Allocating the cost of a Shared Services Organization (SSO) to the business units and departments that the SSO supports is a matter of ongoing debate. There are multiple ways to allocate costs, although none of them are perfect. And certainly, none of the choices will make everyone in the organization happy. However, when considering the cost allocation scheme, it’s important to consider the nine factors below to choose the allocation model that best reflects your company’s goals for Shared Services.

Alignment with Organizational Goals: Ensure that the chosen costing model aligns with your organization's strategic goals and objectives. Different costing models have different implications for cost control, cost visibility, and cost recovery, so it's essential to choose one that supports your broader business strategy.

Complexity of Services: Consider the complexity and diversity of the services provided by the shared services center. Some costing models are better suited for simple, repetitive tasks, while others are more appropriate for complex, variable services. Choose a model that can accurately capture the cost drivers for your specific services.

Transparency and Accountability: Transparency is crucial for ensuring accountability and fair allocation of costs. Look for a costing model that provides clear visibility into how costs are allocated to different business units or departments. This transparency can help prevent disputes and ensure that each unit pays its fair share.

Scalability: Assess whether the costing model can scale with your organization's growth. As your shared services center expands or contracts, the costing model should be flexible enough to adapt without significant disruptions or overhauls.

Cost Accuracy: The accuracy of cost allocation is essential. Inaccurate cost allocation can lead to inefficiencies, cost overruns, and dissatisfaction among business units. Consider whether the costing model can capture all relevant costs and allocate them accurately to service recipients.

Benchmarking and Performance Measurement: Determine whether the chosen costing model allows for benchmarking and performance measurement. This is vital for assessing the efficiency and effectiveness of the shared services center and identifying areas for improvement.

Technology and Data Requirements: Consider the technology and data infrastructure needed to implement the costing model effectively. Some models may require advanced financial systems and data analytics capabilities. Ensure that your organization has the necessary resources and capabilities to support the chosen model.

Cost Recovery Mechanism: If your organization aims to recover costs from internal customers, evaluate how the costing model facilitates cost recovery. Different models may have varying approaches to cost allocation and billing, so choose one that aligns with your cost recovery strategy.

Cost-Benefit Analysis: Conduct a cost-benefit analysis to assess the financial implications of implementing the chosen costing model. Consider the initial implementation costs, ongoing maintenance costs, and the potential benefits in terms of cost control and efficiency.

By carefully considering these nine factors, companies will take a rational, proactive approach to implementing a shared services allocation method.

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