Why costs are allocated
Shared supervision, facilities, information systems, insurance, administration or support teams may serve multiple projects. Allocation supports full-cost analysis, pricing, funding agreements or internal responsibility reporting.
Choose a causal or beneficial relationship
| Shared cost | Possible base |
|---|---|
| Payroll support | Employee count or labour hours |
| Facilities | Floor area or occupancy |
| IT service | Users, devices or transactions |
| Project management office | Direct labour, project size or effort |
Activity-based costing
Activity-based costing uses multiple cost pools and drivers when one broad overhead rate hides meaningful differences. The extra detail is useful only when it changes decisions enough to justify the maintenance effort.
Document and reconcile
Define the pool, period, eligible projects, allocation base and treatment of unused capacity. Allocated amounts should reconcile to the shared-cost pool.
Decision test: a good allocation method is understandable, consistently applied and reasonably connected to consumption or benefit.