PROCESS FOR DETERMINING OBJECT LEVEL PROFITABILITY

• US 20110125621A1
• Filed: 01/31/2011
• Published: 05/26/2011
• Est. Priority Date: 04/09/1999
• Status: Active Grant

• Current Assignee: Berkeley*IEOR
• Original Assignee: Berkeley*IEOR
• Inventors: Lepman, Richard Tad
• Granted Patent: US 8,612,316 B2
• Time in Patent Office: Days
• US Class Current: 705/30
• CPC Class Codes: G06Q 10/00 Administration; Management
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/12 Accounting
• CPC Class Codes: G06Q 40/123 Tax preparation or submission
• CPC Class Codes: Y10S 707/944 Business related
• CPC Class Codes: Y10S 707/95 Financial

Abstract

A process for determining object level profitability includes the steps of (1) preparing information to be accessed electronically, (2) establishing rules for processing the prepared information, (3) calculating at least one marginal value of profit using established rules as applied to a selected set of prepared information, and (4) combining the at least one marginal value of profit and fully absorbed value of profit adjustment to create a measure for object level profitability. The inventive process gives management profit measures tailored to its need for accurate decision oriented profit information required to manage a large organization based on profit measurement.

Claims

1. A process for determining object level profitability in a relational database management system, comprising the computer implemented steps of:

providing a computerized profit database having profit information;

providing a relational database management system operable in association with the computerized profit database;

preparing the profit information to be accessed electronically through the relational database management system, including the step of calculating opportunity values for funds used or supplied by each object being measured;

establishing, in the relational database, rules for processing the prepared information, including the steps of providing information necessary to select objects and performing a profit calculus;

using the relational database management system to independently calculate at least one marginal value of profit for each object being measured using the established rules as applied to a selected set of prepared information, and

combining the at least one marginal value of profit to create a measure for object level profitability.

2. The process of claim 1, wherein the relational database comprises a structured query language (SQL).

5. The process of claim 1, wherein the step of calculating at least one marginal value of profit includes the steps of calculating net interest (NI), other revenue (OR) and direct expense (DE), wherein net interest (NI) is the summation of interest income, value of funds provided and earnings on equity funds used less the sum of interest expense and costs of funds used, other revenue (OR) is a measure of profit contribution from non-interest related sources, and direct expense (DE) is the profit value reduction due to marginal resource consumption by the object and indirect expense (IE) due to non-object related resource consumption.

6. The process of claim 1, wherein the step of calculating at least one marginal value of profit includes the step of provisioning (P) for the selected set of prepared information, provisioning being the expected profit value adjustment for future outcomes related to the object.

7. The process of claim 1, including the step of calculating a profit adjustment value by calculating the value for indirect expense (IE) which is an apportioned profit value adjustment for all non-object related resource consumption.

8. The process of claim 7, wherein the combining step includes the steps of adding net interest (NI) and other revenues (OR), and subtracting therefrom direct expense (DE), provisioning (P) and indirect expense (IE).

9. The process of claim 8, including the step of adjusting the measure for object level profitability for taxes and/or object economic value.

10. The process of claim 1, wherein the opportunity values are based on matched maturity funds transfer pricing theory, where the values are market alternative supplies or uses of funds having matched interest and payment characteristics.

11. The process of claim 5, wherein the Net Interest (NI) is calculated as:

Int Inc(o_i) Interest Income of object o_i

−

COF (o_i)=Cost of funds used by object o_i

−

Int Exp(o_i)=Interest Expense for object o_i

+VOF(o_i)=Value of funds provided by object o_i

according to;

Int Inc(o_i)=AAB (o_i)*rate asset (o_i), only if object attribute doesn'"'"'t exist,

COF(o_i)=AAB(o_i)*Rt

Int Exp(o_i)=ALB(o_i)*rate_liability(o_i), only if object attribute doesn'"'"'t exist, and

VOF(o_i)=ALB(o_i)*Rt,

wherein;

AAB(o_i)=Average Asset Balance of the object o_i,

ALB(o_i)=Average Liability Balance of the object o_i,

rate_asset(o_i)=Effective interest rate for object o_i as an asset balance,

rate_liability(o_i) Effective interest rate for object o_i as a liability balance, and

Rt=Treatment rate based on the identified treatment for the object'"'"'s product attributes.

12. The process of claim 11, including the step of calculating earnings on allocated equity, where the summation is taken over all asset balances, according to:

EOAE(o_i)=R_equity*ER*Σ

AB_(asset,t)(o_i), wherein;

AB_(asset,t)(o_i)=Average Asset balances of the object o_i, including any allocated asset balances,

ER=Equity Ratio, and

R_equity=Treatment Rate for equity.

13. The process of claim 11, including the step of calculating earnings on allocated equity according to:

EOAE(o_i)=R_equity*Σ

[Amount(o_i)*W(Wt(o_i))*Cap Ratio], wherein;

Amount(o_i)=Amount(s) associated with object ‘

a’

This may be the average asset balances of the object ‘

o_i’

including any allocated asset balances, or may be an object parameter,

Wt(type(o_i))=Code needed to identify the weight for object o balances, at the object-type level,

W(Wt(type(o_i)))=determined by the weight code,

Cap Ratio=An appropriate risk-weighted capital ratio chosen, and

R_equity=Treatment Rate for equity.

14. The process of claim 11, including the step of calculating earnings on allocated equity, according to:

EOAE(o_i)=R_equity*E_cohort(o)(Amount(o_i)), or Σ

R_equity*[α

+β

*Amount(o_i)], wherein;

Amount(o_i)=An amount or amounts related to the object, such as average balances of the object (denoted AB_(c,s,t)(o_i),

Cohort(o_i)=The cohort of objects in which object o is a member,

E_cohort(o_i)=The equity allocation rule for the cohort of object o, according to a linear (two-valued) function that operates on Amount(o_i) of the form α

+β

*Amount(o), and

R_equity=Treatment Rate(s) for equity for the Amount(o_i) value(s).

15. The process of claim 5, wherein Net Interest (NI) is calculated as the summations over the possible balance variables for the object, according to:

16. The process of claim 15, including the step of calculating earnings on allocated equity, where the summation is taken over all asset balances, according to:

EOAE(o_i)=R_equity*ER*Σ

AB_{(asset, t)}(o_i), wherein;

AB_(asset,t)(o_i)=Average Asset balances of the object o_i, including any allocated asset balances,

ER=Equity Ratio, and

R_equity=Treatment Rate for equity.

17. The process of claim 15, including the step of calculating earnings on allocated equity according to:

EOAE(o_i)=R_equity*Σ

[Amount(o_i)*W(Wt(o_i)*Cap Ratio], wherein;

Amount(o_i) Amount(s) associated with object ‘

a’

This may be the average asset balances of the object ‘

o_i’

including any allocated asset balances, or may be an object parameter,

Wt(type(o_i))=Code needed to identify the weight for object o balances, at the object-type level,

W(Wt(type(o_i)))=determined by the weight code,

Cap Ratio=An appropriate risk-weighted capital ratio chosen, and

R_equity=Treatment Rate for equity.

18. The process of claim 15, including the step of calculating earnings on allocated equity, according to:

EOAE(o_i)=R_equity*E_cohort(o)(Amount(o_i)), or Σ

R_equity*[α

+β

*Amount(o_i)], wherein;

Amount(o_i)=An amount or amounts related to the object, such as average balances of the object (denoted AB_(c,s,t)(o_i),

Cohort(o_i)=The cohort of objects in which object o is a member,

E_cohart(o_i)=The equity allocation rule for the cohort of object o, according to a linear (two-valued) function that operates on Amount(o_i) of the form α

+β

*Amount(o), and

R_equity=Treatment Rate(s) for equity for the Amount(o_i) value(s).

19. The process of claim 5, wherein Net Interest (NI) is calculated as the summations over the possible balance attributes for the objects, according to:

20. The process of claim 19, including the step of calculating earnings on allocated equity, where the summation is taken over all asset balances, according to:

EOAE(o_i)=R_equity*ER*Σ

AB_(asset,t)(o_i), wherein;

AB_{(asset, t)}(o_i)=Average Asset balances of the object o_i, including any allocated asset balances,

ER=Equity Ratio, and

R_equity=Treatment Rate for equity.

21. The process of claim 19, including the step of calculating earnings on allocated equity according to:

EOAE(o_i)=R_equity*Σ

[Amount(o_i)*W(Wt(o_i))*Cap Ratio], wherein;

Amount(o_i)=Amount(s) associated with object ‘

a’

This may be the average asset balances of the object ‘

o_i’

including any allocated asset balances, or may be an object parameter,

Wt(type(o_i))=Code needed to identify the weight for object o balances, at the object-type level,

W(Wt(type(o_i)))=determined by the weight code,

Cap Ratio=An appropriate risk-weighted capital ratio chosen, and

R_equity=Treatment Rate for equity.

22. The process of claim 19, including the step of calculating earnings on allocated equity, according to:

EOAE(o_i)=Σ

R_equity*E_cohort(o)(Amount(o_i)), or Σ

R_equity*[α

+β

*Amount(o_i)], wherein;

Amount(o_i)=An amount or amounts related to the object, such as average balances of the object (denoted AB_(c,s,t)(o_i),

Cohort(o_i)=The cohort of objects in which object o is a member,

E_cohort(o_i)=The equity allocation rule for the cohort of object o, according to a linear (two-valued) function that operates on Amount(o_i) of the form α

+β

*Amount(o), and

R_equity=Treatment Rate(s) for equity for the Amount(o_i) value(s).

23. The process of claim 5, wherein Net Interest (NI) is calculated where summations are over the possible balance variables for the object, according to:

Int Inc(o_i)=Σ

AB_{(asset c,t)}(o_i)*rate_{(asset c,t)}(o_i) only if object attribute doesn'"'"'t exist,

−

COF(o_i)=Σ

AB_{(asset c,t)}(o_i)*R_(asset,t)(type_p,a,b(o_i)),

−

Int Exp(o_i)=Σ

AB_{(liability,t)}(o_i)*rate_{(liability,t)}(o_i)) only if object attribute doesn'"'"'t exist,

+VOF(o_i)=Σ

AB_{(liability,t)}(o_i)*R_{(liability,t)}(type_p,a,b(o_i)), wherein;

AB_(c,t)(o_i)=Average Balances of the object,

rate_(c,t)(o_i)=Effective interest rate for the corresponding balance amounts,

type_p,a,b(o_i)=Object o_i'"'"'s product, object attribute, and behavior types as needed to identify treatment rate,

R_(c,t)(type_p,a,b(o_i))=Rate (treatment rate) for objects of this product type, balance class, and tier/tenor,

Int Inc(o_i)=interest Income of object o_i,

COF(o_i)=Cost of funds used by object o_i,

Int Exp(o_i)=interest Expense for object o_i, and

VOF(o_i)=Value of funds provided by object o_i.

24. The process of claim 23, including the step of calculating earnings on allocated equity, where the summation is taken over all asset balances, according to:

EOAE(o_i)=R_equity*ER*Σ

AB_(asset,t)(o_i), herein;

AB(asset,t)(o_i)=Average Asset balances of the object o_i, including any allocated asset balances,

ER=Equity Ratio, and

R_equity=Treatment Rate for equity.

25. The process of claim 23, including the step of calculating earnings on allocated equity according to:

EOAE(o_i) R_equity*Σ

[Amount(o_i)*W(Wt(o_i))*Cap Ratio], wherein;

Amount(o_i)=Amount(s) associated with object ‘

a’

This may be the average asset balances of the object ‘

o_i’

including any allocated asset balances, or may be an object parameter,

Wt(type(o_i))=Code needed to identify the weight for object o balances, at the object-type level,

W(Wt(type(o_i)))=determined by the weight code,

Cap Ratio=An appropriate risk-weighted capital ratio chosen, and

R_equity=Treatment Rate for equity.

26. The process of claim 23, including the step of calculating earnings on allocated equity, according to:

EOAE(o_i)=R_equity*E_cohort(o)(Amount(o_i)), or Σ

R_equity*[α

+β

*Amount(o_i)], wherein;

Amount(o_i)=An amount or amounts related to the object, such as average balances of the object (denoted AB_(c,s,t)(o_i),

Cohort(o_i)=The cohort of objects in which object o is a member,

E_cohort(o_i)=The equity allocation rule for the cohort of object o, according to a linear (two-valued) function that operates on Amount(o_i) of the form α

+β

*Amount(o), and

R_equity=Treatment Rate(s) for equity for the Amount(o_i) value(s).

27. The process of claim 7, wherein the value for indirect expense (IE) is calculated as:

28. The process of claim 6, provisioning (P) of each object is calculated according to:

30. The process of claim 6, wherein provisioning (P) is calculated as:

P(o_i)=Exposure (o_i)*Pr(o_i)*Expected Value Adjustment (o_i)*

31. The process of claim 9, wherein the step of adjusting the measure for object level profitability is calculated as:

Profit(o_i)={[NIR(o_i)+OR(o_i)−

DE(o_i)−

IE(o_i)−

P(o_i)]*(1−

EffectiveTaxRate)}−

SVA(o_i),

where

SVA(o_i)=α

(o_i)+β

(o_i)*Amount(o_ii),

and

α

(o_i), β

(o_i) are functions for a cohort of objects in which o_i is a member, and Amount(o_i) is given by a rule which maps o_i to a data value (such as balance, or allocated equity) also defined at the cohort level.

32. The process of claim 9, wherein the step of adjusting the measure for object level profitability includes the calculation:

Profit(o_i)=[NIR(o_i)+OR(o_i)−

DE(o_i)−

IE(o_i)−

P(o_i)]*(1−

EffectiveTaxRate) where,

for a two tier taxation system, Effective Tax Rate is calculated as;

Effective Tax Rate=(1−

tax rate

     2)*(tax rate

     1)+tax rate 2.

3. (canceled)

4. (canceled)

29. The process of claim wherein provisioning (P) is calculated as: