Allocations for depreciation, overhead and more can be assigned to one account and split by any driver

Description

The allocation functionality in Corporate Performance Management (CPM) software streamlines the assignment of financial elements such as depreciation, overhead costs, and others to specific accounts. This process is driven by multiple allocation drivers which split the assigned amounts based on certain pre-defined factors. Essentially, the process ensures a more accurate and fair representation of financial data across all accounting aspects.

Example Use Case

Scenario: A mid-sized manufacturing firm employs CPM software for financial management. The company incurs factory overheads and depreciation that needs to be assigned to various production cost centers in proportion to the usage of each center.

Solution: The software's allocation functionality distributes the overheads and depreciation costs according to specified drivers such as labor hours or machine usage. If a cost center used 20% of the total labor hours, it would consequently be allocated 20% of the total overhead costs. This enables more accurate cost tracking and financial planning across different cost centers.

Considerations

Look for features that automate allocation processes to reduce manual workload and human error. In other words, make sure the allocation formulas are re-usable and self maintained with variables instead of hard coded calculations.

The allocations should be associated with specific accounts. For example, the user might want to spread “3000: Marketing Expenses” across various products based on their percentage of revenue, or their margins. When new products are added, the allocation formula should not need to be updated. It should be able to detect new products and associate the allocations to those new products as they come into the system.

Questions to Ask a Vendor

• Allocation Mechanism: How are allocations handled in the system? Can they be driven by multiple drivers? Can they contain if statements?
• Modification of Rules: How easy is it to modify allocation rules and drivers in your system? Does it require a technical intervention?