To calculate contract prices

To calculate the price of a service contract, a service-contract quotation, or a service-order quotation.

Note

For this calculation, LN supports the following pricing methods:

Installation/Item Pricing: LN uses the recommended prices defined in the Contract Item Price Lists (tsctm0115m000) session.
Sales Value of Configuration: LN only calculates the total sales and cost amount of the service contract. As a result, the cost and coverage terms do not have any price specification.
Activity Price: LN uses the service price list to determine the budgeted cost and sales amount per coverage term. As a result, LN does not consider the prices of the cost terms when calculating the sales and cost amount of the service contract.
Budgeted Service Costs: LN calculates the budgeted cost and sales amount of a coverage term as the sum of the term's cost terms.

Perform the following steps to calculate the price of a service type covered by a service contract:

Step 1: Calculate prices of cost terms.
Step 2: Calculate prices of coverage terms.
Step 3: Calculate prices of terms.

The following table shows the necessary steps for each method.

Pricing Method	Step 1	Step 2	Step 3
Item Pricing
Sales Value of Config.			X
Budgeted Service Costs	X	X	X

Step 1 - Calculate prices of cost terms:

You can manually fill the standard costs and sales amounts of a cost term or you can retrieve a maintenance plan from the Service Planning & Concepts module. You can specify the cost terms that must be excluded, for example, the material costs in case of a service order quotation. The standard cost/sales amount of the excluded line is zero. The prices of the cost terms only affect the total service contract (quotation) price, if the pricing method is Budgeted Service Costs. In the other situations the prices of a cost term are necessary to calculate the estimated service-order costs and the actual service-order costs.

Step 2 - Calculate prices of coverage terms:

The cost-covering method and the coverage phase affects the cost and sales price of the coverage terms. This step is based on the budgeted cost and sales amount. You can also use the budgeted amounts to monitor the budgets of the service contract/quotation.

The following is the output of Step 2:

The budgeted cost and sales amount of each coverage term
Cost and sales amount of coverage terms

Substeps

2.1 Calculate budgeted cost and sales amounts of coverage terms: The calculation of the budgeted cost and sales amounts depends on the pricing method:

Sales Value of Configuration; Not applicable.
Activity Price; The budgeted cost and sales amounts are determined by means of the Price calculation.
Budgeted Service Costs; The budgeted cost and sales amounts are the sum of its underlying cost terms.

2.2 Calculate effects of coverage phase: Assume that the costs are equally divided over time. In this case the effects of coverage phasing can be calculated according to a linear model.

Example: The budgeted price of a coverage term (including the coverage method effects) is 100 and the total duration is four years.

Phase	Duration	Coverage	New Price
1	2.5 Y	Disc. 50%	(2.5/4) * 0.5 * 100 = 31.25
2	1 Y	Disc. 25%	(1/4) * 0.25 * 100 = 6.25
3	0.5 Y	Disc. 10%	(0.5/4) * 0.1 * 100 = 1.25
TOTAL	4 Y	-	=38.75

General Formula:

In this example, the coverage phase starts after the previous phase. In the following example the coverage phase starts at the same time as the previous phase.

Phase	Starts	Duration	Nett. Duration
1	-	1 Y	1 Y
2	equal to	2 Y	(2-1) = 1 Y
3	after	1 Y	1 Y

The nettable duration of phase 2, is the time that phase 2 lasts longer than phase 1. LN uses the nettable duration to calculate the price of a coverage term.

2.3 Calculate the effects of the cost-covering method: In the following scheme the formula of the new cost and sales amount are described for the following covering methods.

Covering Method	Cost Amount (CA)	Sales Amount (SA)
Fixed Price	CA_r	SA_r
Discount	(D/100) * CA_r	(D/100) * SA_r
Discount Ceiling	(Ceil/SA_r) * (CA/SA)r * CA_r	(Ceil/SA_r) * CA_r
Price Ceiling	(Ceil/SA_r)(CA/SA)r CA_r	(Ceil/SA_r) * CA_r

where:

CA_r = Budgeted Cost Amount

SA_r = Budgeted Sales Amount

D = Discount percentage

Ceil = Ceiling amount

2.4 Calculate the cost and sales amount of the coverage term: LN uses this substep to calculate the cost and sales amount of the coverage terms. The sales amount of the coverage term is the sum of the sales amount of all coverage phases. LN calculates the cost amount of the coverage term in the same way.

Step 3 - Calculate Prices of Terms

LN calculates the amounts of all terms. The surcharge/discount terms affect these terms. LN also aggregates the budgeted cost and sales amounts of the coverage terms to the terms.

The terms that are related to the service contract lines are distinguished into two types:

The service contract lines related to an Installation group.
The service contract lines related to a service contract.

If the terms are split up by Installation group, LN calculates the service contract lines that are related to the Installation group. These service contract lines are the sum of the total lines with the same Installation group. So, LN totals the budgeted cost/sales amounts and the spent cost/sales amounts of the total lines.

LN updates the calculated service contract lines with the surcharge/discount terms that are related to the service contract (contract-header level).