are driven by clients' business strategies and that they understand the value they're getting?

Solution

One solution -- a poor choice -- is for you to study enterprise strategies and decide how to best serve them. This doesn't tap clients' understanding of enterprise strategies, nor does it build their understanding of your value.

It's far better to empower clients to decide what they'll "buy" from you (set your priorities, whether or not money changes hands). They're in the best position to decide, since they know their individual roles in enterprise strategy and what they need from you to deliver it.

Of course, their choices have to be constrained by available resources, and much of your budget may be consumed by "keep the lights on" operations. Clients need to understand the entire budget, and what all that money is buying.

Investment-based budgeting clearly defines what the business gets for a given level of funding. It helps executives decide your priorities in light of enterprise strategies. And it builds clients' understanding of your contribution to their strategies.

"In the end, our approved budget grew by over 35% over the last year, driven by new business from our internal customers who realized our value and wanted more of it!"

David Caldwell Director, Compassion International

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Challenge

Your staff are competent and creative. And they probably have lots of great ideas for how they could better serve their customers.

But if you believed that you'd be expected to take on more work without more resources, would you bring those creative new ideas forward? Many people will not.

To unleash staff's creativity and entrepreneurial spirit, you need reliable processes for ensuring that new expectations come with incremental funding.

Solution

Your budget only pays for so much in the way of deliverables -- your projects and ongoing services. Perhaps you can optimize priorities to some degree; but just eliminating a few low-payoff services and unnecessary costs may not add up to enough to fund innovation. (In IT, this is especially true here in the era of the "digital enterprise.")

So if new ideas are accepted, you need a reliable process for ensuring that funding comes with new expectations.

In a traditional budget which forecasts what you'd like to spend on costs like compensation, travel, training, and vendor services, there's no way to do this.

An investment-based budget is the answer. It associates all your costs with deliverables -- your projects and services. New ideas appear as new line items, fully costed (including fair share of indirect costs to account for the budget new initiatives place on internal support services).

If the business agrees to "buy" new deliverables, the impact on your budget is clearly documented. Conversely, if the funding isn't there, you simply cannot agree to deliver it.

Linking funding to expectations frees your staff to be creative and proactive, proposing new products and services (and defining their costs) and hopefully generating substantial value to the enterprise.

Challenge

The enterprise can only afford to spend a finite amount on your function, and too much of that is going into operational "keep-the-lights-on" services of marginal value. If you could reduces spending on some of those services, you could shift it into high-payoff strategic projects, and improve the value and relevance of your function.

Why is so much of your resources going into low-payoff services? Often, this is because clients have no incentive to do without services that are of some small value to them, even if the benefits don't justify the costs.

Typically, this is because clients don't pay the costs, or face the tough trade-offs inherant in working within finite resources (i.e., your finite budget).

How can you ensure, on an ongoing basis, incent clients to do without marginal operational services?

Solution

Think of your budget not as yours to pay your costs (the traditional view), but rather as money put on deposit with you to buy your products and services (the business-within-a-business view).

From that perspective, your budget (and your resources) are a finite checkbook that your clients must spend wisely. The challenge is to put clients in the position of purser of that checkbook.

That is, a governance process must do more than empower clients to approve major projects. Clients must decide what checks to write from that finite checkbook -- a resource pool which must cover all your services as well as new projects.

In this way, they'll have an incentive to do without marginal services to free up resources for more strategic investments (with or without chargebacks).

Challenge

Organizations that are expected to fully recover their costs from sales to clients often find it difficult to get funding for self-improvement -- infrastructure, internal process improvements, technology innovation, etc.

When clients consider other vendors, these are not costs they have to pay. And what's in it for them? From a purely parochial point of view, clients would rather pay only for the products and services they receive.

To incent clients to provide the funding, some organizations have imbedded the costs of additional infrastructure in projects they do for clients. For example, in an IT department, the cost of additional computer servers was embedded in applications-development projects.

Then, clients think they own a piece of the infrastructure, and the organization has a hard time managing it. This IT organization ran into resistance when they proposed to save money by consolidating servers or enforcing the replacement cycle.

Solution

When a business needs more infrastructure, they rarely ask their customers to ante up the money. They borrow the money from their bank, and pay it back through a mortgage formula.

Like any other business, an internal service provider needs a "bank" -- the enterprise treasury. Funding should be supplied directly to the organization for any significant investment in its capabilities (infrastructure, major process improvements, new service start-ups).

Then, depreciation on assets (where appropriate) should be embedded in the rates for services sold to clients which utilize those assets.

Challenge

Others accuse you of costing too much. It's not that they've done a rational comparison of your costs versus alternatives (decentralization and outsourcing). They just feel that your budget is too big.

As a result, you're under pressure to cut costs and deliver more value.

The problem is, you're not currently wasting money. And your staff are delivering exactly what the business needs.

How can you counter this unfair accusation and prove that your budget is well spent?

Solution

The root cause of this misconception is a lack of understanding of the value the enterprise is getting for the money it's spending on you.

Executives see the cost -- in your annual budget, or more blatantly if you allocate your costs to the business units. But they may not understand all the products and services you're delivering for that amount of money.

Building an understanding of value delivered takes more than a product/service catalog. Clients throughout the enterprise need to understand exactly what products and services their business units are getting.

To solve this problem, you'll need to develop a clear, understandable list of all specific projects and service-level agreements with clients, as well as the corporate-good services you deliver to the enterprise as a whole. And you'll need to associate all your costs with these deliverables.

You may do this with "show-backs" -- mock invoices that show clients what you've delivered after the fact.

However, a much more powerful (and less expensive) solution is to portray your entire budget in terms of the costs of proposed products and services. This is termed an "investment-based budget."

"My budget is now much more realistic. [FullCost] has made the institution aware of what services we deliver and how much each of those services cost to deliver."

Dr. Joyce A. Mitchell Associate Dean University of Missouri Health Services

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Challenge

Clients (especially top executives) see the cost of your function quite clearly. But they don't understand where all that money is going.

As a result, they suspect you're hiding away money for your own pet projects, or wasting it on inefficiencies.

Your challenge is to prove that all the money in your budget is being spent wisely to serve the business.

Solution

Trust is built when clients understand where your budget is going, and how it benefits them.

Thus, the solution is linking all your costs to the products and services you deliver to the business -- to your clients, and to the enterprise as a whole. This is what's meant by the phrase, "cost transparency."

Cost transparency is needed at two points in time:

First, your budget should forecast the cost of the products and services you plan to deliver (what you plan to "sell," not just what you plan to spend). This is termed "investment-based budgeting."

Then, throughout the year as you deliver projects and services, an invoice should explain the costs that went into those results.

The invoice is reassuring; but the more important step is investment-based budget. This is where trust pays off in the form of proper funding for your function -- a budget based on the needs of the business and the investment opportunities available at the time.

Furthermore, the planning process that produces the budget also calculate rates, which are necessary to produce invoices. (Invoices should multiple consumption by published rates, not actual costs, to build trust through stable rates without surprises.)

Therefore, the place to start building trust through cost transparency is investment-based budgeting.

Challenge

You know you're frugal, your staff are hard working, and you're already making use of vendors whenever it's economic to do so. You know you're delivering good value.

But others believe the enterprise will save money by outsourcing all or a major portion of your organization, despite the fact that vendors have to make a profit on the deal.

Why do they think this? Vendors may tell them:

• "We'll give you 50% of what you're getting today for 80% of the cost. That's a 20% cost savings!"

• "We'll do it for 25% less. (Just don't ask us about the quality of service.)"

• "We'll give you the base work for 30% less than your internal costs (and then charge a huge premium whenever you ask for anything else)."

• "We'll give you everything for 35% less than internal costs (this year... with escalcation to make the deal very profitable by the end of the contract)."

• You may have burdened too many costs on part of your product line (and underpriced other parts), subjecting the overpriced part to outsourcing.

• You may have burdened your products and services with costs that vendors won't incur, like enterprise-good activities (such as policy, corporate committees, coordination of decentralized counterparts, community-action programs) or the full cost of capital for infrastructure (which should be depreciated).

You know there's a catch, but you don't have the data to refute their claims.

How can you ensure that any outsourcing decisions are made on a like-for-like basis?

Solution

Rates are the most meaningful basis for benchmarking.

Simply comparing the total spending on a function with other industry counterparts of similar size can be very misleading, since many factors other than the efficiency of the internal service provider drive its total budget. For example, a company may be spending more on IT than industry counterparts because it has found ways to utilize technologies to leverage strategies, or because it's chosen a strategic niche (such as locale or geographic dispersion) that increases IT costs. In such cases, limiting spending to industry averages would undermine corporate strategies.

Furthermore, comparing internal costs to industry counterparts is fruitless, since companies typically cannot buy support services from their competitors.

The most meaningful way to benchmark internal costs is to compare them to the cost of buying similar products and services from vendors. This answers the pragmatic question, "Can I buy the same thing for less elsewhere?"

Thus, the only way to be sure that comparisons are fair is to know the costs of all your products and services, with a transparent and valid cost model.

Then, if a vendor offers a price on a subset of what you do, you can isolate the internal cost of that same subset of your deliverables.

If they offer a lower quality of service, you can isolate your costs for that same service level.

If they bid only the base (with a premium on additional requests), you can add up their total costs for your total package.

With internal product/service cost data, you can compare fairly to outsourcing alternatives over the life of the contract.

Challenge

There are significant cost savings and synergies when internal support functions like IT are consolidated. But regardless, the pendulum will swing back to decentralization if a shared-services organization doesn't earn clients' business by becoming their "vendor of choice."

First and foremost, this means treating the business as customers (not victims, or even "business partners" where you share in their decisions).

It also means delivering products and services that are competitive in quality and price.

Solution

The key to making shared services work is respecting clients' right to choose what they will and won't buy from you.

Implementing this does not necessarily require chargebacks, although that may ultimately be desirable. Whether your revenues come from fee-for-service chargebacks, high-level allocations, or direct budget, you can give clients the power to decide what they'll buy.

The first step is to define your catalog of services, and assign all your costs to those services. This is fundamental to establishing a shared-services organization, and certainly prerequisite to clients making purchase decisions.

Product/service costing is used at two points in time:

It's done when you submit your budget, so that funding is based on what the business wants to buy from you in the year ahead. This is termed "investment-based budgeting."

Submitting a budget for the products and services you'd like to sell (instead of what you plan to spend) changes the nature of the dialog from one of micro-managing your costs to a businesslike discussion of how your products and services align with clients' business needs.

The annual budget process creates a "checkbook" of resources which clients use to buy your services. Governance then takes on a specific meaning: empowering clients to decide what checks to write within the bounds of that checkbook.

Your catalog with rates is used throughout the year to estimate the costs of new projects and services, and to invoice that checkbook for work delivered.

Challenge

When organizations allocate their costs to business units, it's not uncommon for clients to feel that their share is too big and demand that you reduce their allocations.

(Funny, they all think they're paying more than a fair share.... Figure the math!?)

Allocations assign your costs to business units based on high-level formulas (as distinct from chargebacks which price products and services and charge clients based on consumption).

This problem arises when the formula is not be closely linked to consumption. In that case, clients are correct; their allocation is unfair.

This problem may also arise when the allocation is, in fact, reasonable but clients don't appreciate all the value they're getting for their money.

How can you ensure that allocations are fair; and further, convince clients that they're getting their money's worth?

"As an accountant with professional standards, if we didn't have FullCost, there's no way I could vouch for the numbers the way I do now."

Debbie Hill Zelner IT Fiscal Manager, Riverside County, CA

Solution

The only convincing answer is to show clients exactly what they're getting for their money -- the list of specific projects and service-level agreements that are funded by the allocation.

With that done, clients can decide what they wish to buy with that allocation.

Think of the allocation as a "pre-paid account" -- money put on deposit by the business units in order to buy your products/services throughout the year.

If they want to reduce the allocation, then they'll have to decide what they'll not buy from the internal service provider. That is, a smaller allocation means they get less.

On the other hand, if they want more from you (as they inevitably do), they'll have to pay more. In this case, clients will defend a larger allocation so that they have a bigger checkbook to spend on you.

Once their allocations are linked to the products and services they receive, clients often say the opposite: "My allocation is too small!

Challenge

If you've instituted chargebacks, clients may compare your price for a bundle of services to a vendor's price for a subset of that bundle and think that you cost too much. This happens when your rate structure forces them to buy a higher level of quality or more features than they think they need.

They may resent your chargebacks because they don't feel they can effectively control costs. This may happen because your rates are difficult to understand, or because they're at too high a level of granularity (too much bundled in).

Or they may feel that you're making a profit on products you sell them, while undercharging for products they don't use. This is the result of a cost model that's not fully transparent.

How can you calculate rates in a manner that everybody understands, with a cost model that everybody believes in?

Solution

The calculation of rates begins with a clear definition of the products and services that client may choose to buy from your organization. The catalog must be at a level of detail that reflects discrete client purchase decisions; bundling only works when you're sure clients won't question the cost of the whole bundle. And separate purchase decisions (like enterprise-good services) must be represented as separate catalog items.

The next step is to decide the unit of pricing (dollars per what) for each product and service in that catalog. Units must be carefully chosen to be understandable, measurable, controllable, and at the right level of bulk.

Then a fully transparent cost model attaches all your costs to those products and services. Indirect costs must be amortized to just the right deliverables.

Challenge

Client steering committees are intended to build clients' understanding of the value your organization delivers, to set priorities such that your deliverables are aligned with business strategies, to filter demand within the bounds of your resources (demand management), and to match expectations with available resources (managing expectations).

Unfortunately, in many cases, these committees do as much harm as good.

Steering committees may review only large projects, so they do not induce an understanding of why your organization costs as much as it does.

Some committees micro-manage internal service providers -- atempting to control how you deliver your products and services.

They may be positioned to review all your projects, even those funded directly by business units on a fee-for-service basis. This makes you difficult to do business with. Clients will run the gauntlet if they have to, but in many cases they may find a way to work around you (decentralization and outsourcing).

Steering committees may be given purvue over investments in your infrastructure, processes, and organization. Given their vested interests in gaining benefits for their departments, they tend to deny you necessary internal investments in favor of client deliverables.

And while they may prioritize major projects, committees may go on expecting you to deliver more than you possibly can because they don't know where "the line is drawn."

Solution

The proper role for a client steering committee in governance processes is strictly to manage the "checkbook" of budget (or allocations) intended for client deliverables.

Both core budget and allocations (but not fee-for-service) put money on deposit which clients use to "buy" your products and services throughout the year. These revenue sources should be treated as a checkbook -- a "pre-paid account," in accounting terms -- that clients control.

A client steering committee is an appropriate purser for such checkbooks.

To make this work, the committee must know how much is in its checkbook at all times, and what all deliverables cost.

Costs must represent the full cost to the enterprise, so that each purchase decision is independent and does not draw on resources designated for other projects or services.

The committee should be given purvue over the entire client-benefitting portion of your budget. It may spend much of it at the beginning of the year on service-level agreements for ongoing "keep the lights on" services. And these decisions may be obvious. Nonetheless, it's worthwhile to engage client pursers. It builds their understanding of the value you deliver, and why the function costs what it does.

What a steering committees should not do:

• It should not serve as a "board of directors" overseeing the entire function. Doing so is a conflict of interests, since clients interests may be short term and parochial while a board of directors looks after the long-term well-being of the business within a business. A separate committee may be needed (albeit with some of the same members) if the department's chain of command feels the need for help with supervision.

• It should not review all work done by the internal service provider. Business units have a right to buy what they wish on a fee-for-service basis without committee approval, as long as these deliverables are fully funded and do not affect other clients.

• It should not be the purser for the portion of the budget intended for enterprise-good activities, nor for internal "venture" investments in the organization's infrastructure and processes.

Challenge

You'd like the proverbial "seat at the table" as a full-fledged member of the enterprise's executive team. As an enterprise leader, you'd like to work closely with your peers on discovering opportunities for your function to contribute directly to their business strategies, and on managing priorities so as to align your function with their business imperatives.

But instead of being drawn into discussions of business strategies, your dialog with peers primarily focuses on minimizing your costs -- sometimes even to the point of micro-management, where clients try to dictate what you spend.

How can you get past concerns for your costs, build appreciation of the value and business relevance of your function, and engage in more productive discussions of how your function can leverage enterprise strategies?

Solution

There are two challenges, with a common root cause:

One is concern for your costs. Of course when you submit a budget that just forecasts your costs (traditional budgeting for costs by cost center), there's nothing else for executives to discuss. You're inviting the wrong dialog.

The other is a lack of perception of the strategic relevance of your function. When you don't explain the projects and services you plan to deliver for a given level of funding, there's no way to discuss your function as an investment portfolio.

The tone and focus of your relationship with the business begin in the annual budget cycle.

Traditionally, budgets describe what you plan to spend on general-ledger expense codes like compensation, travel, training, and vendor services. Of course, executives have to talk about something. What else have you given them to talk about other than your costs!?

Instead, envision a budget that describes the costs of planned projects and services (as well as the usual cost codes, ie, the rows as well as the columns). It includes both the "keep the lights on" necessities and speculative investments. This is termed an "investment-based budget."

An investment-based budget builds an understanding of the value you can deliver to the business. Clients can defend their projects and services. And budget decisions can be based on the needs of the business and strategic investment opportunities.

If executives challenge your budget, you can direct attention to the project and services and lead them into a discussion of what they really need and what they can do without.

Then, throughout the year, a business-driven resource-governance process empowers key clients to decide what to "buy" of your products and services, within the constraints of the finite checkbook created by your budget.

Challenge

In traditional organizations, managers think their job is simply to manage the resources and processes they've been given.

They may do a good job of that, such that the current business runs well. But they may not see themselves as entrepreneurs running small businesses within a business.

As a result, they don't take accountability for pleasing their customers; and indeed, there may be confusion about who is accountable for end-results. In some cases, they may not even know what their end-results are, i.e., their catalog of products and servcices.

They may not know it's their job to be aware of their competition (decentralization and outsourcing), and to ensure that their offerings are competitive. And they may not think in terms of expanding their supply (through vendors and contractors) when their customers demand more and are willing to supply incremental funding.

And in the long term, they may not plan the future of their lines of business: new services, new technologies, new markets, and better sourcing strategies.

How can you get every manager thinking like a customer-focused enterpreneur?

Solution

An annual business planning process can do a lot to transform an organization into an entrepreneurial culture.

In the process of planning an investment-based budget, managers are engaged in defining the lines of business under them, and defining the catalogs within each. They learn to be accountable for those end-results, and for evolving their catalogs over time.

They must also forecast "sales" (demand) for each of their customers, which clearly defines whom their customers are (both peers within your organizations, and clients).

And as they plan how they'll fulfill those sales, they learn to be accountable for managing costs so as to produce competitive rates.

They also must think about how they'll fulfill new demands, perhaps using vendors and contractors. Thus, instead of resisting customers who want more, or being reluctant to suggest creative new ideas, they become open to new-business opportunities with the comfort of knowing that additional work comes with additional funding.

"We continue to find ways of using FullCost to better understand and manage our business. It's made us more efficient and more effective."

Matt Frymire CIO, Riverside County, CA

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Challenge

When one manager's highest priority is another's lowest, teamwork is impossible.

Classic teambuilding processes cannot help. It's not a lack of desire or trust; the root cause of the problem is resources.

Solution

Priorities must be set by clients for the department as a whole. Then, all managers must be aligned with those priorities so that priorities are consistent across all groups.

Even internal support functions, which aren't directly involved in the delivery of clients' projects and services, must align their efforts with clients' priorities.

Written plans rarely accomplish this well. The language is vague; the priorities are described at too high a level; and plans aren't updated continually as priorities shift.

An investment-based budget funds entire project teams and service delivery teams, including the "prime contractor (project or service-delivery manager)" and all internal "subcontractors" (team members), as well as indirect support groups. Every group on the team will get the funding it needs for its share of the project.

Challenge

The next tier of managers in your organization may not be prepared to be the next generation of leaders.

They may be technically competent, good at supervising others, hard working, and loyal. But they may have little experience running businesses.

Therefore, they may not be equipped to fulfill leadership requirements such as business planning, budgeting, managing internal investments, and setting rates.

Solution

Every group within an organization should be run as a business within a business, and every manager should be empowered to run that business and be accountable for its results.

Managers can be given an opportunity to learn business leadership skills through a process where they individually develop their product/service catalogs, their sales forecasts, their business plans, their budgets, and their rates.

By participating in planning process that have to occur in any case, managers learn essential skills while contributing their in-depth knowledge of their portions of the business and making commitments that become the basis of measurable accountabilities.