Understanding Target Balances

A target balance is a forecast capability that nets forecasted origination volume to historic runoff for a product. The processing logic in the Portfolio Forecast application engine assures you that the outstanding principal balance of the product for a particular period equals the amount specified as the target balance. In essence, the Portfolio Forecast application engine subtracts the outstanding principal balance of the cash flow runoff from the forecasted pool volumes.

Here is an example of the logic-and-process flow using a multidimensional (multipool per product) forecast assumption:

1. Run the Financial Performance Measures (FPM) application engine for the historic book at any time.

2. Assume that the historic CF principal balance (from FI_POOL_CF_R00) for period #1, Prod P160 totalled 20 USD.

3. The Portfolio Forecast application engine would therefore create five new FI_POOLINST_ F00 rows, each with an initial balance of 196 USD each.

   This represents the adjustment of 20 USD over the five pools.

4. The Portfolio Forecast application engine would also create the cash flow records for new FI_POOLINST_ F00 rows as part of the process.

   The sum of all principal balance fields for product P160 would thus equal 1,000 USD (the target balance for that period from the forecast).