How to Calculate Allocations Based on Headcount

Regardless of how you want to allocate expenses or revenue you can get a lot of value from using modeling. Why allocate using Planful Dynamic Planning? Many of our clients at UHY Advisors allocate expenses in order to build a product or project P&L. An additional benefit of using Dynamic Planning for allocations means you don’t have to touch the model if the number of products, projects, departments, accounts, etc. grows.

Some of our clients have allocated expenses in their ERP systems, and unfortunately, they’ve lost visibility to the details when the data comes into Planful. In this situation, ‘deallocating expenses’ is essential to regain that visibility.  We have seen and built an extensive number of automated allocation models, whether it be for Actual or Plan (i.e., budget or forecast) data.

Here are 5 key areas to consider when setting up allocation models based on headcount:

1. Setup the model to perform pre- and post-allocation numbers to see what the P&L looked like before and after the allocation
2. Make sure to post offsetting entries so you don’t double count
3. Set up your allocations, so you don’t need to change the model if you add new departments/products/projects
4. Ensure that verification/checks are set up and visible to anyone using the model
5. Lastly, make sure to implement leading practices like recursive or circular formulas to make allocations work in Modeling

Our  Wise Up Wednesday session “How to Calculate Allocations Based on Headcount” highlights a project we completed for a customer that wanted ‘lights out’ automation of the allocation of expenses, and they wanted to base the allocation percentage headcount by department. We show you the keys to how this allocation model works, but also touch on how you could build a model that allows for developing a manual allocation driver percentage.