GranularWhat is a cost allocation model?
A cost allocation model assigns a cost pool to recipients using defined financial rules. It identifies which costs are shared, which units receive them and which driver determines the share. Recipients might be business units, products, customers or legal entities. A clear model separates the input data from the allocation logic.
Choose drivers that reflect the activity
Driver selection should reflect how a resource or service is consumed. IT services might use active users, HR services might use headcount and facilities might use occupied space. Activity-based costing adds intermediate activities where this gives a more useful view of cost consumption. Driver suitability depends on the business context and available data.
A worked shared-service allocation
An illustrative €1.2m IT pool is allocated to Retail, Wholesale and Services. Their active-user counts are 600, 300 and 100. There are 1,000 users in total, giving a €1,200 cost per user. Retail receives €720,000, Wholesale €360,000 and Services €120,000. The allocations reconcile to the full cost pool.
Create the model through conversation
Describe the cost pool, recipients and available drivers to GranularIQ. The specially trained AI proposes model options and helps translate requirements into explicit rules. Finance can review the model before execution, refine the drivers and inspect how the result follows from the inputs.
Keep allocations explainable
A useful result includes more than an amount. Finance should be able to trace the originating cost pool, the recipient’s driver value and the allocation formula. Granular combines AI-assisted model creation with deterministic calculations to make these relationships understandable. Simulation can then compare alternative drivers or cost assumptions.
Questions Finance teams ask
What does deterministic allocation mean?
Applying the same rules to the same inputs produces the same result. AI assistance helps build the rules; the allocation follows the model logic.
Can a different driver change profitability?
It can change how costs are assigned and therefore the reported profitability of recipients. Reallocating a fixed cost pool alone does not increase total enterprise profit.
Can AI choose the best driver automatically?
GranularIQ can propose approaches and help create models. Finance must assess whether a proposed driver fits the service, business assumptions and available data.