Cost allocation – a vital control instrument
The question of allocating indirect expenses through an organisation is an important control issue. The trick is to find an allocation principle that directs operations towards the optimal utilisation of premises and effective consumption of resources – without becoming too detailed and causing too much administration.
Coor Service Management – which easily has the most integrated complete assignments on large accounts right across the Nordic region – possesses substantial competence and experience in this segment. Sofia Bengtsson, a Site Manager at Coor, is one of the specialists.
“Our complete undertakings include the duty of consolidating the costs for the services we’re responsible for such as cleaning, security services, waste management and snow clearance. In addition, we also sometimes manage indirect costs like rent and energy. We then allocate these costs in the way that suits the customer best,” says Sofia.
The question is a very complex one, and Coor has to tailor its work to the differing wishes of its customers, their type of organisation, control philosophies and accounting policies. Consistently, though, the objective is to find an allocation principle that suits each customer.
“We can help our customers in the discussion of structuring their allocation principle, and also applying it in practice. We use an effective IT-based system that supports practical work on allocation well,” continues Sofia.
Different allocation keys
Smaller enterprises often opt to take their indirect expenses centrally because they have other, more direct ways of being able to control their activities. But for large operations, allocation is an important control tool to optimise their utilisation of premises and resources. The simple logic is that the clear link between consumption and costs creates an incentive to reduce consumption.
The key question is at what level to take the costs in your organisation – and what way to allocate them. According to Sofia, there are more or less sophisticated methods for allocating costs. One example of a very simple method is to allocate costs by the sales share of an individual operation of total, or to allocate costs by site. More detailed keys include allocating costs per person (price per workplace) or area (price per square metre). Often, indirect costs are allocated in several stages, for example by site or plant and per square metre.
“For indirect costs, area is the single most important cost driver, which means that keying by square metre is fairest. It’s also currently the most common in large organisations, most of which also have different pricing levels for different types of area, such as production premises, offices, server halls or warehousing. All these environments have different requirements on climate, maintenance, cleaning, security and so on, which mean different costs per square metre,” explains Sofia.
Unoccupied premises are often a central matter
Recently, it has become more common to take costs for unoccupied premises centrally. The explanation is partly that the long-term supply of premises is a matter that is sub-optimised if it is decentralised, but also in the understanding that it results in more effective utilisation of premises.
“Utilising premises is a matter that has to be considered over a business cycle and kept in pace with the progress of operations. The task is to satisfy the operating activities’ need for expedient and effective premises over time, but also to stimulate moderation and effective utilisation of resources. Drawing a distinction between utilised and unutilised premises is a good way to go about this,” adds Sofia.
Want to find out more?
Get in touch with Sofia Bengtsson, Site Manager at Coor,
tel +46 8 553 956 43 or e-mail [email protected]