Meaning
Economic mechanism distributes the costs of centralized functions across various business units or subsidiaries within a corporate structure. Using shared services allocation ensures that departments such as payroll and information technology are funded by the entities that use them. Internal transparency prevents the subsidization of one division by another through hidden administrative overhead.
Direct Distribution
Charges are applied to the profit centers based on their actual consumption of the common resources. A division with five thousand employees will pay a larger share of the human resources bill than a satellite office with fifty staff members.
Calculation Metric
Identification of these fees relies on specific drivers that accurately reflect the work performed. Individual departments might bill based on the number of helpdesk tickets or the total gigabytes of data stored. Direct links between usage and cost encourage managers to use shared resources efficiently.
When a department knows it will be charged for every request, it becomes more selective about its requirements. Regular audits of the drivers prevent the accumulation of unfair charges that could distort the perceived performance of a business unit.
Centralized Oversight
Support teams must justify their expenses to the operating heads who pay for them. Open accounting of the billing process prevents the bloating of administrative costs.
