In today’s highly cost conscious environment, enterprise wide cost savings can be achieved by consolidating common workand infrastructure by using Shared Services units. But Business units often complain that Shared Services end up costingmorethantheytargetedtosaveandalsohavethebelowquestions:-n“WhataremySharedservicescostsmadeupoff?”n“Sharedservicescostsaretoohighandaffectingmyproductprofitability”Shared services are unable to answer these questions due to lack of cost transparency in their cost models. Typical reasonsforlackofcosttransparencyinsharedservicescostmodelsare:-nUsingcomplexcostingmethodologywhichmakesmeasurement,chargeback andreporttoBusinessunitsdifficultnLackofstandardizationofallocationlogicnInabilitytocompletelyautomatethecrosschargingprocessITC Infotech’s Shared Service modelsOur Shared services models enable cost transparency formulti-functional and reciprocal services rendered by SharedServices units. Cost transparency in context of SharedServicesistoshowtheBusinessnServicesitconsumesnCostofdeliveringtheseservicesnBreaking the cost down to activities and resources involvedinproducingtheseservicesnAllocationlogicforcrosschargingnOn demand “what - if?”scenarios with respect todemonstrate how costs change due to change in demandforservices,resourcedriversandallocationlogicSuch cost transparency for multi-functional andreciprocal services rendered by Shared Services unitscan be enabled using PCM which facilitates variousmethods of cross charging of cost for reciprocalservices among Shared Services and eventuallycharge out to the Business. Various cross chargingmodels which reflect reciprocal services amongSharedServicesareasfollows:-ReciprocalcostingmodelThis costing model makes one time assignment of costbetween Shared Services and eventually charges outBusiness for the Shared Services cost. This method iseasy to understand, fairly accurate and facilitates intracing cost to the origin. It also differentiates the rateat which Shared service unit is charged with thatchargedtoBusiness.
Business benefits of the models:-nSubstantial reduction in lead time of calculating crosscharging rates by eliminating manual and repetitiveinterventionsnIncrease in frequency of variance reporting which leads toimprovedcontrolofcostsnDetailed breakdown of cost of each service by the activitiesconsumedandresourcesutilizednFacilitates root cause analysis by tracing costs to origin foreachserviceprovidedbySharedServicesnAvailability of accurate and timely actionable cost data toanalyze performance of Shared Services units and impactofitscostonBusinessImplementation approachPreparation &InformationgatheringBlueprint/Cost ModelDefinitionModelConfiguration,DataIntegrationReporting &DashboardingDocumentation& TrainingCase study on consultingengagementBusinessneedA leading South African bank faced various Businesschallenges, while cross charging Shared Services cost,using their cost models built in PCM. Key Businesschallenges were loss of visibility and life cycle view of actualShared Services costs allocations, lack of insight into actualand true product profitability and ability to respond toBusiness queries. In order to address them, they felt theneedtoreassessthefollowing:-nShared Services costing models and its methodology ofcrosschargingnExistingarchitectureoftheircostmodelsinPCMnInteraction with other transfer pricing applications tocalculatecrosschargingratesBusinessbenefitsdeliveredITC Infotech suggested change in the costing methodology,standardization of models and roadmap definition reflectinghow un-exploited features of PCM tool can be leveraged, todeliverthefollowingBusinessbenefits:-Change of existing costing methodology into a transparentcost chargeback method provides visibility toBusiness unitswithinsightintocostconstituents.Improved cost transparencyRecursivecostingmodelThis costing model makes reiterative assignments of cost simultaneously to Shared Services and Business. This method isaccurateandreflectssimultaneouschargingatthesameratetoSharedserviceandBusiness.SAP Profitability and Cost Management (PCM) is a scalableand flexible enterprise class tool which enables costing andcross charging of Shared Services costs to Business acrossindustries. With its unique cross charging functionality ,powerfulcalculation engine, “what if” and scenario modellingcapabilities, operational management and forwardplanning of Shared Services cost, is responsive and simple tocontrol.Availability of actionable and accurate historical costinformation improves forecasting accuracy and control ofongoingcosts.Increase in operational efficiencyShared service centers can work with the Business inproducing budgets and forecast, analyzing operationalresults and develop programs to improve operationaleffectiveness.Business partnering with Business units