Recursive Allocation Rules for Financial Cost Models
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Solution Overview
Problem
Large and complex financial allocation models in businesses make it difficult to accurately determine the total cost of ownership for products and services, especially for larger enterprises, due to the complexity of designing allocation rules and processing object allocation rules efficiently.
Innovation Solution
The implementation of a system that uses recursive allocation rules in a financial data model, where source and target objects are defined to allocate costs based on rules that can iterate until a terminal condition is met, allowing for the generation of final cost values and displaying them in a user interface, with options for incremental accumulation and transition conditions.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If traditional allocation rules are used in large and complex financial models, then the model can handle many tracked activities and elements, but it becomes difficult to accurately determine total cost of ownership and processing becomes inefficient
Solution Approach 1:
The patent segments the complex financial allocation model into hierarchical levels ( Level 0 source objects, Level 1 business service objects, Level 2 business unit objects). This segmentation allows the system to process large numbers of tracked activities and elements by breaking them down into manageable hierarchical components, making it possible to accurately determine total cost of ownership even in complex models with many elements.
Solution Approach 2:
The patent implements nested allocation rules where allocation rules are applied recursively across multiple hierarchical levels. Level 0 source objects allocate to Level 1 business service objects, which then allocate to Level 2 business unit objects. This nesting approach enables the system to handle complex financial models with many tracked elements by processing allocations through nested hierarchical layers, improving both accuracy and efficiency.
2Measurement precision
If the number of tracked activities and elements increases to improve budgeting accuracy, then more comprehensive financial modeling is achieved, but the complexity of designing and processing allocation rules increases
Solution Approach 1:
The patent implements dynamic recursive allocation rules that automatically adapt to the hierarchical structure of the financial model. The system dynamically processes allocations through multiple levels based on predefined recursion parameters, eliminating the need for manual design of complex allocation rules for each scenario. This dynamic approach maintains ease of rule design while handling increased numbers of tracked activities and elements.
Solution Approach 2:
The patent creates universal allocation rules that can function across multiple hierarchical levels and different allocation scenarios. The recursive allocation rule framework provides a multi-functional mechanism that handles various types of financial allocations (direct costs, indirect costs, overhead allocations) through a single unified approach, making it easier to design rules that work comprehensively across the entire financial model regardless of the number of tracked elements.
3Productivity
If sophisticated computer programs are used to assist in generating budgets, then useful and relevant budgets can be produced, but the processing time and computational resources increase
Solution Approach 1:
The patent applies preliminary action by pre-defining hierarchical structures and allocation rules before budget generation. The system establishes Level 0, Level 1, and Level 2 object hierarchies and configures recursive allocation rules in advance, so that when budget generation is needed, the system can efficiently process allocations through the pre-established framework without requiring complex real-time computations, thereby reducing processing time while maintaining productivity.
Solution Approach 2:
The patent implements continuous useful action through recursive allocation rules that automatically propagate costs continuously through the hierarchical levels. Once source objects are defined with their cost data, the recursive rules continuously allocate costs through Level 1 and Level 2 objects without interruption, eliminating the need for multiple separate processing steps and reducing overall computation time while maintaining comprehensive budget generation capability.
Data Source
AI summary
Various embodiments are directed towards allocating costs for a plurality of cost objects. In at least one of the various embodiments, a source object and a target object in a data model may be determined such that an allocation rule is used to define one or more cost allocations where the costs flows from the source object to the target object. Allocation rules that are part of a recursive allocation rule may be executed on the source object and the target object until a terminal condition is met. The cost value that corresponds to the source object may be modified based on the allocation rule and the generated cost value. This process may continue until a terminal condition is met. After the terminal condition has been met final costs value corresponding to the target object and the source object may be generated and displayed.