This discussion is about an update we made to how we allocate labor cost, particularly related to Transform project cost. Some background details are warranted to give context for why this change was needed.
For TCO showback in Apptio, we utilize Planview time tracking data to allocate resource labor cost from each cost center to Run/Grow/Transform projects & tasks. This is ultimately further allocated to applications and business units, utilizing very granular task-level TCO tagging within the Planview time logs. Yet there are a few challenges when it comes to Transform allocations. In our IT financials, labor cost for resources sits in their respective Core cost centers. For Transform project work effort, the resource's cost is credited out of the Core ledger and debited to the project portfolio ledger through monthly chargeback entries in the GL. However, for a variety of reasons, the credit entry is booked to a single General Expense cost center rather than to the individual cost centers where the resources' labor cost is sitting (and where the resources log their time in Planview). Thus, from an overall ledger perspective the labor has been credited out, but from an individual cost center perspective all of the resource labor cost remains.
Since the individual resource cost centers still hold all labor cost, but Transform projects have been debited in the GL with labor cost, we have to take this into consideration when doing labor allocations for TCO. If not handled appropriately, we could double-count Transform project cost (and ultimately the impacted applications). We would end up with a situation where, in one part of the model, cost would be allocated to Transform projects through time tracking allocations. But those same projects would have already been hit with cost through the GL labor chargeback debit entry.
Until last year, our team was using the Digital Fuel product for our TCO model. At that time, we did a very manual monthly process to adjust the GL data prior to loading it into the model. Essentially, we would analyze which resource cost center each of the labor chargeback credits in the General Expense cost center related to, and then would move each of the credits out of the General Expense cost center and into individual resource cost centers. Since this had the impact of leaving only Run & Grow labor cost remaining in each resource cost center, we then only used Run & Grow time tracking for allocating the remaining labor cost. This whole process was time consuming and open to error. As we migrated to Apptio last year, we explored better ways to do this in a more automated manner.
We determined that the best approach would be to filter out the GL labor chargeback entries in Apptio (both the credits and debits), and then let the Apptio time tracking allocations essentially create the charge on its own by utilizing all Run, Grow, and Transform time tracking data. To get this implemented, I identified the appropriate journal line descriptions that needed to be excluded, created a filter in the Cost Source object, then tested and validated that the allocations were working as expected.
As often is the case, there's exceptions! The main exception to this Transform project chargeback process is that certain Contractor resources (Hourly Rated) have their Transform project cost booked directly to the project portfolio and that cost never hits the Core resource cost center. When I did my validation of the labor allocations in Apptio, this piece didn't look right and needed to be fixed. Unfortunately, since this piece of Transform cost is not sitting in the resource cost center where time is being logged, we would not want to include these particular resources' Transform time logs as part of the time tracking allocations. In these cases, we needed to exclude their Transform time logs, and let the cost instead be captured and allocated via the project where their cost was directly charged in the GL. To solve this, I identified the column and data element in the time tracking data that we could use to apply a filter in Apptio. Formulas and filters needed to be applied in several different places to get everything to flow through the Labor, Time Tracking, and Project objects correctly, but after implementing it was confirmed to be working!
In addition to eliminating the manual work effort and opportunities for error, this methodology has other benefits. The GL labor chargeback entries are done based on a flat blended rate. They are also done with time logs a month in arrears in order to be able to book the entries in time for month-end close. However, our allocation in Apptio utilizes resource grades/levels to apply a more nuanced weighting factor to how the time gets charged out to projects. We are also able to use current month time logs against current month labor cost.
I hope this can be used as an example of working around nuances in a company's financials and even arriving at an improved end result!
@Debbie Hagen
@Justin Kean
@JERRY AUSTIN
@Conrad Harkrider