Expense Allocation by
Corporate SBU Supported

View Template for: SHU Expense Allocation by Corporate SBU

The purpose of this analysis is to record the allocation of expenses of the horizontal unit by corporate SBU and to put forward the planned resource allocations for current and future time periods.

The table shown below is simple and most revealing.

Example of Expense Allocation by SBU for I/S Dept. of Insurance Company XYZ

 

Strategic Business Unit	1995 Actual	1996 Plan	% Change
Workers Compensation	$ 9,000,000	$ 8,000,000	( 11 %)
Commercial Auto Ins	$ 5,000,000	$ 6,000,000	20 %
Commercial Property Ins	$ 5,000,000	$ 4,000,000	( 20 %)
General Liability Ins	$ 4,000,000	$ 5,000,000	25 %
Trucking Insurance	$ 3,000,000	$ 4,000,000	33 %
Boiler & Machinery Ins	$ 3,000,000	$ 2,000,000	( 50 %)
Ocean Marine Insurance	$ 1,000,000	$ 1,300,000	30 %
Total Expenses:	$30,000,000	$30,300,000	1 %

In practice, many corporations establish (simplistic) corporate guidelines which mandate flat budgets or small increases across the corporation. But even horizontal units which 'must live' within such guidelines should recognize that there is ample opportunity to re-allocated people and expenses based on the relative needs of the businesses. If the department must live within a 1% budget increase, it is still possible to dramatically re-allocate resources as shown above. If the corporate mandate is applied across the department, at every level, in order to 'be fair,' the actual result is the elimination of strategic decision making. In essence, the horizontal unit (and the whole company if every department follows suit) commits itself to yesterday's resource-allocation priorities in today's environment.

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Last modified:   Tuesday February 19, 2008