1. User Guide
  2. Business Rules Administration
  3. Application Specific Rules
  4. Allocation Specification
  5. Allocation Examples
  6. Examples of Dynamic Allocations
  7. Management Ledger Allocations Using Statistics

5.3.1.3.9.3 Management Ledger Allocations Using Statistics

The Management Ledger Allocation using statistics covers the following:

  • Percent Distribution: Examples #1 and #2 above utilize the Instrument-level statistics as Driver Data for rules whose Source is the Management Ledger and that generates an output to the Management Ledger. It is also possible to use the Management Ledger as a Source, the Management Ledger as the source of Driver data, and the Management Ledger as your output target. Two examples of percentage distribution are:
    • Distributing Human Resource expenses to Cost Centers as a function of (Management Ledger Resident) headcount statistics.
    • Distributing Occupancy expenses to Cost Centers as a function of (Management Ledger resident) square footage statistics (space occupied by the target Cost Centers).
  • Uniform: See the Uniform Method Section for an example of the Uniform allocation method.
  • Simple: Your Institution might obtain volumetric statistics for different kinds of activities either from your source systems or as memo accounts within your General Ledger. If you have such activity counts stored within your Management Ledger, you could build Allocation Rules to develop Cost Pools. Subsequently. build other rules to develop unit costs for each of your activities. For example, beyond general marketing expense, your Institution might track advertising expense for Time Deposits under a single General Ledger account and record “Number of CD's Sold” for each Time Deposit product under a General Ledger memo account (likely stored in Management Ledger under Financial Element 10,000: Statistic). In this case, build a Dynamic Driver Allocation Rule that used the “Time Deposit Advertising Expense” GL Account as its Source. Divided by the “Number of CD's Sold” on a Percent to Total basis, and that debited a new, user-defined Financial Element 10,100: CD Acquisition Unit Costs (for this Allocation, set your debit GL Account and Org Unit and all other Key Processing Dimension Values to a dummy value meaning of which was “N/A” or “Not Applicable”). In creating these unit costs, use instrument-level data to obtain your “Number of CD's Sold” statistic. To accomplish this, your driver would look to the Record Count column (the Record Count column contains the number “1”) of the Time Deposit table (FSI-D-TERM-DEPOSITS). This would include a Data Element Filter that isolated new accounts; and a Hierarchy Filter on the Product Dimension that included only the relevant Time Deposits Products.

Under either approach, your result set is a series of unit costs by Product for acquiring new CDs. In this example, we assumed that the only costs included in acquiring new Time Deposits were the advertising costs directly related to Time Deposit products. More realistically, you might first build a series of Allocation Rules that created a cost pool for this expense category; or you might have to build a more complex Source expression to capture all of the relevant costs dynamically. Moreover, your Institution might capture these unit costs within your General Ledger or might develop these costs in an external model. The following example demonstrates how to utilize unit costs using a Dynamic Driver Allocation Rule under the “Simple” method. Having acquired (or developed) your unit cost statistics, build a Dynamic Driver Allocation Rule as follows:

  • Source: Record Count (1) from the Time Deposits Table.
  • Allocation Operator: Multiplication.
  • Driver: CD Acquisition Unit Costs under Financial Element 10,100 using the Simple Method.
  • Debit Outputs: A user-defined Acquisition Costs column within the Time Deposits Table; set the Product Dimension to < Match Source & Driver >; set all other Key Processing Dimensions to < Same as Source >.
  • Credit Outputs: None

Written in this fashion, the Allocation Engine reads each record, matches it to the appropriate unit cost for the record's Product, and updates the record with that appropriate unit cost.

Note:

You could set the Credit Output to the aggregate total allocated costs to offset the Management Ledger GL Account or Cost Pool containing the original costs.

In achieving the objective of distributing activity-based costs, it is not strictly necessary to either build cost pools or unit costs. You might be able to simply define your cost pool dynamically within an Allocation Rule and allocate those costs directly to your instruments on a Percent to Total basis using appropriate instrument-level drivers (in this example, number of new accounts).

One reason to take the more complicated path of developing unit costs is to be able to more readily report directly on those unit costs, or that you have obtained those unit costs from an independent cost study or an external Activity Based Costing Application.

You may decide that burdening new Time Deposits with their entire Acquisition Cost based on:

  • In the month in which there were originated,
  • The current month's advertising costs were not economically “fair” or realistic.

To develop unit costs reflecting the average of your YTD or “rolling 12” advertising expense; allocate not only to new accounts but to all Time Deposit accounts. Choosing either of these methods complicates the task of reconciling your total account level profitability back to your General Ledger but choosing Economic allocation methods for allocating expenses to the account level is common.