Business units complain that they're paying more than their fair share of your costs.

Challenge

When organizations allocate their costs to business units, it's not uncommon for clients to feel that their share is too big and demand that you reduce their allocations.

(Funny, they all think they're paying more than a fair share.... Figure the math!?)

Allocations assign your costs to business units based on high-level formulas (as distinct from chargebacks which price products and services and charge clients based on consumption).

This problem arises when the formula is not be closely linked to consumption. In that case, clients are correct; their allocation is unfair.

This problem may also arise when the allocation is, in fact, reasonable but clients don't appreciate all the value they're getting for their money.

How can you ensure that allocations are fair; and further, convince clients that they're getting their money's worth?

Solution

The only convincing answer is to show clients exactly what they're getting for their money -- the list of specific projects and service-level agreements that are funded by the allocation.

With that done, clients can decide what they wish to buy with that allocation.

Think of the allocation as a "pre-paid account" -- money put on deposit by the business units in order to buy your products/services throughout the year.

If they want to reduce the allocation, then they'll have to decide what they'll not buy from the internal service provider. That is, a smaller allocation means they get less.

On the other hand, if they want more from you (as they inevitably do), they'll have to pay more. In this case, clients will defend a larger allocation so that they have a bigger checkbook to spend on you.

Once their allocations are linked to the products and services they receive, clients often say the opposite: "My allocation is too small!

Comprehensive solution....

"As an accountant with professional standards, if we didn't have FullCost, there's no way I could vouch for the numbers the way I do now."

Debbie Hill Zelner IT Fiscal Manager, Riverside County, CA

Anecdote: Our IT Allocation is Too Small!
How to turn the tables and get clients defending a larger IT budget.

Column: Allocations....

Column: Chargebacks....

Other Resources

Anecdote: Our IT Allocation is Too Small!....
how to turn the tables and get clients defending a larger IT budget

Column: Allocations....