STEM help / Calculation framework

10.3.4.1 Allocating costs through Transformations

For a Transformation with only one input, all secondary costs, allocated from any Resources it uses, will be passed back according to the type of input:

Resource: secondary costs are allocated back to the Services or other Transformations which are using the corresponding Resource, along with the Resource’s own primary costs.

Service: secondary costs are passed back to the corresponding Service, in addition to those primary costs allocated directly from Resources used by the Service.

Transformation: secondary costs are passed back to the other Transformation, in addition to those primary costs allocated directly from Resources used by the other Transformation, then passed collectively to its input.

Note: links between icons in the Editor are always drawn with arrows indicating the flow of demand, i.e., the opposite direction to the allocation of cost.

Transformations which have more than one input allocate the secondary costs between those inputs. For an Expression Transformation, the most appropriate allocation depends on the nature of the expression itself, and the actual modelling context, so the allocation is defined by the user in the Cost Allocation dialog – see Cost Allocation.

Example

Assume that you have compiled a model as shown in the interactive model.

Primary costs are defined as:

  • EUR0.1 per connection
  • EUR0.1 per EUR revenue.

Secondary costs are defined as:

  • EUR1 per connection, plus
  • EUR2 per EUR primary costs, plus
  • EUR0.01 per EUR revenue.

Assume there are 2000 Connections and EUR 200,000 Revenue (Y4). Requirements for the Primary Costs resource would be 2000 * 0.1 + 200,000 * 0.1 = 20,200. Requirements for the Secondary Costs resource would be 2000 * 1 + 20,200 * 2 + 200,000 * 0.01 = 44,400.

So, the costs in this model would be 20,200 + 44,400 = 64,600. If we use the Cost Allocation feature of STEM, then the costs of each resource are allocated back to requesting services and transformations based on the capacity consumed.

As the capacity of the resource Secondary Costs is requested by three transformations (2000 by Service Input Transformation, 40,400 by Resource Input Transformation and 2000 by Transformation Input Transformation), its costs of 44,400 are allocated in the same proportions (in the example shown, the requirements are in EUR). Service Input Transformation passes its cost directly to the Service, and Transformation Input Transformation passes its cost to Another Transformation. Resource Input Transformation passes its cost to the resource Primary Costs, so we need to look more closely at this resource.

Its cost of EUR20,200, plus the cost allocated from Resource Input Transformation of 40,400, amounting in total to 60,600, are allocated to the requesting service and transformation proportional to 200 and 20,000, meaning that EUR600 is allocated from primary costs to the Service and EUR60,000 to Another Transformation. Thus, the costs allocated via Another Transformation are 60,000 from Primary Costs (this includes 40,000 secondary costs) and 2000 from the Transformation Input Transformation.

FInally, the allocated costs to the service are: 2000 from Service Input Transformation plus 600 from Primary Costs (including 400 from Secondary Costs) and 62,000 from Another Transformation, adding up to 64,600.

Although this example is quite simple, as all costs are allocated to only one service, it is obvious that in a more complex model with several services and more detailed relationships the Cost Allocation fetaure integrated in STEM is a very useful tool. As shown in the interactive model, STEM aggregates the cost from Transformation/Resource pairs. For example, for Another Transformation, costs from the resource Secondary Cost are shown in total, even if they are allocated only partly directly and partly via another resource.

 

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