Capacity allocations
Capacity ledger allocations allocate expenses to cost objects based on practical capacity instead of actual volume. The expenses leftover after the ledger allocations is referred to as unutilized capacity costs. Reports based on capacity allocations help decision makers to determine the expected unit cost of performing an activity regardless of the volume of that activity that is actually performed.
For example, an orthopedic operating room is scheduled for a capacity of 10 surgeries a day. On an event date, eight surgeries occur. A standard TrueCost allocation spreads the total expenses for all applicable resources to only the number of surgeries, for example 8 surgeries. A capacity allocation rule spreads the expenses across 10 surgeries and identifies the cost of two surgeries as unutilized capacity.
| Orthopedic surgery (summary cost object) |
Count (driver) |
Relative weight |
Di x Wi | Percent allocated ratio =(source %) (Di ×Wi)/(∑n(Di×Wi)) |
Balance to allocate ratio x source amount |
|---|---|---|---|---|---|
| Orthopedic surgery type 1 | 1 | 1 | 1 | 12.5% | $125.00 |
| Orthopedic surgery type 2 | 1 | 1 | 1 | 12.5% | $125.00 |
| Orthopedic surgery type 3 | 1 | 1 | 1 | 12.5% | $125.00 |
| Orthopedic surgery type 4 | 1 | 1 | 1 | 12.5% | $125.00 |
| Orthopedic surgery type 5 | 1 | 1 | 1 | 12.5% | $125.00 |
| Orthopedic surgery type 6 | 1 | 1 | 1 | 12.5% | $125.00 |
| Orthopedic surgery type 7 | 1 | 1 | 1 | 12.5% | $125.00 |
| Orthopedic surgery type 8 | 1 | 1 | 1 | 12.5% | $125.00 |
| 8 | 100% | $1,000.00 |
This calculation may be misleading about the cost of a surgery because it is based on only the number of surgeries that actually occurred. This calculation does not reflect the number of surgeries for which there is capacity. The total expenses of the operating room remain the same regardless of how many surgeries occur up to the capacity of 10 visits. On another event date, if only five surgeries occur they appear to be even more expensive because a larger percentage of the same operating room expenses is allocated to each surgery.
A capacity allocation calculates expenses based on the practical capacity of 10 surgeries. Each surgery is allocated a ratio of the total expenses calculated based on the practical capacity value.
Ratio = (Source %) ((Di ×Wi)/Capacity)
| Orthopedic surgeries (summary cost object) |
Count (driver) |
Relative weight |
Di x Wi | Percent allocated ratio = (source %) ((Di ×Wi)/capacity) |
Balance to allocate ratio x source amount |
|---|---|---|---|---|---|
| Orthopedic surgery type 1 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery type 2 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery type 3 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery type 4 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery type 5 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery type 6 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery type 7 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery type 8 | 1 | 1 | 1 | 10% | $100.00 |
| Orthopedic surgery unutilized capacity | 2 | 1 | 2 | 20% | $200.00 |
| 10 | 100% | $1,000.00 |
This example could be expanded to include a weight per type of surgery. This scenario allows a decision maker to determine that more visits can be scheduled in a day without incurring additional costs as long as the visits do not exceed the practical capacity.
To calculate capacity allocations, the summary cost object must have an unutilized capacity posting cost object and a practical capacity value. See Practical capacity.
If capacity has been configured for an allocation rule, when the allocation is calculated, balances are posted to the capacity ledger reflecting capacity calculations. Reports run against the capacity ledger show unutilized capacity. This information indicates what changes can occur to better utilize the available capacity and possibly increase revenue without incurring additional costs, or to reduce capacity and thus reduce costs without reducing revenue.
If the actual volume for an allocation run exceeds the practical capacity, the actual volume is used to calculate the expenses allocated to the capacity ledger. For example, practical capacity for an operating room is specified as 10 surgeries but on an event date, 12 surgeries occur. The actual volume of 12 surgeries is used to calculate the ratio to allocate the expenses to the capacity ledger. Additionally,you can choose to update the practical capacity value with the actual volume value for future calculations. See Updating capacity volumes.