HR cost allocation of services, which are provided by the HR function, are often seen as natural. Indeed, these services, requested from the departments, produce costs in the HR department. HR cost allocation can ensure transparency and clarity over provided service. In the surrounding of Shared Service, a HR cost allocation needs to be established continually, in order to fulfill legal requirements. Due to the HR cost allocation a fundamental management effect on the efficiency of a department can be registered.
Defining the cost allocation – indispensable component of a cost allocation is the exact description of the to be provided performance. Therefore, formulate desired target figures exactly. You picture the content and extent of the performance, which you expect as a client, or rather which you like to render as supplier. Key element of a cost allocation is the definition of the scope of services, or rather the regulation of the service targets. This definition should contain the following criteria as specific as possible:
– What amount (quantity targets)
– What quality (quality targets) and
– At what costs (profitability targets)
Here the principle “less is more” applies: the targets should never be formulated too detailed and comprehensive, that the department which is providing the service loses any freedom of design or needs to enlist the superior instance for any small target shortfall. The regulation of all details and the future monitoring of the target fulfillment would lead to a substantial bureaucratic expense and to delegating the responsibility back.
Transfer price and cost structure – the cost structure and the transfer prices generally fulfil more than one function, e.g. management function, transparency function, fiscally function, motivation function, control function and related. Often, their targets are conflicting with one another. Therefore, it is essential to know and evaluate these target conflicts. Following this, a focus on the fundamental functions can be caused. When designing we consider various ways of transfer prices:
– Market oriented
– Cost oriented
We support you in designing and implementing the transfer price logic under consideration of your individual targets.