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 Cost Allocations with less granular keys

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Jaitabh Jewel Sharma's profile image
Jaitabh Jewel Sharma posted 03/27/23 09:29 PM

Question
What is the best practice for allocating costs when the allocation key is less granular than other allocations to that Object?

Background

Whilst we would like to enrich allocation data to match the Object/Reporting granularity, often the available/reliable data is not as granular. Some example scenarios are:

1) A vendor cost can only be identified to a Service (say Computer), instead of a specific Service Offering under Computer.

2) A project cost can be identified to an Application Family (say SAP), instead of a specific Application (imagine having 3 or 4 different versions/modules of SAP in your Application Master).

3) Costs of a Portfolio Manager, can be reliably associated with the Portfolios s/he's managing, but may not have the details to allocate to specific Projects in that portfolio.

Keen to know how others have approached such situations, and what are the pros and cons for respective approaches.

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Mark Salib's profile image
Mark Salib posted 03/28/23 09:55 PM  Best Answer

Hi JJ,

This happens to us quite a bit, we use the following approaches:

  1. create a mapping file which has a % allocation to the lower level. Following your 1st example, the vendor manager or service owner should have a good idea about what specific service the vendor is providing and help provide a decent split.
  2. use the remainder of data which is more granular as a proxy. Again, following your 1st example, if there are two service offerings under Computer and all the other data points show that it's a 60/40 split, then use this split for that vendor.
  3. use the forecast as a proxy 
  4. even split as worst case

Pros - all can be automated and all will get you to that granular view

Cons - subjective about accuracy and using mapping files or forecast can lead to data quality issues if not reviewed regularly

Hope this helps!


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Apptio Community Member's profile image
Apptio Community Member posted 03/27/23 11:35 PM

Hey Jaitabh,

the model design we implemented have allows granular allocation to any ServiceNow CI (Application Service/Service Offering) from financial layer objects. There are still a few factors however that we do consider in our approach:

  1. Materiality of cost - are we really gaining that much more trying to allocate every single dollar to the exactly correct CI? Are there other CIs that closely approximate the function of the cost that we can leverage here?
  2. What is the use case for understanding the specific costs of all of the versions/modules in SAP in your second example? Again there is that balance on our side of trying to keep granularity of costs, but sometimes a "bucket" CI (eg. SAP "Platform Application") to capture costs is ok when it does get difficult splitting out to the specific modules. We still have a TCO of the "SAP ecosystem", and if there is a future use case for understanding this space then we would certainly target this area for better granularity, we are in a good place to do this work.

Based on the above my thoughts are to try and design your model to support the most granular allocations, and try to allocate with the best level of granularity as your data supports. There are times when the effort to get granular really isn't worth the return (ie. splitting a dime to save a dollar), and be prepared to come back to areas that may need a more targeted focus in the future.


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