Variable Change Allocation

Knowledge Center > Zuora RevPro > Variable Change Allocation

Variable Change Allocation

Variable change allocation allows you to check if a Revenue Contract has at least one variable consideration line. If so then RevPro calculates the total TP % of SSP value and compare every individual POB TP % if it is within the range:

  • If all the POBs are within the overall TP % range, then the allocation is not performed for the RC.
  • If anyone of the POB is not within the range, then the lines that are indicated as Variable Consideration lines, will be excluded for the 2nd step TP% derivation.
  • If all the POBs are now within the overall RC TP% range, then the Variable consideration lines are excluded for the final allocation else all the lines including VC lines are considered for allocation.

New lookup is added to the product that will capture the Low range and High range value. It applies on the overall RC_LEVEL_SSP_RANGE TP % of RC New Profile Option and enables allocation for the lines associated with Variable Consideration type.

When any lines that has VC associated and if the profile is set to No, this functionality will not be triggered unless the VC_ELIGIBLE_FLAG is set as Yes. 

The variable consideration that is promised in a contract may be attributable to the entire contract or to a specific part of the contract. The scenarios are listed as follows:

  • One or more, but not all, performance obligations in the contract (for example, a bonus may be contingent on an entity transferring a promised good or service within a specific period of time)
  • One or more, but not all, distinct good or services promised in a series of distinct goods or services that forms part of a single performance obligation (for example, the consideration promised for the 2nd year of a two-year cleaning service contract will increase on the basis of movements in a specified inflation index)

An entity will allocate a variable amount (and subsequent changes to that amount) entirely to a performance obligation or to a distinct good or service that forms part of a single performance       obligation if both of the following criteria are met:

  • The terms of a variable payment relate specifically to the entity’s efforts to satisfy the performance obligation or transfer the distinct good or service (or to a specific outcome from satisfying the performance obligation or transferring the distinct good or service).
  • Allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective and also considering all of the performance obligations and payment terms in the contract.

The only way to flag an item as variable consideration is VC type. By default, this must be attached to a sales order line as it is only the amount included in the VC type that is flagged as a variable. 

Allocation of VC to Performance Obligations

Currently, the only way to allocate to a performance obligation is to make the POB ineligible for allocation in a manual process. At the VC level, there are some basic functionality of applying VC before or after allocations. And if applied after, would be equivalent to allocating the VC solely to that transaction line, but this is fixed at the VC Type/POB level. For a transaction line flagged as representing variable consideration or a line with variable consideration assigned, there needs to be a step in the allocation process to determine if the VC should be allocated to that line, which in turn means to that POB.

To determine if allocating the variable amount of consideration entirely to the performance obligation or the distinct good or service is consistent with the allocation objective:

It would be consistent if the allocated RSP for the POB with the variable consideration is consistent with the transaction price of the POB with the variable consideration. In other words, the transaction price is consistent with the allocated Extended price. Another way to check this is to compare the % of SSP of the transaction for the POB with variable consideration as compared to the % of total SSP of the total Transaction price of the RC. If this is consistent, then the variable consideration should be solely allocated to that POB.

Variable Change Allocation

For Variable Change Allocation, the following profiles are required:

  • Enable the SYS_CHK_NOT_WITHIN_VC VC profile for performing Variable change allocation.
  • Enable the ALLOC_WITHIN_FV_TRANS profile to perform allocations for the lines within range.
  • Set the VC_Eligibility_CHK_Methold profile.
  • RC_LEVEL_SSP_RANGE lookup has to be set to determine the range of the line at RC level.
  • VC_CHK_REV_PRD profile should be enabled/disabled for line level variable allocation change.
  • VC Eligible Flag should be made as Y in Transaction Upload to consider the line as VC line.

You can enable the profiles mentioned above in the Edit Profile panel as shown below:

Edit profile 2.jpg

Edit Lookup Definition.jpg

VC Allocation can be done in the following ways:

  • RC Level Allocation
  • Line Level SSP Allocation

RC Level Allocation

When an RC has VC line (VC Eligible Flag is set to Y), RevPro will perform Variable Change Allocation in RC level.

The following are the RC level validations that are followed for allocation:

  • When all lines are within RC range in an RC (Normal lines and VC lines), RevPro will not perform the allocation.
  • When one line is not within RC range then the system will perform Step 2 allocation where RevPro will exclude the VC line and perform allocation to check if all the lines are falling within RC range. In that case, RevPro will perform allocation excluding VC line.
  • When one line is not within RC range then RevPro will perform Step 2 allocation when RevPro will exclude the VC line and perform allocation to check if all the lines are falling within RC range. If any line is falling out of range during Step 2, then RevPro will include all lines for allocation.
  • If the VC Line earlier participates in allocation, then any change to the VC Line will trigger allocation.
  • If the VC Line doe not participate in allocation for the first time, then any change to VC Line will not trigger allocation.
  • When a VC Line change (line did not participate in allocation first time) and a new line gets added to the RC at the same time, then two steps derivation will be performed.
  • When a VC Line change (line did not participate in allocation first time) and existing line in the RC is changed at the same time, then the allocation is triggered.

Line Level SSP Allocation

There are other customers who do not want to perform two steps derivation but would like to check at the line level whether it is within SSP Range. For those customers, they have to select a new profile option to indicate the method of VC Eligibility check.

Edit Profile - line level SSP Range.jpg

When the VC Eligibility Check Method is set to Line Level SSP Range, then perform the following:

  • If the Transaction Price of the VC Line marked as VC Eligible to Yes is within SSP range, then exclude the VC from allocation. 
  • If the Transaction Price of the VC Line marked as VC Eligible to Yes is not within the SSP range, VC line will participate in allocation together with other lines.
Line Level Validations

The following are the line level validations that are followed for allocation:

  • If VC line is within SSP range, the allocation will not happen for that line. If VC line is not within SSP range, then allocation will happen.
  • When the VC_CHK_REV_PRD is enabled, if VC line is not participating in the intial period, then during the Revision period, system will reconsider the line for allocation. Initially, the line was within range during the initial period but changed to Not within range during the revision period.
  • When the VC_CHK_REV_PRD is disabled, if VC line is not participating in the initial period, then during the Revision period, system will not reconsider the line for allocation. During initial period, no allocation since the line is within range and no allocation during revision period too.
  • When transitioning from Initial Contract period to first revision period, if the VC line did not participate in allocation by the end of contract initial period, then if there is a change to the VC line only will never trigger allocation, Thereafter no allocation is for the VC line.
  • When transitioning from Initial Contract Period to first revision period, if there is a change on any other line and the VC line did not participate in allocation earlier by end of initial contract period, then it is a normal allocation across the fixed products not allowing the VC line to participate. If the VC line participated by the end of initial contract period then it will participate. Thereafter it will participate.
  • When transitioning from Initial Contract Period to the first revision period, if there is a change on any other line or new POB added and change to VC line and the VC line also participated in allocation, then it is a normal allocation across all the lines. Otherwise, the VC line will be excluded from allocation and allocation across all other lines. Thereafter the VC line will not participate in allocation.
Line Level Allocation Examples

Line level example1.jpg

Second Example

Line Level Example2.jpg

Last modified

Tags

This page has no custom tags.

Classifications

(not set)