Elements and the Rule of Four
In this tutorial we will define what a Schedule Element is and understand the components and the importance of the Rule of Four.
What is a cost element?
Cost elements are the basic building blocks of the RuleFour model. In some ways they are the equivalent as a row of costs in a spreadsheet. A single period for a single cost element is the Lego block of data block from The Building Blocks tutorial.
Cost elements
RuleFour structures the way each data block is built by using the Rule of Four meaning that each block is built the same repeatable way. By building the data block the same way each time you don't need to learn a language to create the data blocks plus picking up someone else's model is easy and auditable once you know the Rule of Four. Using the metadata and the Rule of Four also means you can build models fast. The Rule of Four combines Inputs to create data blocks which are then stored in the database.
We add the name of the Cost Element and any other metadata from our Lists which are stored with the data block so we can easily retrieve and reuse the data block.
Applying the Rule of Four to a Structure built from Lists is the configuration of the model.
The Rule of Four
Many users will be familiar with fixed and variable costs as part of activity based costing. RuleFour builds off this concept. Every model Element has four standard components - the Rule of Four.
Fixed for time based or non time based values.
Variable for values that change depending on usage or other variable.
Event for values that happen once you reach a certain threshold.
Matrix for values that use a lookup table.
The Value of The Rule of Four
All data or values to be stored in the Schedule are created using the Rule of Four. The Rule of Four provides a structured combination of Inputs meaning there are no formulas to check and mistakes to make. The Rule of Four also means I can use meta data to repeat and reuse.
Fixed Rate Component
A Fixed rate is constant value for a period of time. Common examples are a yearly lease or insurance costs. There are two inputs required for a fixed cost:
The Fixed Rate per Period
The Period Type (Annual or Monthly)
These inputs result in a single value per period where the rate is adjusted based on the Calendar Period and selected Period Type.
An example would be if we have an office lease for a fixed cost of $55,000 per year, and a RuleFour calendar for 12 months we can use a fixed component to model the cost. In this example the first twelve periods are months in our Calendar the respective monthly amount is calculated.
Variable Rate Component
Variable values are driven an activity or a factor of production. Examples would include a cost per metre or cost per person. There are two inputs required for a Variable Rate:
The Variable Rate per Activity
The Activity (or factor)
Event Rate Component
Event Rates are similar to Variable Rates as the are an expenditure that occurs based on an activity but an event only occur only after a cumulative quantum of the activity. An example would be a car service where the service charge is linked to the activity of kilometers travelled with the cost of service triggered at say every 10,000km rather than occurring per kilometer. There are three inputs required for an Event Cost:
The Event Rate (per event)
The Event Frequency (the threshold)
The Activity (to accumulate)
There are two two optional inputs
The Starting Balance (your car may have existing kilometers on the clock at period 1)
The max number of event triggers
Exercise
Lets build some cost elements
In our Warehouse business model, the Head Office has some fixed costs of Lease, Insurance and Office Supplies and a variable Training costs.
Two input files have been created:
1. Head Office Costs
2. Employee Schedule.
Now lets build Fixed Cost for the Head Office Lease as follows:
Now lets build two more Fixed Costs
02 Insurance (Annual)
03 Office Supplied (Monthly)
Session review
At the end of this tutorial:
I know what a Schedule Element is
I can explain a Fixed, Variable, Event and Matrix
I can view Schedule Elements in the Configuration and Schedule screens
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