Implementation Guide › Case Study Examples › Financial Metric Modeling Example › Case Study 6: Modeling Financial Conditions of a Contract/Service

Case Study 6: Modeling Financial Conditions of a Contract/Service

There are thee general types of Metrics used for modeling the financial conditions of a service or contract. These are:

• Fixed Price costs
• Consumption costs
• Penalty/Incentive charges

Consider the following example:

A new company is starting out and requires an Email service to be provided along with the setting up and maintenance of its mailboxes. As new staff are employed, the number of mailboxes will obviously increase. The provision of an Email Service for a Contract incurs a fixed price cost of $1000, plus there is an additional cost per mailbox that is to be charged per month. This cost per mailbox is a tiered pricing model as follows:

So, the more mailboxes that are added, the lower the additional cost. (For example: 1500 Mailboxes will cost (1000 x $1) + (500 x $0.80) = $1400.) Using this model, two Metrics can be produced to reflect this in the contract.

• Email Service Cost (Fixed)
• Mailbox Usage Cost (Variable/Consumption based)

In addition there is an estimate by the management team of the number of staff members throughout the year (2007) as follows. The trend is due to initial company growth through employment and then from new offices opening in other regions:

To model these Metrics, do as follows:

Create the Fixed Cost Metric (use the Price Item type) in the contract, using the following details:

In order to specify the fixed cost to the Contract of this service, implement this as a Parameter to the Business Logic (where the fixed cost must be returned from the Result function) This parameter can then be exposed via the Objective Statement of the Metric, as shown below:

Returning the parameter value for this Metric, is simply a case of returning the value of the service cost via the Result function..

Next, create the variable pricing Metric (again, use Price Item Type) to determine the consumption costs of the number of mailboxes used. Name this Metric 'Mailbox Consumption Cost' and create it with the following details:

In this instance, you need to enter the consumption parameters into the Metric details. These will go into the Price Per Unit table. To model the table above for the number of mailboxes against the cost, create a column for the upper limit of mailboxes and one of the unit prices:

Then enter the values for each tier. In this case, the upper limit of mailboxes determines the cost bracket associated with it. Since there are 3 tiers, they are added to the table in this manner:

In addition to this, implement the forecasting function on the consumption of Mailboxes. Do this by creating the Forecast table with the preset Monthly layout.

This is then filled with the values from the tables given in the scenario description.

Now you can add the Objective statement for the Metric. In this case, no parameter values are required since they are derived from the 'Price Per Unit' and 'Forecast' tables.

Finally, complete the Business Logic as follows:

Option Explicit

Dim PPUmap1, PPUmap2, PPUmap3, PPUkey, FCmap, periodFC, TierPPU
Dim currentMonth, TotalMailboxes, MailboxesThisPeriod, TotalPrice

Sub OnRegistration(dispatcher)
   'sample registration only
   dispatcher.RegisterByMetric "OnMailboxAddedEvent", "NewMailboxEventType", _
      "MailboxResource", "MONTH", "MetricName", "MetricContract", _
      "MetricContractParty"
End Sub

Sub OnLoad(TIME)
   'Initialise the price tier maps and forecast maps
   Set PPUmap1 = Context.Field ("Price Per Unit")(1)
   Set PPUmap2 = Context.Field ("Price Per Unit")(2)
   Set PPUmap3 = Context.Field ("Price Per Unit")(3) 
   Set FCmap = Context.Field ("Forecast")(1)
End Sub

Sub OnPeriodStart(TIME)
   'TODO: ADD code here TO handle period START event
   currentMonth = GetMonth (time)
   If Context.IsInForecast Then
      periodFC = getForecastValue (currentMonth)
   End If
   MailboxesThisPeriod = 0
   TotalPrice = 0
End Sub

Sub OnPeriodEnd(TIME, isComplete)
   ' Calculate the current price of all the mailboxes using the tiered
   ' pricing model
   ' This uses a cumulative approach as it goes through each tier to
   ' determine total cost.
   TotalPrice = getMailboxCost (TotalMailboxes)
End Sub

Sub OnTimeslotEnter(TIME)
End Sub

Sub OnTimeslotExit(TIME)
End Sub

Sub OnMailboxAddedEvent(eventDetails)
   MailboxesThisPeriod = MailboxesThisPeriod + 1
   TotalMailboxes = TotalMailBoxes + 1
End Sub

Function Forecast
   Forecast = getMailboxCost (periodFC)
End Function

Function Target
   Target = Null
End Function

Function Result
   result = TotalPrice
End Function

Function getforecastvalue(q)
   getforecastvalue = FCmap (q)
End Function

Function getmonth(time)
   'this function retrieves the month
   Dim lTime
   lTime = Tools.GetLocaleTime(time)
   getmonth = monthname (datepart ("m", lTime), True) & _
      "-0" & datepart ("d", lTime) & "-" & datepart ("yyyy", lTime)
End Function

Function getMailboxCost(num_boxes)
   'Function calculates the cost of the mailboxes using the tiered pricing model
   Dim returnValue
   If num_boxes <= PPUmap1 ("Mailboxes") Then 
      'First tier
      returnValue = num_boxes * PPUmap1 ("UnitCost")
      'Out.Log "Tier1: " & num_boxes
   Else If num_boxes > PPUmap1 ("Mailboxes") And num_boxes <= PPUmap2 ("Mailboxes") Then
      'second tier only
      returnValue = (PPUmap1 ("Mailboxes") * PPUmap1 ("UnitCost")) + _
         ((num_boxes - PPUmap1 ("Mailboxes")) * PPUmap2 ("UnitCost"))
      'Out.Log "Tier2: " & num_boxes
   Else If num_boxes > PPUmap2 ("Mailboxes") Then
      'third tier
      returnValue = (PPUmap1 ("Mailboxes") * PPUmap1 ("UnitCost")) + _
         ((PPUmap2 ("Mailboxes") - PPUmap1 ("Mailboxes")) * PPUmap2 ("UnitCost")) + _
         ((num_boxes - PPUmap2 ("Mailboxes")) * PPUmap3 ("UnitCost"))
      'Out.Log "Tier3: " & num_boxes
   End If
   getMailboxCost = returnValue
   'Out.Log "Cost is: " & returnValue
End Function

Note: This Business Logic script handles both the forecast calculation (using the 'Forecast' table) and the Financial Consumption Cost results. Both use of the same formula getMailboxCost() which calculates the tiered pricing based upon the 'Price per Unit' table defined for this Metric.