Allocating expenses

  • Release version: Xanadu
  • Updated August 1, 2024
  • 2 minutes to read
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    Summary of Allocating expenses

    Expense allocation in ServiceNow allows you to assign costs to the business entities responsible for incurring them. This process is distinct from charge-back or billing but can serve as a basis for billing. The main goal is to accurately represent the consumer of an expense within your organization by defining allocation rules.

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    Key Features

    • Expense Allocation Rules: These rules define how expenses are assigned to business units or departments based on specific criteria, such as the asset or service involved.
    • Simple Allocation Example: Allocates server-related expenses to the department responsible for the server. For each qualifying expense line, 100% of the cost is allocated to the server’s department.
    • Complex Allocation Example: Allocates business service costs to multiple cost centers based on their consumption of the service. Allocation is calculated using units that represent capacity or consumption, such as locations supported by the service.
    • Allocation Units: Defines the total capacity of a service and how much is allocated to consumers, enabling proportional cost distribution.
    • CI Cost Center Relationships: Tracks which cost centers consume a service and the quantity used, driving the proportional allocation of expenses.
    • Expense Allocation Related Lists: These lists can be added to forms to view how expenses are allocated to different business units or cost centers.
    • Advanced Allocation Rules: Uses scripting to implement sophisticated allocation logic, such as distributing business service expenses to cost centers based on usage data.

    Practical Use for ServiceNow Customers

    By setting up expense allocation rules, you can:

    • Gain clear visibility into which parts of your organization consume specific resources and incur related expenses.
    • Accurately assign costs to departments or cost centers for internal financial tracking and potential billing.
    • Leverage detailed allocation based on business service consumption metrics, promoting fair distribution of costs.
    • Use related lists on expense records to review and audit allocations directly within the ServiceNow interface.
    • Implement complex allocation logic through scripting when simple rules are insufficient.

    Overall, expense allocation helps you better manage and report on the financial impact of IT and business services within your organization.

    Expenses can also be allocated to a business entity that is responsible for the expense.

    This is not considered charge-back or billing but could be used as a source for billing. The primary purpose of expense allocation is to represent the consumer of the process that has incurred some expense. This can be accomplished by defining expense allocation rules.

    Simple Example

    This example demonstrates allocating every server-related expense line to the department responsible for the server.

    To view the example:
    1. Navigate to Financial Management > Expense Allocation Rules.
    2. Remove the list filter to view inactive rules as well as active ones.
    3. Select the Server - Department rule.

    The rule states that for every expense line associated (Expense source field) with a server that has one of the selected statuses, generate an expense location record for 100% of the expense amount and assign the allocation to the server's department.

    To view expense allocations, add the Expense Allocation related list to the form. The Target field is the business unit that the expense is allocated to.
    Figure 1. Cost Demo Alloc Exp
    Cost Demo Alloc Exp

    Complex Example

    A more common example would be to allocate the costs of a business service to the business consumers. Since cost centers are generally used when referring to business finances, this example allocates business service costs to each cost center that is consuming the service and bases the amount allocated on the amount of the service the cost center consumes.

    To view the example, navigate to Financial Management > Business Services and select Retail. Switch to the Cost view to gain access to additional related lists.

    The Allocation Units record defines the amount of capacity that this service provides. In this case, the Retail service can support 50 locations (units), of which 45 are allocated. A unit is a generic concept that can represent something that makes sense for that business service. This record uses units to represent allocation. The objective is to use the unit count and the cost center unit count to determine a percentage of total to calculate the allocation amount.
    Figure 2. Cost Demo Retail Allocation Units
    Cost Demo Retail Allocation Units
    The CI Cost Center Relationships list shows which cost centers are using the service and how many units they are using. This information is used to determine how much of the service expenses to allocate to each cost center. For example, the Trading department is using 10 of the 50 allocated units, so they will be allocated 20% of all Retail expenses. There's also an option to allocate based on the total (10 or 45).
    Figure 3. Cost Demo Retail Users
    Cost Demo Retail Users

    To see how the expense lines are allocated, select an entry in the Expense Lines related list and add the Expense Allocation related list to the Expense Line form.

    The following is an expense from the dbaix901nyc server for $2,500. Two expense allocations are generated from the expense. The Trading cost center was allocated $500 (20%) of the expense based on the CI cost center relationship seen earlier.
    Figure 4. Cost Demo Retail Example
    Cost Demo Retail Example

    This type of business-service-to-cost-center allocation is accomplished through the Process Svc-CC Relationships expense allocation rule. This is an advanced rule that uses script to determine the allocation logic.