The cost allocation model is a centerpiece for creating financial transparency. It designs and describes the relationship between all costs, products, services, proceeds, and clients. This only works out well if there is an appropriate level of detail in it. This level is defined as the right balance between details required for pricing services or tracking business cases for example, while maintaining a certain level of abstraction, thus keeping the model condensed and intelligible.

Secondly, the model is low in maintenance. This means that recurring maintenance, such as regular changes of cost allocation principles and cost distribution keys, will be easy and only requires limited resources. Besides that it also implies that it is relatively simple to implement substantial changes, such as a reorganization.

Thirdly, the cost allocation model is easy. As the model is the only and central source, information is easy to access and easy to use. Additionally, the meaning of information is clear because unambiguous information definitions and models are used and sources are well-known, reliable, and accurate.

A well-defined model sets several standards for the whole organization, such as:

  • Common language and terminology
  • Standard data sources as input for the model
  • A yearly agenda with an update cycle for budgeting, forecasting, and end-year reviews
  • Centrally led and controlled discussions on the replacements or improvements of cost allocation keys

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It is relatively simple to implement substantial changes, such as a reorganization.

The model is a common language; everybody uses the same terminology and definitions.