Allocations calculations

TrueCost allocations are ratio-based allocation rules. The percentage of expenses allocated to a department or cost object is determined by the product of the driver (D) and the weight (W) for that department or cost object, divided by the summed total of the same calculation for all departments or all cost objects of the same type. This calculation is multiplied by the percentage of the source amount specified in the allocation rule if only a portion of an expense item is allocated by the rule.

Ratio = (source%) x ((Di ×Wi)/(∑n(Di×Wi)))

This ratio determines the balance that is allocated to the department or cost object. For example, a certain procedure is assigned a driver (D) that represents the number of times that procedure is performed on an event date. The procedure is assigned a weight value based on MS-DRG guidelines (W). For each cost object, the ratio formula multiplies the number of times the procedure was performed on the event date (D) by the cost object RVU value (W). The result is divided by the sum of the same calculation for all procedures performed on that date (∑n(Di×Wi)). Finally, this value is then multiplied by the percentage of the source specified in the allocation rule. The result is a ratio that represents the percentage of expenses for all procedures that should be allocated to that procedure, or cost object.