HPCM Management Ledger Part 2 – Your First Allocation Rule

Allocation of costs typically involves the distribution of common cost item across units which are used to measure profitability – typically Customer, Product or Location.

The 3 basic components to define an allocation calculation are

a)      Allocable cost (Source) : Common Cost   ( E.g. Cost of common IT services allocated to product)

b)      Units to Allocate  (Destination) :  A list of Products / Customers / Geographies/Cost centers

c)       Basis to Allocate (Driver):   A cost driver, such as head count or number of PC’s, which is used to generate the allocation ratios.

Finance teams generally manage the allocation processes in organizations, and these can range from the simple one step allocation to incredibly complex multi-step allocations where each element of common cost has its own driver basis and may have multiple tiers of allocations across 2 or more dimensions.

So in the last post (here) we created a basic HPCM application, now let’s look at some configuration, and write our first basic allocation ruleset and rule.  When you first open HPCM you will see on the left hand side the ‘Task Area’ these links will do the same actions as using the file menu in workspace, but it’s easier to access from here and the order for some items have changed. If you feel you need more space to work, you can collapse the task area by clicking on the button in the middle of the separator

Navigating through HPCM is pretty straight forward, so let’s start at the top and click on Model Summary.

 

The first tab (System Information) gives you information about the system, including server name, versions, and user roles, the second tab (Model Level Preferences) is a bit more useful to us.  Here we can see the options we selected when we configured the application and make a couple of changes, key here is that we can change the name of the Essbase Application that HPCM uses for calculations, this is the application that HPCM will create for us, and where our data will be loaded / calculated.  The default name is the same as the application name with the addition of a ‘C’ but you can change this if you need to.   If you make a change here you will need to re-deploy your database from the Manage Database menu.We also have the option to enable Concurrent Calculation mode and assign a number of threads from this screen.

The second section is the Points of View Manager, when we set up our dimensions we decided which would be considered POV dimensions, now we can define which intersections of these POV we want to do our calculations on. To define a POB click on the Create Point of View button select the members you want to work with and click on OK

Our POV will be created, and put into the default state of Draft, you can change the status at any time by clicking on the change POV stat button (the pencil).

If you have already created a POV and defined a set of rules to go with it, you can copy a POV into a new POV using the Copy Point of View button.  You will be given a choice of what configuration you want to copy over to the new POV here before continuing.

From here we can begin working on our Rules, but before we move to that step, let’s make a couple of changes to our outline, and push those into HPCM as well as get some data loaded. To do this we just need to open up EAS, and find our Master Cube again.  In this example I’m going to be modifying the business dimensions, but the process is the same for POV dimensions as well.

When we created our Location, Customer, and Cost Center we did not create a top level member, this would be very useful if we say wanted to allocate cost across these dimensions. I would also suggest having a dummy member for each dimension, these come in handy later. So in EAS just add the new members parent members, and save your outline. Our business dimensions should now look something like this:

Go ahead and save and close the outline editor in EAS and move back to Workspace, and open up Profitability Applications Manager again. To push our new dimension changes into HPCM select your application, click on Actions then update dimensions

In the Update Dimensions menu we have a few options to choose from, we can do a Pre Update Analysis and validate that our dimensions are valid, as well as see a list of change, or we can just push the update.

Its recommended to do the Pre Update Analysis first, just in case there are unexpected changes, this is especially true in an existing application.  Once you run the analysis you can go over to Job library and see what the impact is:

Click on the blue text to see more details.

In my example there are a number of changes as we restructured the business dimension members.  Please note that HPCM will see moved members as new members, and the original member being deleted, not as a member moving. If you are ok with everything, go back to Applications and update the dimensions using the same menu.

Like the last job, you will get a status message in the Job Library when this is completed.

Now that HPCM has the updated dimensions, we need to redeploy our database to Essbase, go back into HPCM and select Manage Database, select the Update Database option and click on Deploy Now.  You can accept the warning, and the Essbase cube will be restructured.

Now we want to put some data into our cube so that we have something to allocate. For my example allocation we are going to be allocating IT cost from Corporate into customers, based on an IT hours Driver. So let’s build that data. You could use many different methods to load the data into HPCM, I’m going to push the data directly into Essbase using Smart View for this example.  The POV for loading your input data is very important; you need to be sure that you are on the NoRule member of the Rule Dimension, and the Input member of the Balance Dimension. The POV should match the POV you are planning to use for your allocation, and your business dimensions should make sense as well.  Using random numbers, here is what I am planning to load for my example.

This represents the hours IT spent for sales and support function by customer by city, this will be the basis for allocating our IT costs.  Speaking of IT costs, we need to load those as well, so let’s add those in. For our example we will assume a shared IT resource in New York booked against the corporate member in the account Cost 1. So at this point our total data set looks like this.

Now we have our base laid, let’s get back into HPCM and build the allocation rule.

Open up HPCM click on Manage Rules and make sure you are on the correct POV, once you have the POV selected, you need to add a rule set.  For now just give the ruleset a name and check ‘enabled’, I will get into Context in a future post.

Once you have a ruleset you can then proceed to build a rule, click on the Create Allocation button

In the rule definitions box, let’s give the rule a name, and enable it for calculation.

For our source, lets select the location our cost is currently listed

Account -> Cost 1

Location ->All Locations

Customer ->Corporate

Cost Center -> IT

Even though we loaded our costs to New York only, let’s assume any IT costs are going to be allocated, not just New York.  All dimensions that you have configured will have a check mark added, you must specify all dimensions in both Source and Destination sections.

For our Destination we want to specify all of the locations that cost will be moved to

Account -> Cost 1

Location ->All Locations

Customer ->All Customers

Cost Center -> Sales and Support

Again, you need to specify destinations for all dimensions, and watch for the check marks.

Next we want to define our driver, the driver will use all members from the source dimension, with the only member different being the specified member, in our case the Account IT Hours

For this first allocation, we do not need to change the offset location, or worry about context. Go ahead and save the rule. That’s all there is to it, now it’s time to run the rule and validate the outputs. In order to run a rule click on Manage Calculation, select your options, for this example the default options will work, then click run now.  This will submit a job to the job library, where we can check the status.  For our sample the job will be very quick, but as applications increase in complexity, the rule run time will also increase.

In job library, you can see that the job has completed, if there are any errors, you can also get details on that here

All that’s left to do is see where our costs have gone, and make sure the expected results were produced. There are a few ways to do this, and in my next post I will go into a bit more detail about the HPCM structure, but in this post let’s just take a look at Smart View.

You can see our input values in Corporate->IT->New York, then we have an allocation In to all of our customers / locations based on the driver we gave earlier, an allocation out of IT, for a total net change of 0 at top level.  Then our final balance which shows our final output, of allocated costs, the Calculation Rules member will include the changes from all rules.

I hope this helps you get started, from this point you should have a foundation to build more rules, and Play with some of the features that are in your application. Please keep tuned for future posts where I will expand more on items like use of Context in POVs, Rule Sets and Rules, as well as an in-depth breakdown of the HPCM cube structure particularly the ‘Rule’ & ‘Balance’ system dimensions and their hierarchies & member structures