A 180-person professional services firm in London with £14M revenue and four operating departments: Consulting, Advisory, Technology, and Research. Central costs (IT, HR, Finance, Facilities) totalling £1.8M per year need to be allocated to each department for true profitability analysis.
Example data
IT allocation uses headcount as the driver. Technology department gets a higher per-head allocation (£2.3k vs £2.7k average) because their developers use more expensive software licences.
Facilities is the largest shared cost (£580k) and is allocated by square footage. Research occupies a smaller lab space, so receives a proportionally lower allocation despite having meaningful headcount.
After allocation, Consulting absorbs £617k of shared costs. This reduces its departmental margin from 42% (direct only) to 28% (fully loaded) -- a significant impact on true profitability.
Formulas
IT Allocation = IT Cost * (Dept Headcount / Total Headcount)IT costs allocated by headcount because IT support correlates with the number of people. Consulting (35%) gets the largest share with 63 of 180 employees.
Facilities Allocation = Facilities Cost * (Dept Sqft / Total Sqft)Facilities allocated by square footage occupied. Technology and Consulting share the largest allocation because they occupy the most floor space.
HR Allocation = HR Cost * (Dept Headcount / Total Headcount)HR costs also driven by headcount, though some companies weight by recruitment activity or employee turnover rate for a more refined allocation.
Analysis
Customisation
Choose allocation drivers that best reflect causality in your business
Add a "direct charge" layer for costs that can be attributed to a specific department
Use a step-down method if shared services serve each other
Include a management override option for one-off costs
Show both "before allocation" and "after allocation" margins for each department
Keep exploring
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View exampleA 100-person technology company in Cambridge with £7M revenue. The People team and Finance team collaborate on the annual headcount plan, which feeds directly into the P&L budget. This plan covers all departments with fully loaded costs including employer NI (13.8%), pension (5%), and benefits.
View exampleA 110-person healthcare technology company in Oxford with £6.2M revenue. The FP&A team produces a monthly management pack by the 10th working day of each month. This February pack covers January performance and is distributed to the CEO, CTO, VP Sales, VP Operations, and department heads.
View exampleFAQ
The best method uses drivers that reflect actual consumption. Headcount-based allocation is the most common and easiest to maintain. Activity-based costing is more accurate but requires more effort. Choose the level of sophistication that matches your company's size and complexity.
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