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Calculating the cost of strategy – An orgtology perspective

Costing strategy Costing Strategy - An Orgtology Perspective

Using orgtology to cost a strategy differs from other costing models, such as e.g., the balanced scorecard. In orgtology, operational activity and strategic programs are the two core cost centres of Org. Their relationship is interdependent and not linear. They function independently as dual parts of the same entity. The one ensures performance, whilst the other drives relevant change. By splitting them we can know what our efficiency will cost in relation to our aim to be effective. This has a major effect on the cost of risks, resources, relationships, transformation, and the delivery of products and services.

Basic assumption on costing a strategy

Strategy is a change initiative. I.e., it begins and ends, like a project.

If we execute strategy as a project, then we will calculate its cost as we would for any project. Org will regard the cost of its cyclic activity and resources as operational. In so, we can clearly separate strategic from operational cost.

The sum of all strategic projects is thus the total cost of strategy execution. This is the cost of change. It is different to the cost that we must incur for the day to day running of Org.

The easiest way to cost a strategy

Calculate the additional cost that strategy execution projects will incur, and you will have the cost of your strategy. We run Org through resources and activities. These costs are there with or without a strategy. Strategic cost is the cost of the change that Org must make to achieve its intent and to run its business.

To devise a strategy, we must firstly assess our REET, which is our relationships, efficiency, effectiveness, and threats. We then look at what we operationally want to achieve. We use the Level Zero Targets model for this. In so we create key targets for our core business, resource management, relationships, transformation, and risk exposure. Lastly, we use the 5V Model to create a clear idea of the future.

This analysis will demand that we change. Meaning, we will have to do things that we are not doing now. We then articulate such change as strategic objectives. To execute these objectives, we use projects. On average Org will execute each strategic objective through three to four projects.

Where strategic projects incur cost, beyond operational cost, they become the cost of strategy. In so, the sum of all project cost, is our cost of strategy. We do not include operational costs, since these costs will be there, with or without a strategy. In so, the cost of labour, assets, and materials that we use for running day-to-day operations are not strategic.

At this level, one can see operational cost as fixed, and strategic cost as variable. There are organisations that would want to calculate the exact cost of strategy. This would be the number of hours spent on strategy; office space and other assets used for strategy execution. Manually, this is an impossible task since it will need precision and tracking that is hard to calculate. Yet, with systems intelligence it is possible.

Calculating the cost of strategy - an orgtology perspective

Resource vs. activity cost

In most organisations, the standard practice is to turn an organogram into a cost centre. In so, departments such as HR, Finance, operations, etc., will have budgets and thus become cost centres. These departments will base their budgets on the resources (people & assets) that they use for their work. The assumption is thus that e.g., all HR activity is bounded within an HR department. From an orgtology view, this creates huge inefficiency, both in terms of cost and time.

An organogram (Org structure) vertically holds authority and accountability relations. It does not laterally connect Org activities. E.g., obtaining organisational resources entails the recruitment of people, procurement of goods and services, purchasing of assets, allocation of budgets, etc. Here the HR, Procurement, Finance, and Asset departments all join within one activity. What is the cost of that activity? Few organisations will be able to tell. They mostly confuse the cost of resources with the cost of an activity. One cannot vertically cluster activity within an organigram since it laterally flows through Org.

 Strategic cost centres

In orgtology, all activity and resources are either linked operationally to the Level Zero Model, or to strategic programs. The former ensures efficient performance, and the latter secures Org relevance. The former maintains whilst the latter brings change. Orgtology captures this duality in its core assumption – Hypothesis 2x.

Each item in the Level Zero construct is an operational cost centre. In so, we will have cost centres for Resource Management, Delivery of Products and Services (core business), Relationship Management, Transformation, and Risk Management. Contrariwise, each strategic objective will be a strategic cost centre.

This often seems confusing since business schools do not have a clear model to distinct operational from strategic activity. In orgtology, the distinction is clear. Operational activity ensures efficient performance whilst strategic initiatives drive relevance. In so, operations co-exist with strategy as a duality. They have no linear connection. Operations is a 'here and now' manifestation of purpose. Strategy is an attempt to manipulate and control the future. They are as different as body and mind. The one is mathematical, predictable, and fully under the control of Org. The other is abstract, unknown, and dependent on Org's ability to negotiate its outcomes.

It makes sense to separate the cost of performance from the cost of relevance if one wants to control and manage the risk appetite and aspirations of Org. Therefore, we cannot confuse their cost centres. The cost of operations is our cost of efficiency. The cost of strategy is our cost of effectiveness. 

Approving strategic cost

A governing board mostly approves strategic cost. In smaller companies, it will be the owners who must approve a strategic budget.

How and when the cost of strategy is approved would depend on which model and method Org follows. From an orgtology view, the cost of strategy does not directly influence the cost of operations since we split their activities. However, as a strategy gets executed, it mostly feeds back into the operational system. This often changes the operational cost structure.

In orgtology the approval of strategic cost is mostly quite simple. Yet, most Organisations do not split their operations from their strategic initiative. Therefore, strategic cost is mostly the entire organisational budget. Such an approval process is often stringent and complex. Orgtology offers an easy solution. Were we have a budget for our operations, we just need additional approval for the cost of strategic activity.


The orgtology approach holds a simple solution to costing Org. We cluster activity in two main groups. The first being operational in that it ensures Org efficiency and performance. The second, being strategic in that it secures a relevant future. Within these core clusters we sub-cluster the performance group into Level Zero cost centres. In turn, we cluster the strategic group into strategic objective cost centres.

This is a simple solution, but one that holds practical complications. I.e., most organisations cluster everything, including their cost, into departments. This makes it easy to manage. Yet, it is delusional, since it does not cost Org in a way that will give any useful data on its ability to perform and stay relevant. It calculates what it will cost to run Org. That does not help us to relate performance to relevance cost. In turn, it will not help us to separate the cost of strategic vs. operational risks. This means we will not be able to calculate the strategic ROI, or our change and risk appetite, etc. The implications are myriad.

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© Derek Hendrikz: 2021-12-26

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