This chapter covers the following topics:
Pricing is the process for determining rates associated with a transaction, such as interest rates or yield rates. If rates are known, other values in the pricing formula can be determined, including the payment. The leasing industry relies on pricing tools to calculate and control pricing for lease sales quotes. Pricing tools help control the quoting process, enforce a company's pricing policies, and increase efficiency in a high volume environment.
Pricing tools enable you to create pricing policies and enforce compliance to set pricing standards. Pricing tools must have the flexibility to adapt to a variety of financial circumstances and preferences without compromising accuracy and control.
The object of the sales process is to determine the pricing for a deal. Based on pricing information known and what pricing data needs to be calculated, you select a pricing method for a quote. Each pricing method allows you to solve for a different pricing result. The other values of the pricing calculation must be selected or entered. For example, if you select Solve for Financed Amount, you must enter values for the rates, end of term ratios and payments. The pricing programs will determine the amount of financing that can be allocated to quote lines for the payment and rates provided.
If you use lease rate factors to calculate quote payments, Lease and Finance Management enables you to create lease rate sets (rate cards). The rate set includes a series of lease rate factors. The lease rate factor is identified or entered for each quote line and multiplied for the cost of each line to determine the payment for the line. You can generate or regenerate lease rate factors for a lease rate set (rate card) using a concurrent program. To run the program, you can select a standard rate template to look up an interest rate or enter an interest rate, you enter a range of term lengths and a range of end of term option values. The Lease and Finance Management lease rate factor generation program calculates all applicable lease rate factors for each valid interval combination.
Optionally, you can also set up adjustment matrices to automatically adjust interest rates or lease rate factors based on deal details. For example, if you adjust interest rates or lease rate factors for deals with long term lengths, you can set up the adjustment matrix for an adjustment amount for ranges of terms. When you select the associated standard rate template or rate card associated to the adjustment matrix and the rate is retrieved, it will automatically be adjusted depending on the term length of the estimate or quote
To support your pricing policies using Oracle Lease and Finance Management, you define details for pricing tools. Oracle Lease and Finance Management uses the following pricing tools:
| Pricing Tools | Function |
|---|---|
| Item Residuals | Item Residual Values are used to create end of term options and can be assigned to items. You may define a value for inventory items or categories used on quotes. The value may be defined as a percentage of the asset cost or as a fixed value. You specify a different residual for each term length that can be quoted. |
| End of Term Options | End of term options are used as the future value in all pricing calculations for lease sales quotes. You can create end of term options and assign inventory items or categories to the option with a value for each item/category associated. If you use item residuals as the basis for end of term values, you can associate the end of term option to an item residual to derive values during quoting. |
| Lease Rate Sets (or Rate Cards) | A lease rate set, or rate card, is a table of one or more lease rate factors to be used by the Lease and Finance Management rate card pricing method to calculate the payment for an asset on a quote or estimate. You define lease rate sets that are used to determine a payment amount for an asset on a quote or estimate. Rate sets contain one or more lease rate factors. A lease rate factor is multiplied by the asset cost to determine the payment amount. During quoting, the lease rate factor is looked up based on the quote item or item/category end of term value amount or percentage and the quote term. |
| Standard Rate Templates | You can define standard rate templates to generate an applicable interest rate for a specific date and quote. You can also specify a rate template for each quote line. The rate template may refer to a rate index or a base rate. You define other attributes such as an adder rate and day count convention that determine how the interest rate is used in calculations. |
| Adjustment Matrices | An adjustment matrix allows you to increase or decrease an interest rate (from a standard rate template) or a lease rate factor (from a lease rate set) based on deal attributes. You define a range of values for an attribute and the corresponding increase or decrease in rate for that range. |
An item residual is a value assigned to an inventory item or inventory category in Lease and Finance Management for a specific term length. The value can be a specific number or a percentage of the asset cost used to calculate the residual value. Item residual values can be used to assign end of term option values.
To create item residuals, see Create Item Residuals, Oracle Lease Management Implementation Guide.
End of term option values are used as the future value in all pricing calculations for lease sales quotes. For each item assigned to the end of term option, you can enter a value or the value can be derived from the item residual value for each term length you specify. When you assign an inventory item or inventory category to an end of term option, the associated item residual value defines the end of term option value. Or when you use the inventory item or category, you can enter the end of term option value directly. End of term option values can also be defined for a residual category set.
A residual category set is a group of items, or item categories, for which you assign common item residuals. The grouping can consist of items or item categories, but not both. For example, you may group together inventory item categories for trucks and buses into a single residual category set and assign common item residual percentages. The end of term value is only used for pricing on quotes and is not recorded on the lease contract. Therefore it is not used for termination quotes unless you set up a formula to derive it from the set up.
To create residual category sets, see Create Residual Category Sets, Oracle Lease Management Implementation Guide.
To create end of term options enter the option details in the Create End-of-Term Option page. Click Apply when done. The following table describes end of term option fields.
| Field | Description |
|---|---|
| Operating Unit | Operating unit assigned to the record.
Note: The list of values includes operating units assigned to the MO: Security profile. Note: The application displays the selected operating unit as the default in the subsequent pages irrespective of the value that you set for the MO: Default Operating Unit profile option. The selected operating unit restricts the valid list of values in applicable fields. |
| Name | Name of the end of term option |
| Description | Optional description of the end of term option |
| Source | Determines if the end of term option value will be looked up for each item or based on an item category or residual category set. |
| Value Type | Determines if the end of term option value is calculated as an amount or percent of the asset cost. |
| Currency | Type of currency to be used |
| Product | Financial Product the end of term option is associated to |
| Status | When you click Apply, the end of term option value entered is saved with a status of New, and must be approved before it can become Active. If you click Submit, the option is saved and submitted to Oracle Workflow for Approval. |
| Item | Item to be associated to the end of term option |
| Term | Term of the end of term option |
| Value | The end of term option value. |
The following section describes standard rate templates.
If you use other payment methods that require the use of an interest rate in the calculation, you can set up standard rate templates to derive or impose the interest rates you want to use. You can specify standard rate templates for each business unit to be the default template when no other rate card or rate template has been defined with set effective to and from dates.
Standard rate templates generate an applicable interest rate for a specific date and item or quote. When you set up a standard rate template, you can either enter the base interest rate or base it on an interest rate index. Other details can be defined also, such as alternative day count conventions, minimum and maximum interest spreads, and adder rates, to set up how the interest rate will be used in pricing calculations.
When you chose an interest spread, the spread is added to the base rate or index to determine the final interest rate. Interest can be calculated based upon 30 day months with 360 day years, actual day months with 365 day years, or actual day months with actual day years. Additionally, you can use standard rate templates to derive interest rates you want to use when generate rate factors for a lease rate set (rate card).
To create a standard rate template, enter the template details in the Create Standard Rate Template page. Enter the template version details in the Version Details region. Enter Eligibility Criteria details and click Apply when done. The following table describes end of term option fields.
| Field | Description |
|---|---|
| Operating Unit | Operating unit assigned to the record.
Note: The list of values includes operating units assigned to the MO: Security profile. Note: The application displays the selected operating unit as the default in the subsequent pages irrespective of the value that you set for the MO: Default Operating Unit profile option. The selected operating unit restricts the valid list of values in applicable fields. |
| Name | Name of the standard rate template |
| Description | Optional description of the standard rate template |
| Use Rate Card Only | If selected, allows you to use this template for generating lease rate factors for a lease rate set (rate card). |
| Status | When you click Apply, the end of term option value entered is saved with a status of New, and must be approved before it can become Active. If you click Submit, the option is saved and submitted to Oracle Workflow for Approval. |
| Currency | Type of currency to be used. Must match the currency used in your quote or lease rate set. |
| Pricing Program | Reserved for future use. You can only use the internal pricing program for lease sales quotes. |
| Type | Determines if the template will derive its base interest rate from an index or from a value you enter. |
| Frequency | Determines how to apply the interest rate when used in pricing. |
| Rate | Pricing Rate |
| Spread | The rate amount that will be added to any specific base rate, whether the base rate is entered or derived from an index. |
| Convention | Determines the day count logic used with the template when it is associated to a quote or lease rate set. |
| Adjustment Matrix | Determines if the calculated rate requires any adjustment based on the actual values of the quote, such as deal size or term length. |
| Minimum/Maximum Adjusted Rate | Rate adjustments from pricing adjustment matrices are cumulative, so you can limit the overall adjusted rate to a maximum or minimum value for the template. |
| Match Criteria | Provided eligibility criteria have been set up, you can set up the criteria to match on All, None, or One of the values in the set. |
| Validation | Determines whether conditions result in an Error or Warning upon validation. |
You can copy standard rate templates to create a new template and the copy is assigned a default name which you can update. A standard rate template with the status New is created, but has not been submitted for approval.
When you make changes to an active standard rate template, except end dating, a new version is created. Versions of the standard rate template are assigned statuses. If you update a template version, the status is Incomplete and you must submit the new version for approval before it can be activated and used in quote pricing. You can update standard rate templates by updating the base on the template directly, or deriving a new rate based on the associated rate index. Updates to the standard rate template will generate new lease rate factors for associated lease rate sets.
An adjustment matrix is a pricing tool used to adjust an interest rate on a standard rate template or a lease rate factor on a lease rate set. The adjustment matrix enables you to increase or decrease an interest rate on a standard rate template or a lease rate factor in a lease rate set based on the specifics of your deal. You can define a range of values for an aspect of your deal and the corresponding increase or decrease in the rate for that range. Adjustment categories can also be created and used to select and restrict the use of adjustment matrices, such as which customer credit classifications can have rate adjustments.
Lease and Finance Management provides an approval process for pricing adjustment matrices and you can set up notifications for when the pricing adjustment matrix status changes to Approved, Submitted, or Rejected.
To create a pricing adjustment matrix, enter the matrix details in the Create Pricing Adjustment Matrix page. Click Apply when done. The following table describes pricing adjustment matrix fields.
| Field | Description |
|---|---|
| Operating Unit | Operating unit assigned to the record.
Note: The list of values includes operating units assigned to the MO: Security profile. Note: The application displays the selected operating unit as the default in the subsequent pages irrespective of the value that you set for the MO: Default Operating Unit profile option. The selected operating unit restricts the valid list of values in applicable fields. |
| Name | Name of the pricing adjustment matrix |
| Description | Optional description of the pricing adjustment matrix |
| Type | Determines whether you can associate the matrix to a standard rate template to adjust interest rates, or to a lease rate set to adjust lease rate factors. The value entered determines what is adjusted by the Adjustment Matrix. Rate is selected to adjust Standard Rate Templates. Rate Factor adjusts Lease Rate Sets. |
| Currency | Type of currency to be used |
| Status | After you create a matrix, it remains in a status of New until you submit it for approval. Only approved matrices are Active and apply to quote rate adjustments. |
| Effective To/Effective From | Once you associate a category to a matrix, you determine the dates the category will be valid on this matrix version, and the values or value ranges within the category that will result in rate adjustments. |
| Add Criteria | After you enter the matrix details, you can add adjustment categories to the matrix, providing the categories have been set up as a criteria category. For each value or value range in the selected criteria category, you determine the amount the interest rate or lease rate factor will be adjusted by. Lease and Finance Management automatically adds these adjustments to the rates on a quote when you perform pricing. |
| Submit | Click to submit the matrix for approval. |
Lease and Finance Management uses the following pricing methods:
Lease Rate Sets (or Rate Cards)
Solve for Payment
Solve for Missing Payment
Solve for Yield
Target Rate
A lease rate set, or rate card, is a table of one or more lease rate factors used by the Lease and Finance Management rate card pricing process to calculate the payment for an asset on a quote or estimate. You set up and maintain a lease rate set, or rate card, when you use the Rate Card pricing method. A lease rate set contains multiple lease rate factors. Rate factors are looked up for each line on a quote based on the end of term value (percentage or amount) and the lease term of the quote. The lease rate factor is multiplied by the asset cost for each quote line to determine the payment amount. You can manually enter lease rate factors in the lease rate set, or set up Lease and Finance Management to calculate the lease rate factors for you. For each end of term residual value and term you authorize for a quote, you generate or enter a lease rate factor.
During pricing plan creation for a quote, you select a lease rate set from a list of sets that matches the frequency and rate you enter on a quote. You can also specify a rate card for individual quote lines. Lease and Finance Management looks up the rate factor from the set for each asset on the quote. The factor rate is multiplied by the item asset cost to determine the payment amount for each asset and the total for all assets is displayed as the payment amount.
For each lease rate set, you can also define tolerance ranges when defining lease rate factors for a given residual amount. During the look up process for determining the lease rate factor that applies to the quote line, Lease and Finance Management will use the tolerance to find the best match for an item. You can specify the tolerance range used to determine the best match, but there are several seeded categories, including deal size, down payment amount, number of advance payments, deferred payment days, end of term option on a financial product, and end of term value tolerance. The lease rate factor generation program can calculate rate factors for level payments or factors that include a deferred payment where the first step includes a payment of zero amount.
Alternatively, you can define multiple step rate cards with a series payment steps, each with a term and different rate factor per level per rate card entry. The payment levels you define on a rate card default onto a quote and the rates are multiplied by the asset cost to create a payment amount per step.
You can define acceptable ranges of financing cost adjustments for the use of a rate card. Financing cost adjustments can include down payments, trade-ins, and capital reductions. You can define ranges of values for these pricing details for a rate card or standard rate template.
To set up lease rate sets, complete the following tasks starting in the Lease Rate Sets page:
Enter Rate Set Details
Associate Eligibility Criteria
Enter Rate Factor Determinants
The following table describes lease rate set details.
| Field | Description |
|---|---|
| Operating Unit | Operating unit assigned to the record.
Note: The list of values includes operating units assigned to the MO: Security profile. Note: The application displays the selected operating unit as the default in the subsequent pages irrespective of the value that you set for the MO: Default Operating Unit profile option. The selected operating unit restricts the valid list of values in applicable fields. |
| Type | Deferred, Level, or Manual. Advance type handles advance payments. Values are automatically generated. Deferred type rate allows you to specify a number of months in the beginning of the term that no payment is due. The values are automatically generated based on the interest rate, frequency, end of term option, and term range you specify. Level type creates a single payment step for the entire term. The values are automatically generated based on the interest rate, frequency, end of term option, and term range you specify. Manual type allows you to enter the steps of the rate set yourself. You must enter each lease rate factor in the set for each term and end-of-term value combination. The values will not automatically be generated for you. |
| End of Term Option | You can associate an end of term option to the lease rate set. This purchase option is used to populate the Lease Rate Factor table. |
| Currency | Select the currency to be used. |
| Frequency | Annual, Monthly, Quarterly, or Semi-Annually. |
| Description | Optional description of lease rate set. |
| Standard Rate Template | Associate to a Standard Rate Template. Any eligibility criteria associated to the Standard Rate Template will be inherited. |
| User Rate | Rate value can come from the Standard Rate Template, if associated, or must be entered manually. |
| Arrears | Determines whether the lease rate set is in arrears or not. |
| Rate Tolerance | Determines whether the match on the lease rate set must be exact or can be within the tolerance range. |
| Residual Tolerance | The range around the end of term option value that will be tolerated. |
| Adjustment Matrix | You can associate an adjustment matrix to adjust lease rate factors within a rate card. The adjustment matrix must have a status of Active to be selected. |
| Eligibility Criteria: Match Criteria | Indicates if All the criteria categories in an object must be matched for the search or validation to be successful, or if One criteria category match will suffice. |
| Eligibility Criteria: Validation | Warning type validation means that a warning message will appear upon validation, but no restriction is imposed. Error type validation means an error message will appear and you cannot proceed or save until the Eligibility Criteria is satisfied. |
You can calculate a payment for a quote using an interest rate. Using a simple interest calculation, Lease and Finance Management calculates a payment based on the interest rates you enter, or based on the rate as determined by the standard rate template you select. You can only enter interest rates you authorized in your user profile settings. You can enter multiple steps on a quote with different interest rates. The rates will be blended to calculate total payment amount. You can also specify different rates or select rate templates for individual quote lines and payment steps for those lines.
You can solve for a single missing payment amount in a quote or a quote line. You enter the interest rate or select a standard rate template and amounts for all payment steps except the payment amount you want to calculate. Lease and Finance Management calculates the amount of the step with the missing payment. You can only enter interest rates if you are authorized in your user profile settings.
If you know the amount of the payment a prospect wants to pay, you can enter the payment amounts in one or more payment steps, and Lease and Finance Management will calculate the yields and interest rate.
If you want to calculate the payment based on one of the calculated yields, such as Pre-Tax IRR, you can select the yield type, the target rate, and enter the other payment details, such as frequency and advance/arrears. Lease and Finance Management will calculate the payment amount. You can only use this method for level payments. Third party users (through the Vendor Self-Service origination module) are not allowed to Target Rates.
This pricing method calculates down payment amounts, given the interest rates and other pricing factors defined for each asset. The resulting amounts are summed up and displayed at the quote level.
This pricing method calculates subsidy amounts, given the interest rates and other pricing factors defined for each asset. The resulting amounts are summed up and displayed at the quote level.
This pricing method calculates trade-in amounts, given the interest rates and other pricing factors defined for each asset. The resulting amounts are summed up and displayed at the quote level.
This pricing method calculates maximum financed amounts, given the interest rates and other pricing factors defined. The resulting amounts are summed up and allocated to configuration lines based on percentages that you specify.
Lease and Finance Management uses pricing controls to enhance your ability to enforce pricing policies for different users, customers, assets, vendors, or deal types. You can set up pricing rules and apply them to selected pricing objects to determine when certain pricing tools will be employed and whether standard values can be updated.
Lease and Finance Management uses the following pricing controls:
| Pricing Rule | Function |
|---|---|
| Eligibility Criteria | You can associate eligibility criteria to business objects that determine the conditions for which that object can be used. Eligibility criteria may be determined for Financial Products, End of Term Options, Standard Rate Templates, Lease Rate Sets, etc. When you select these items during quoting, the eligibility criteria will filter the list of values the user may select from based on how the attributes of the quote compare to the criteria values. |
| Vendor Program Agreements | Vendor Program Agreements allow you to set up conditions that apply to estimates, quotes, lease applications and contracts that are originated in association with a particular vendor. You can use a Vendor Program Agreement to: 1) control values available for selection on a quote or lease application and 2) determine default terms and conditions that apply to contracts. |
| Structured Pricing Authority for Users | Through profile options, you control the ability of internal and third party users to: 1) view some types of pricing information such as yields, 2) update rates, item residuals and end of term values, and 3) enter customized payment structures rather than select a standard, preset pricing option. |
Eligibility criteria are associated to business objects to select or restrict the conditions for which the objects can be used. Eligibility criteria can be determined for end of term options, standard rate templates, lease rate sets, vendor programs and financial products and adjustment matrices. You set up criteria categories to be used to define eligibility criteria. After setting up the criteria category, you decide which of the pricing business objects you want to restrict based on the category. For example, you can set up a criteria category of Deal Size Maximum. You may want to restrict the use of standard rate templates and rate cards by the Deal Size Maximum category, but you may not use Deal Size Maximum to restrict Vendor Program selection for a quote.
When you create new objects, you can assign values to the category that restrict the use of the object to values within the category. For example, if you assigned Deal Size Maximum as a criteria category on standard rate templates, when you create new rate templates, you can enter a Deal Size Maximum value for the category. When the user views a list of rate templates on a quote, the rate templates with the Deal Size Maximum value that is less than the deal size of the quote will not be available.
To set up eligibility criteria, see Create Criteria Categories, Oracle Lease Management Implementation Guide.