The Allocations Construct: Turning Shared Costs into Clear Accountability
Few topics generate more debate in FP&A than allocations.
They’re necessary for fairness, essential for visibility — and one of the most misunderstood mechanics in planning.
The Allocations Construct defines how shared costs or revenues flow through the business.
Whether it’s IT expenses, corporate overhead, or interdepartmental revenue, allocation logic turns a single number into a meaningful story of accountability.
How It Works
Allocations are about distribution — spreading values based on rules, drivers, or dependencies that reflect how the business actually consumes resources.
Typical examples include:
Allocating IT or Facilities costs across departments.
Allocating marketing spend across product lines or geographies.
Allocating revenue across channels or partner relationships.
Each method serves a different purpose — from simplicity to precision — but the goal is always the same: align cost ownership with business activity.
Common Allocation Models
Fixed Percentages
Split costs evenly or by predefined ratios.
Simple, transparent, but not always reflective of real activity.
Driver-Based Allocations
Use measurable drivers (headcount, revenue, transactions, usage).
Scales naturally as the business grows.
Multi-Step Allocations
Layer sequential dependencies (e.g., allocate IT to Marketing, then Marketing across products).
Requires precise ordering and auditability.
Overrides and Redistributions
Handle exceptions when manual adjustments are necessary.
A good model can accept overrides without breaking logic.
Residual or Balancing Allocations
Plug remaining differences after initial drivers run.
Keeps totals balanced while retaining control over spread logic.
Why It Matters
Allocations define how shared resources are valued and consumed.
Without them, financials become misleading — overstating margins in one area while understating costs in another.
Key benefits:
Transparency: Stakeholders can trace how and why costs moved.
Governance: Enables audit trails and confidence in reported results.
Alignment: Promotes shared ownership across teams.
Scalability: Handles multi-entity, multi-currency structures consistently.
When designed well, allocations create clarity instead of confusion — turning shared costs into shared understanding.
Implementation in Pigment
Pigment excels at allocation modeling because of its multi-dimensional logic engine.
You can:
Define drivers dynamically across any combination of dimensions (department, entity, account, vendor).
Run multi-step allocations in sequence using
BY,REMOVE, or filter logic.View both pre-allocation and post-allocation results for full reconciliation.
Unlike spreadsheets, you don’t rebuild formulas for every scenario — you design the allocation once, then apply it anywhere.
The Broader Framework
The Allocations Construct is the first in Bright Point’s 11-part Planning Constructs framework — the reusable algorithms and logic patterns that form the backbone of every scalable FP&A model.
Bright Point’s Perspective
At Bright Point, we treat allocations as design patterns, not accounting chores.
They’re the foundation of model transparency and the key to making cross-functional conversations about cost and performance data-driven, not emotional.
