Internal cross charging

In many organisations there are complex and subtle processes for cross charging costs between departments on the basis of service costs or usage. Whilst some people think these create valuable control mechanisms, I hold a different view...

All cross charging is inherently not adding value. I believe it is only sensible to cross charge where this results in creation and reinforcement of behavioural change, otherwise cross charging is simply the result of other organisational failures, and can result in very wrong behaviours being rewarded.

For example consider the widely used technique of amortising project costs through suppliers, converting these into operational costs, and then cross charging for the new services resulting from the project. This could be used to encourage reduced consumption and careful management of expensive resources. However, some change managers use this approach to hide true project costs, or make a tough position more palatable. It can bypass the organisation's controls on investment, and it can also reduce the necessary emphasis on cost control in project delivery.

Similarly, cross charging can create bogus "profit centres", where managers encourage consumption in order to create income which hides the growth in operational costs. If you are cross charging, what is this doing to behaviours, and is this creating the best financial outcomes for your organisation?