Cost allocation is an integral part of Technology Business Management (TBM). TBM is a category of software solutions designed to help IT organizations manage and communicate the cost, quality and value of IT Services. TBM brings the best practices of financial and performance management evolved for sales and manufacturing and applies those to the complex environment of IT.
Expressing the fully-loaded cost of IT services, or expressing the cost burden placed on IT by various business units, inevitably leads to some decision-making around exactly how to assign the costs from one category or group to another category or group. Options abound, but which one to pick depends on several factors in play within the organization and has significant impact on the outcome. The allocation strategy will directly affect the “fairness” and accuracy of the allocated spend, and will drive different behavior of the consumers in their demand for IT Services. This whitepaper focuses on the prevalent cost allocation methodologies in practice, and offers guidance on which one is the best fit in any given context.
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