Allocations

Find out how a leading Australian investment bank transformed its technology allocations using IBM Cognos TM1.

 


* Allocations tool

 

All organisations perform allocations to align expense and profitability down to the appropriate cost level. The larger the organisation the more complex the allocations can become.
For many this means looking for a solution beyond excel spreadsheets, a tool that is robust enough to handle what excel cannot.

 

Timeliness

It’s important to perform and report allocated expenses and revenue in a timely manner to ensure managers and executives have a clear picture on financials. This aids the decision making process as well as ensures correct internal and external reporting is done.

Governance

Larger multinational organisations have numerous tax and regulatory implications of allocating expenses and revenues correctly. A proper allocation tool allows organisation to optimise its transfer pricing and tax strategy when operating in multiple jurisdictions.

Transparency

Expense allocation allows transparency of expenses and drivers of expenses to be clear and transparent to all stakeholders. Reporting that links expense to the source allows managers to understand the costs and its drivers explicitly. Cost recovery should be audit-able and traceable.

Forecast

A good recovery application should be the platform that allows for forecasting to be done on the same platform. It is also recommended that driver based forecasting be done. Ability to compare actual and forecasts and use single source of truth for both is critical.

 


 

* Prior to TM1 implementation

 

 

“The cost allocation from technology was significant and there was a pressing need to allocate IT costs with fairness and transparency. This platform should allow optimisation of tax and transfer pricing to allow for more detailed forecasting and be driver based instead of nominally assigned using a percentage or headcount. Service owners were also demanding a ownership of cost base being charged to allow them to manage cost base and compare the price vs service. The business case was compelling.”

 


 

* Key Requirements

 

To allow the organisation to optimise the transfer pricing and tax strategy. Also to have a fluent and flexible system that scales up across the organisation beyond technology cost allocation, with detailed granularity with drill through to the detail.

 

 


 

* Why TM1?

 

 

 TM1 was used as the platform to develop the allocations model because:


 

* Solution Overview – Hypothetical example

 

 

 


 

* Model Overview – Hypothetical example

 

 

* Inputs & Drivers

At each step of the allocation ensure to collect as many consumption based drivers. Also flowing into the model is the actuals from appropriate source systems. All of these feeds should be automated.

* Recoveries engine

Calculation engine steps through the key/ container / rule method of calculating the expense allocations. The key and the rule are open to be adjusted as require in real time by the appropriate users.

* Single mechanism

This is useful when there is complex layers of allocation all with multiple drivers and rules. Each cost base is treated as a container that collects costs and allocates it out based on unlimited number of drivers and rules – all of which can be adjusted for each scenario.

* Outputs & Reports

Outputs from Recoveries engine typically are dashboard reports and journals into general ledger systems. Again all outputs and reports should be automated. Reports should have drill through capabilities into the details.

 

 


 

* Benefits

 

Obvious benefits were optimising tax and transfer pricing. Automated processing allowed quicker more accurate presentation of true cost structure allowing smarter decision making. Ability to scale platform to wider range of allocations, integrating forecasting onto same platform allowed technology planning process to be aligned with real world scenarios.

 

Transparency for all stakeholders

Automated & close to real time

Actuals, Forecasts & what ifs

Single source of truth for reporting by all

 

Other peripheral benefits were eliminated of 1000’s of spreadsheets from the allocation process, Highlighting flawed allocation mechanisms, significant reduction in processing, improved accuracy. After a few months of using the application trend analysis also become possible. With enhancements that included email notifications and highlighting exceptions and anomalies, it’s become an indispensable application now.

 

 

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