Why it's important to present a budget for products/services as well as for traditional expense codes....

Traditional budgets -- listing cost factors like compensation, travel, and training by group -- cause numerous problems. Two problems are really damaging:

* First, they don't support sound financial decision making, since the full cost of individual projects and services is not known.

* Second, they don't define exactly which projects and services are covered by the budget. As a result, organizations face expectations well beyond their resources, and are blamed when they can't satisfy every request.

In a healthy budget allocation process, your budget is presented not in traditional ways (expense codes by manager). Instead, a budget for deliverables defines the full cost of each proposed product or service. This is distinct from budgeting by expense codes.

With a budget presented in terms of deliverables, the debate during the budget process becomes much more businesslike.

Instead of last year plus or minus a few percent, budgets are established based on the investment opportunities at hand. Executives can decide budgets based on the value of the deliverables they receive, perhaps measured by ROI. Thus, organizationwide strategic alignment is automatic.

A budget by deliverables also manages clients' expectations. It makes clear exactly which products and services are covered by the budget, and which would require incremental funding. Thus, expectations match available resources.

Instead of micromanaging you or demanding that you do more with less, client executives -- your customers -- decide what products and services they will and won't buy with the corporation's finite spending power.

By the way, we've found that, in this process, clients naturally step forward and defend their needs. Thus, you don't get blamed when their projects are cut, and any necessary cuts are made based on a better understanding of the needs of the business.

A budget by deliverables also enhances teamwork. When executives fund deliverables, all participants on the project team are given the resources to contribute to the project, and cross-boundary teamwork is enhanced.