TBM Framework & Taxonomy

 View Only
  • 1.  Primary and Secondary Cost Question - how to avoid double counting

    Posted 6 days ago

    I need some guidance regarding Internal Services. We provide IT services for the purchasing department, such as SAP Ariba, Mintec, SRM and others. The cost of these services is assigned to the cost pools outside services, software, as primary costs, but also some of it is billed as secondary cost by the purchasing department as internal service based on the purchasing volume of IT. This means some of these costs are duplicated. What is the most appropriate way to deal with this?

    Thanks Andreas



    ------------------------------
    Andreas Graf
    Director IT
    AVL List GmbH
    +433167876872
    ------------------------------


  • 2.  RE: Primary and Secondary Cost Question - how to avoid double counting

    Posted 4 days ago

    I usually exclude what you're describing as "Internal Service" costs from chargeback/showback.

    For modeling, I allocate the "Internal Service" costs to a "dead-end" object called "Internal Service". Alternatively, you could restrict those costs from being allocated out beyond your Cost Source.



    ------------------------------
    Matt Temple
    Transformation Excellence Manager
    Accenture US - Partner
    Long Beach CA
    (714) 349-6102
    ------------------------------



  • 3.  RE: Primary and Secondary Cost Question - how to avoid double counting

    Posted 3 days ago

    From your description, I'm not clear whether you consider the whole of your purchasing department's costs to be within the scope of your cost model, or just the costs that they charge to IT.

    If you're dealing with the whole of their costs and they both send cost to IT and receive cost from IT, this sounds like 'recursion', which I would consider a bad idea to do in a cost model (although most tools seem to allow for it in some way). I would suggest that you aim for a simplified waterfall model, where you either place the purchasing department before or after IT in the waterfall and don't allow costs to flow 'upstream'. This isn't perfectly accurate, but is easily explained and understood.

    If you're not modelling the purchasing department's costs, your relationships with them are not a problem within the IT cost model. You receive 'secondary' costs from them into your model, and you charge them fully loaded 'secondary' IT costs. The fact that a (tiny) proportion of what you charge them includes costs which started as their secondary costs should be immaterial.



    ------------------------------
    Jon Sober
    Author, TBM Consultant, Director
    Rrebos Ltd
    United Kingdom
    +447711148621
    ------------------------------