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.
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.
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.
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.
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.
The allocation engine should be scalable to handle costs from the lowest level right up to a company wide level. This allows leveraging a consistent methodology and drivers.
Pricing and chargeback transparency across all stakeholders. Everyone should see the same data in all locations by business units. Cost allocations based on actual usage using cost drivers. The application should also be self service.
The allocations platform should have he ability to calculate actual allocations and post to GL as frequently as required. Forecasting of drivers and therefore allocations plus ability to do adhoc what if calculations.
TM1 supported all the design requirements around real time calculations. It also could easily link to all source systems and post to the General Ledger with no touch points.
A key desire was the ability to show the allocations and the drivers in a dashboard. This same dashboard would show the actual, forecast, and any adhoc scenarios in play.
The ability to drill down to the most granular level as required. TM1 was able to support this without much effort at all, a simple right click and drill was all it takes.
The collection of all supply chain costs via numerous drivers. Cost base of each application / service or infrastructure requirements requires transparency on cost drivers.
Each component of the above example could be based in different countries with different tax and transfer pricing implications. Certain applications could have circular references with cost base coming back in.
360 view on each component and its cost base and cost drivers. Ability to drill through to cost drivers from any area. Ability to adjust drivers as required in real time.
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.
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.
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 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.
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.