Multitiered allocations using dimensions

Description

blank in Corporate Performance Management (CPM) software is a feature that improves the accuracy of financial reports and forecasts. This function allocates revenues, costs, and other financial indicatives based on predefined dimensions, such as departments, regions, or services. This allows multiple layers of allocations based on the organization's specific reporting and planning needs.

Example Use Case

Scenario: A global retail company leverages CPM software for its financial planning. Expenses such as overhead costs, operations costs, and marketing costs need to be allocated to various departments (clothing, electronics, homeware), across different geographical regions (Asia, Europe, North America).

Solution: The company uses multitiered allocations using dimensions to distribute these costs. The first tier allocates the costs to the departments based on their contribution to overall sales. The second tier further splits the departmental costs among the different regions according to market share. This provides a more precise representation of each department's expenditure in each region.

Considerations

In order for this to work well, the system has to be highly dimensionalized - meaning that it can handle multiple dimensions, and those dimensions represent the heart fo the system. Without that, allocating across the model becomes a nightmare scenario of formulas connected to formulas, hard coded values, and a maintenance nightmare.

This functionality usually comes into play with larger businesses where more granular allocation methods, tiered in this case, have a meaningful dollar impact. If you seek to use this functionality, the question should always be “Is this going to change the way we make decisions?”

Questions to Ask a Vendor

• Allocation Methods: What types of allocation methods does your system support? Can the software handle various complex allocation scenarios?
• Update and Changes: How easy is it to update or modify allocation dimensions and layers in the software?
• Reversal Handling: How does the system handle a situation where a reversal of allocation is required due to an error or change in organizational structure?