Cost allocation is the mechanism that spreads a shared cost across the entities that benefit from it, using an allocation key. It is what turns a single group expense, an ERP licence, a head office lease, a shared marketing budget, into a defensible amount charged to each subsidiary.
The key is the whole exercise. Common ones are headcount, revenue, floor area, transaction volume, number of users, or a weighted combination. The rule is that the key must correlate with the benefit received: allocating IT costs by revenue is hard to defend when the smallest entity uses the most licences, while allocating by number of users is immediate to justify.
Keys drift, and they drift silently. A key set during a reorganisation three years ago reflects a structure that no longer exists. An entity closes a site but keeps paying its share of floor area. A subsidiary doubles its headcount without the key being recomputed. Nothing fails visibly: the recharge still runs, the amounts still post, and the divergence between the key and reality only surfaces when a tax auditor or a subsidiary's minority shareholder asks how the number was built.
Two controls close the gap. The key should be reviewed on a stated cadence rather than when someone remembers it, and the recharged amount should be checked against the method the intercompany agreement actually describes, invoice by invoice.
That second control is what Phacet automates. The invoice versus contract control agent compares each recharge against the stated terms and flags divergence before payment, while budget versus actual tracking surfaces a cost base that has grown without the key following. See cost centre invoice routing for the upstream allocation of incoming invoices.
