Project Time Tracking Meets Internal Cost Allocation

Aug 18, 2025 by Alexander Huber

Many companies automatically associate project time tracking with billing external customer projects. But in our practice we see: time tracking is just as critical for internal cost allocation. Especially internal IT departments, HR or marketing face the challenge today to allocate their services transparently and fairly to other business units.

In this article, we explain why internal cost allocation (ICA) in our experience is more than just “one pocket to another,” how it can be represented within project time tracking, and why concepts like multi‑client splitting are technically decisive.

Why Internal Cost Allocation?

Internal cost allocation (ICA) ensures that services between departments of a business are distributed in a cause‑based way. It is more than an accounting trick:

• Transparency: Every department can see which services they consume and what costs are incurred.
• Cost awareness: Internal services are not perceived as “free,” but understood as real costs.
• Steering instrument: Management can assess, optimize and control services.
• Efficiency promotion: Departments scrutinize whether services are necessary — IT and other service areas optimize their offerings.

Cost Center vs. Profit Center — the Role of IT

Traditionally, IT departments were run as cost centers. A cost center is defined as:

The focus is on budget compliance and efficiency, not revenue generation. Typical examples include IT, HR, and administration. Increasingly, though, companies view their IT not only as a cost center but develop it into a profit center. A profit center is:

Here, IT units act like internal businesses: they deliver services, charge for them, and bear responsibility for results. In IT, there is a clear trend: more organizations position their IT as a profit center, because efficient IT not only reduces cost but also improves margins and growth. (LOGIC2020)

Forbes also stresses that organizations should find concrete ways to transform IT departments from cost centers to profit centers (Forbes).

A practical example: at USAA, the IT department was organized as an internal chargeback model functioning as a profit center, leading to significant cost reductions while improving IT service quality (Springer).

Current Trend

More and more corporations are evolving their IT functions from classic cost elements to independent profit centers. The reason: IT is no longer viewed just as a technical service provider but as a central business enabler that contributes decisively to value creation.

When internal departments pay real prices for the IT services they use, quality and service orientation naturally increase. IT must define its offerings clearly, calculate transparently, and continuously improve, similar to an external provider.

At the same time, internal cost allocation (ICA) remains a vital tool even when IT continues to operate in a cost center model. It provides transparency, makes costs understandable, and fosters a better understanding of actual usage of IT services across the company.

Project Time Tracking as the Basis of Internal Cost Allocation

Why is project time tracking so important here? Because the recorded times form the basis for internal cost allocation.

• Not only external projects: Internal software rollouts, service projects or maintenance projects also have start & end dates, budgets, and task packages.
• Traceability: Who worked when on what? This information is critical to distribute costs fairly.
• Complex splits: Often, multiple cost centers share project costs. Splits are rarely a simple 50/50. More often custom splits must be considered automatically.

🛠️ Practical example: internal cost allocation in a corporate IT

One example from our practice shows how project time tracking becomes a central steering instrument in the internal IT of a large Austrian corporation.

Starting Point

The central IT department of a large Austrian group handles many tasks beyond classic infrastructure operations: software rollouts, maintenance, migration, application support, cross‑company services like helpdesk, security, or cloud platforms. These services are consumed by multiple business units across the group.

Goal

To ensure cost transparency, the IT department wants to allocate efforts fairly. Each business unit should bear costs in proportion to actual usage. This approach not only ensures fairness but also encourages cost awareness in business units.

Challenge

In practice, IT projects rarely map neatly to a single cost center. Often multiple departments are involved for example, when rolling out a new ERP system group‑wide or deploying a security initiative affecting every business unit. The cost allocation across departments is not always equally divided but based on usage, headcount or other allocation keys. Complexity increases further when splits change during a project or when some departments are only temporarily involved.

Multi‑Client Splitting in Practice

To keep the booking process simple for employees, the system handles splitting automatically:

• The project is linked to multiple cost centers.
• A distribution table defines percentages (e.g. cost center A 30 %, cost center B 70 %).
• Booked times are split automatically behind the scenes.

Use Case Example

Below we describe a concrete implementation example with Time Cockpit, where the high configurability of the platform proved especially useful. Internal cost allocation could be tailored exactly to the needs of the corporate IT. Three elements were decisive: data model, data import, and reporting.

1. Data Model

In the classic model you often see hierarchy Client → Project → Task. That is not sufficient for internal cost allocation. Here, an additional Cost Center entity was introduced and connected in an M:N relationship with projects. A field “Allocation (%)” makes it possible to split project time automatically between cost centers.

2. Data Import

Project data often originates outside the time tracking system. In this case, some came from Microsoft SharePoint, connected via a web service interface, and some from a custom in‑house development exporting its data as JSON. Thanks to Time Cockpit’s flexibility, both systems could integrate seamlessly. Crucial was the technical expertise in building custom interfaces.

3. Reporting

Once the data is in the system, employees record time as usual against projects and tasks. The splits to cost centers run automatically behind the scenes. For controlling, script lists were created to aggregate booked time and assign it to cost centers according to the splits. Via automatic Excel export, results could be further processed directly. This is a clear added value for transparency and traceability.

Best Practice Tips from the Field

From our projects we know: success in internal cost allocation depends not only on technology but also on execution. The following recommendations have proven effective in practice and ease the daily work of IT departments and controlling:

Conclusion

Internal cost allocation is a central steering instrument for modern organizations and far more than “one pocket to another.” Especially IT departments evolve from cost centers to profit centers and require transparency to present their services.

Project time tracking forms the foundation: it makes internal services visible, enables fair cost allocation, and supports complex models like multi‑client splitting. Success hinges on the interplay of data model, import processes, and reporting. It ensures internal time tracking is experienced not as a burden but as a value add.