14.1.2.2 Model Type Pane

The appearance of the Model Type pane depends on whether you are building a Standard Model or a Circular Model.

• Standard Model: To construct a Standard Allocation Model, select Standard from the Model Type drop-down list box.
• Circular Model: To construct a Circular Allocation Model, select Circular from the Model Type drop-down list.

  The general use case for Circular Allocation Models involves sequences of center-to-center rules where your objective is to transfer a series of expense balances in which each allocation rule allocates expense from one center to a series of target centers. In this scenario, it is very common to credit back to the source using <Same as Source> in your specification for each dimension within your allocation credit specification. In a shared service’s context, centers that you have cleared of the expense become the targets of allocations that come later in a sequence of allocation rules. Often, each center allocates 100% of its original expense, but by the end of the series of shared services allocations, each center has some small expense balances that have been allocated back to it from other centers. The amount of expense that backwashes to centers that have already been cleared of the expense vary in the range of 1% to 10% of the expenses originally found in each center. For example, if the center in a series of such rules ends up with 10% of its original expense after the full sequence of rules runs one time; then after running the same sequence of rules a second time, the center has 1% of its original expense remaining. After two cycles, the center has 1/10th of 1% of its original expense remaining.

  The Circular Allocation Model allows you to organize lists of allocation rules that you wish to run iteratively for multiple cycles to reduce to near zero balances that were originally present. After the remaining balances have reached an acceptable threshold, you can sweep the remaining balances from all sources with one or more additional rules that run only once.

  Figure 14-3 Circular Allocation Model

  
  

  

  
  

  Select Circular from the Model Type drop-down list.

  Select a Circular Motion Method to control the number of cycles or iterations you want the circular rules to run from the following options:

  • Number of Cycles: Specify the number of iterations or cycles you want the circular part of your Allocation Model to execute.
  • Threshold Source Balance: Specify the residual threshold source balance you want to achieve within your Allocation Model.

    After each rule within the circular pane is executed once, the engine calculates the remaining Total Source Balance. The remaining Total Source Balance is equal to the sum of the Source specification of each of the rules within the Allocation Model's “circular” pane. This value is compared to the threshold source balance. If the threshold balance is greater than the remaining Total Source Balance, the iterative process stops, and each rule within the sweep pane is run once sequentially.

    If the threshold balance is less than the remaining Total Source Balance, each of the circular rules runs again in sequence. After each cycle, the threshold balance is compared to the remaining Total Source Balance until either:

    • It is greater than the remaining Total Source Balance.
    • The maximum number of iterations (defined in the Threshold Percentage section) is reached.
  • Threshold Percentage: Specify the residual threshold percent balance you want within your Allocation Model.

    In Threshold Percentage, the remaining Total Source Balance after each cycle is compared to the original Total Source Balance. The original Total Source Balance is calculated only once before any of the circular rules are executed. After each cycle through the circular rules, the remaining Percent Balance is calculated, as the remaining Total Source Balance divided by the original Total Source Balance. The remaining Percent Balance is compared to your threshold Percentage to determine whether to exit the loop and proceed to the sweep rules or to continue cycling through the circular rules. As with the Threshold Source Balance, the circular section of rules does not run more than the maximum number of iterations. For more details, see the Maximum Circular Allocation Iterations section.

  • Maximum Circular Allocation Iterations: To omit an infinite loop of allocation rules, Allocation Models are governed by an overall limit on the maximum number of iterations or cycles that can be run before the circular part of a model completes. This maximum number of iterations is set in the Application Preferences for Profitability Management.

  Figure 14-4 Allocation Preferences

  
  

  

  
  

Within the specification of an Allocation Model, if you attempt to save a model using a value for the Number of Cycles that either:

• Exceeds the value found in Application Preferences.
• Is less than or equal to zero.

In such a case, the user interface displays an error message:

Figure 14-5 Error message