Allocation Planning

Allocations are a common component of budgeting and planning. Their purpose is typically to distribute a shared cost or revenue over a number of organizational entities, products, projects, or other dimensions.

The goal of allocations is to spread costs or revenues into the areas that utilize the drivers of those costs and revenues. Usually allocations are expected to be dynamic, so that as the underlying costs or revenues and drivers change, the allocations change.

Some companies calculate relatively simple allocations, such as spreading costs from Overhead or IT departments across the users of those departments. Other companies have complex, multi-tiered allocation schemes, e.g. first IT is allocated into all departments, including Facilities, then Facilities is allocated into all departments, including Overhead, then Overhead is allocated to all other departments.

Regardless of the complexity of the planned allocation scheme, all allocations are modeled using some variation of the following steps:

• Define the group of recipients of this pool, e.g., all departments in the Headquarters location
• Define the method of distribution e.g., headcount
• Divide the pool using the chosen method. Charge the recipients for their portion of the pool, and credit the source (e.g., Facilities).

Once modeled, allocations should be maintenance free, dynamically recalculating as the underlying drivers (Finance costs, departmental headcount) change.

Spreadsheet planning does not lend itself well to these kinds of allocation modeling requirements. What’s needed is a purpose-built planning application, with a centralized database, plus driver-based modeling capabilities. What’s needed is Adaptive Planning.

Adaptive Planning does an exceptional job in the area of allocations.

• Multiple Account Types. Utilize multiple account types to hold financial data, (plus non-financial and operational data such as square footage). Both types of data are frequently involved in allocations.
• Account Flexibility. Easily rearrange allocation GL accounts in the Administration area, using drag-and-drop, to position them where they are most useful. Create sub-accounts to track allocations in and out, to keep them separate for audit trail.
• Driver Based Planning. Use Adaptive Planning’s powerful modeling capabilities to integrate different areas of a model for allocations. Administrators can create formulas that reference data from anywhere in the model (e.g. total IT spending, headcount or square footage in each department, etc.), and fold these calculations into formulas.
• Centralized Assumptions & Formulas. Establish centralized assumptions and formulas, with the ability to lock these from user editing — facilitating consistency across the model where appropriate. Allocation formulas can be quickly set up by administrators, and made read-only for budget managers.
• Count Headcount Different Ways. Count number of heads in a variety of ways, e.g. number of employees present in a month, or number of employees present at month end, or full-time equivalents, or all non-contract employees, etc. Sometimes the headcount used to drive allocations is counted differently than headcount for reporting purposes.
• User Security. Create special user security rules to allow users to see and modify data to which they would not normally have access (e.g., the IT manager is not normally involved in planning outside of their own departments, but might need to plan the number of computers in all departments, in order to drive the allocation of IT expense.)
• Audit Sheets. Easily create administrative sheets whose purpose is to audit the allocations to ensure that charges in equal charges out, and functional areas are allocated as intended.
• Automatic Currency Exchange. Drive allocations from one area in one currency to other areas using different and multiple currencies, and be confident that the appropriate currency exchange happens automatically.
• What If Scenario Analysis. Use Adaptive Planning’s modeling and reporting capabilities to easily perform what-if analyses based on different cost, revenue, headcount, and other driver scenarios.