Application of Operations Research to Complex Financial Agreements—A Profit-Sharing Illustration

Abstract

In a number of cases, operations-research techniques have solved problems arising in giving effect to complex financial agreements. In the situation to be described, the initial wording of an involved profit-sharing-incentive plan lacked operational definition, and a mathematical approach was needed in order to clarify the basic intent of the interested parties and to translate it into a mutually acceptable set of calculating procedures. The mathematical formulation involves the solution of simultaneous linear or nonlinear equations depending on the amount of profit earned by the company.