A group allocation needs a service explanation

A parent-service allocation can create a familiar disagreement. Group finance sees a consistent method for distributing common costs. Local managers see an amount that reduces their reported performance and may struggle to connect every part of it with a request they made. The discussion then becomes a negotiation over the total, with each side defending its position. I find that more progress comes from asking what work the amount represents, who uses it and why the proposed company should fund it.

Replace the argument about the total with an account of the work

Kulvani's proposed India management-budget allocation was ₹11.4 crore. It combined identifiable technical services, common systems and broader group activities. Local colleagues wanted to resist the full charge because not every item had a corresponding India request. Group finance preferred the existing basis because it was applied consistently across subsidiaries. Consistency was relevant, but it did not remove the need to explain this company's share of the activity.

I asked both teams to work from a service account rather than a preferred outcome. What was provided, which people or operations benefited, and what evidence supported inclusion? For directly attributable services, the link could be relatively clear. For shared support, we needed a more careful explanation of the capability made available and the basis for distributing its cost. The exercise required time from colleagues who had previously been able to rely on the established calculation.

The first benefit was a more precise disagreement. Instead of arguing that the charge was either fair or arbitrary in its entirety, we could examine particular activities. Some objections concerned the allocation basis, others concerned the underlying service and others reflected unfamiliarity with a resource the local business did use. Those are different problems. A reduction in the total might conceal them temporarily, but it would not provide a durable basis for the next budget.

I also asked local managers to describe the alternative if a disputed service were removed. Would the Indian company provide it itself, buy it elsewhere or accept that it did not need it? This was not a rhetorical defence of the parent. It helped distinguish a service whose cost needed scrutiny from a service whose value had been overlooked because it arrived through the group. A useful challenge should be prepared to acknowledge a cost the business would otherwise have to bear.

Accept shared value where the basis holds

The review supported ₹6.8 crore of directly attributable services and ₹2.1 crore of shared support. I accepted both components. The shared portion did not produce an individual ticket for every beneficiary, but the activity and the basis for including India could be explained. Rejecting it simply because it lacked a one-to-one request record would have made our position convenient rather than economically convincing. Shared capability can be real even when its use is not recorded as a sequence of local purchase orders.

The remaining ₹2.5 crore lacked a sufficiently supported basis for the India management budget. After discussion with the managing director and group finance, the allocation was revised to ₹8.9 crore. I did not describe the result as proof that all earlier group allocations were excessive or that the same ratio should apply elsewhere. The decision followed the evidence for these activities in this period. Another subsidiary or a changed service pattern could require a different conclusion.

There was a trade-off for both sides. Local leaders accepted a substantial shared-service cost that some had hoped to remove. Group colleagues accepted that a consistent calculation still needed a defensible local explanation and revised part of the proposal. We also committed to revisit the basis as the work changed. That continuing obligation was important. An agreed figure can become just as opaque as the one it replaced if the supporting activity account is not maintained.

The conversation became less personal when the evidence was specific. A subsidiary CFO has to work within a group while remaining clear about the company's own position. Treating every challenge as disloyalty discourages useful scrutiny; treating every parent charge as an imposition ignores the value of belonging to a wider organisation. I want the relationship to support a reasoned disagreement in which neither side has to concede its responsibilities in order to reach a decision.

Keep different reviews from becoming substitutes for each other

Our exercise concerned the management budget. It did not establish the contractual, accounting or tax treatment of the arrangement. Those questions followed their own review processes and required the appropriate expertise. I am careful about that distinction because an activity analysis can look sufficiently rigorous that people begin using it to answer questions it was not designed to settle. A useful budget basis is evidence for a discussion, not a universal legal or tax conclusion.

The reverse mistake is also possible. A specialist assessment may address the requirements within its remit without telling local managers everything they need to know about the service they are funding. The company still needs an understandable economic explanation. Different reviews should inform one another while preserving their purpose. Finance leadership is partly the work of keeping those relationships clear, so that one completed process does not become a reason to stop asking a different necessary question.

I would present directors with the activity account, the rationale for the proposed basis and the material points of disagreement. They should also know which specialist reviews have occurred and what remains open. The board need not reconstruct every allocation line. It should be able to understand why the company bears the cost and whether the relevant interests and responsibilities have been considered through the proper process. A polished group policy cannot replace that understanding.

After agreement, I ask for a record that another finance leader could use next year. It should describe the service, the basis, the assumptions and the conditions that would prompt review. That is more useful than a note saying that the CFO negotiated a reduction. People change, systems change and group priorities move. A decision that depends entirely on the memory of the participants will eventually be repeated as a precedent without its original reasoning.

The purpose of challenging an allocation is therefore larger than lowering one budget number. It is to make the relationship between cost and service visible enough to support future decisions. Sometimes that will reduce a charge. Sometimes it will confirm a shared investment that local managers have undervalued. I want finance to be credible in both situations. The discipline is to ask for an explanation we can defend, accept the supported obligation and keep the basis open to examination as the business changes.