Does it always make sense to share? Costing in a shared services environment

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Are the shared service chargebacks to my business unit's cost centers accurate and transparent? Will I save any money by using a centralized shared service? Why should I consider a centralized shared service? These are all good questions. To answer these questions, there is a fundamental need to understand your organization's cost structure. That brings us to the age-old debate: Is traditional cost accounting sufficient to provide insight into what things cost and why they cost what they do? The answers to these questions lie in the ability to understand the root cause of cost as well as the cause-and-effect relationship of resources to outputs.

Many organizations today are exploring options to optimize services, particularly support (or back-office) services by addressing root causes of inefficiencies, including resource-sharing constraints and poorly aligned processes and supporting systems. Many believe these improvements can be realized through the implementation of shared service centers. Shared service centers are complex operations that require a new way of planning; they depend on consumers being willing to "give up control" of key support functions and rely on dependable methodologies and systems for tracking costs as well as enabling accurate, transparent chargeback rates. Intuitively, the consolidation of support services should improve efficiency, eliminate redundancy and duplication, and reduce operating costs, thus generating a return on the investment to consolidate. But how do you know this?

Read the full article which examines the application of managerial cost accounting methodologies in order to shed light on the true costs of providing shared services.