Four algorithms that address most rating situations

Summary

Billing is a function common to businesses with quite different networks, but most employ a small number of algorithms to address their billing needs. Four key algorithms (flat rate, tiered, threshold and 'from / to') can be used to address the most business' rating needs.

Once a charge's price has been determined, the remainder of billing can be performed using relatively similar processing. Thirty local calls and thirty tollway journeys may be charged at different rates, using different rating criteria, and be presented on the bill differently, but their general processing is similar.

Algorithms used in Rating

There are four key algorithms employed in rating, and these can also be used elsewhere in billing for processing such as discounting. The four algorithms are flat rate, tiered, threshold and 'from / to'. In rating, each of these may be applied against different transaction elements to build a transaction's overall price.

The first three algorithms (flat rate, tiered, and threshold) are composed of:

A measurable metric used as an index into the algorithm,
One or more threshold levels that allow different outcomes based on the measurable metric, and
Outcomes used in the rating process.

The 'from / to' algorithm is composed of:

The criteria used to determine membership in a 'from / to' category
The qualifying values that describe 'from / to' eligibility, and
An outcome that is then used in the rating process.

The same four mechanisms can be used in discounting to determine the discount rate or amount.

Measurable Metrics - A wide variety of quantities, counts and values can be used as measurable metrics, including:

Financial amounts (quantity already purchased of this or another product, revenue billed (Revenue Settlement), property value, pre-paid recharge amount),
Non-financial counts (number of active services, frequent flyer points, minutes called, megabytes downloaded, transactions performed), or
The existence of another product (a binary '0' or '1').

If counts and amounts are used, these must be accumulated or tracked ahead of time to avoid performance issues associated with the continuous recounting that would otherwise be required. The need to track specific totals can be linked to, and initiated by, the provisioning of rating/pricing plans that associate customers, their services and the rates that will be charged.

To address specific rating plans, totals may need be collected by service, product, customer, day, offering, bundle, or contract (but due to the processing effort/cost they should only be kept where necessary and useful). The more complex the record keeping required, the more costly the storage and processing that will be incurred, and the greater the scope for error.

Threshold Levels - Thresholds are employed with each being contiguous with its predecessors. That is, there is no value of metric for which an appropriate threshold level cannot be found.

Flat rate: Flat rates effectively have a single threshold used in all cases regardless of any metric's value.
Tiered: Two or more thresholds are used to provide different outcomes for different parts of a customer's total consumption. That is (for two thresholds), the first threshold indicated by zero to 'x' units of metric are processed using one outcome, the next 'y' units (i.e. after the first 'x') are processed using a second (probably different) outcome, and the next 'z' units are processed using a third outcome. This approach allows different rates to be applied to different parts of a customer's consumption.
Threshold: Two or more thresholds are employed in a similar way to the tiered algorithm. The difference is that the outcome selected by indexing the measurable metric against the thresholds generates a single outcome that is applied to the customer's entire transaction / consumption.

Outcomes - Using a metric and the appropriate threshold level, the first three algorithms can be used to determine outcomes such as:

Selecting a basis for rating (flat, tier, threshold) - The selected basis can then be used for rating the transaction itself. e.g. phone call spending up to a lower limit may be charged using a higher flat rate per minute, but later consumption may use the tiered algorithm to support cheaper rates for longer phone calls.
Rates applied against an individual transaction (cents per minute, dollars per megalitre)
Selection of a determinant value (representing distance)
Non-financial resources derived from the transaction (frequent flyer points)
Non-financial resources consumed by the transaction ('free' minutes)
Discount percentages

Employing the tiered algorithm generates more straightforward processing since it allows the correct outcome to be selected based on what has been performed to date. Future transactions may cause additional thresholds to be crossed, but those outcomes will only apply to the future transactions.

The threshold algorithm operates differently and generates a more complex processing environment. It requires knowledge of the final metric value to correctly select the appropriate outcome before it is applied. If an accurate price against interim transactions using a threshold algorithm is important, an increased measurable metric will trigger re-rating to reflect the different outcome that now applies. If accurate interim prices are less important (i.e. prices are flagged as being 'pending' or 'draft'), re-rating can be delayed until the regular billing cycle.

Rating Algorithm: From / To

The from / to algorithm can be used to explicitly state outcomes for each valid 'from' and 'to' value combination (e.g. tollway entry and exit points), or be used to select subsets of value combinations for special rating treatment (all other combinations defaulting to the appropriate regular rates).

Phone call (from / to): An examination of the originating and terminating numbers can decide whether a specific call is local, domestic long-distance, or international. This process can be refined further by examining the call's destination and charging different rates by country or domestic location.
Tollway journey (entry / exit): The tollway's entry and exit points form specific pairings that describe all the different journeys possible on the tollway. Each possible journey is assigned a rate that is subsequently charged to vehicles. The use of additional determinants such as time (e.g. peak, off-peak), day of week (weekend) and vehicle type (e.g. car, truck) allows the rates to be differentiated further.
Specific point-to-point: The calls between specific services are charged at special (different) rates than would otherwise apply. Examples include customised rates for calls made between a business' offices (e.g. calls may be 'free' or charged at a reduced rate), and calls made between nominated family phone numbers charged at a reduced rate (e.g. 'Family and Friends' pricing plans).
Member to member: Billers can differentiate their pricing by whether transactions are performed between network members, or outside the network. This has strong relevance in telecommunications networks that can offer cheaper prices to intra-network transactions over those performed between networks. This has benefits for the (telecommunications) biller by reducing payments to other networks (interconnect charges), and encourages higher revenue from friends, family and business groups who collectively sign-up to the one network rather than make individual choices to use different networks.
Region to region: Rather than applying between specific services, special rates are applied between broader regional areas. These regional areas can be defined by telephone area codes (e.g. inter-capital city), or other geographic criteria (e.g. postal codes). The same concept could also be applied to transactions performed between services described using non-geographic criteria such as membership of a specific group (e.g. sports club, professional association), or membership level (e.g. gold, senior, corporate).

Algorithm Combinations

Determinants and algorithms, preselected when the biller defines each rate plan, can be used individually or combined to provide additional rating versatility. After rating has identified a transaction's service and ownership, the applicable rate plan will also be identified. The appropriate determinants of that rate plan can then be calculated and/or obtained and used to select the appropriate rates within the rate plan's definition.

For example, a tollway (e.g. the New Jersey Turnpike) can use vehicle type (truck / car), rate period (peak / off-peak / weekend) and 'from / to' (tollway entry / exit) to select a fixed rate charged to each customer. Additional determinants could be used to select rates that varied between market segments (general public, commercial) or for specific customers (transport companies).

Tags: Billing, Rating