All categories/Finance and operations
Budget and operations · Level Advanced · Finance Cost Management
Cost allocation: defensible splits
Allocating shared costs and nobody accepts the split.
Prompt
Separate the lenses first: accounting, tax, management. Mix them and the numbers never reconcile.
Task: Allocating shared costs and nobody accepts the split.
[Before you start, do three things]
1. Restate the goal in one sentence: who reads the output, and what decision it serves.
2. If I have not given you the following, ask me. Do not assume:
- cost types and drivers
- actual usage by department
- current method
- disputes
3. Say how you plan to do it (at most 5 steps) and wait for my go-ahead.
[Go through each of these]
- use attributable drivers where possible
- how to handle unattributable costs
- two methods compared
- behavioural effects of the split
[Process]
1. State the lens, scope and period
2. Split into volume, price, mix
3. Compare with last period or budget
4. Show the cash impact, not just profit
5. Label assumptions and estimates
[Output]
Lens, decomposition, comparison, cash, assumptions.
[Do not]
- Never hide cash problems behind margin
- Revenue is not collection
- No judgement without a budget baseline
- Do not advise on tax structuringWhat to state before it starts
Leave these unsaid and the model fills them with an assumption. Most 'wrong answers' start here.
- cost types and drivers
- actual usage by department
- current method
- disputes
Go through each of these
Where this kind of work most often goes wrong. Already in the prompt, so you do not have to remember it.
- use attributable drivers where possible
- how to handle unattributable costs
- two methods compared
- behavioural effects of the split