# Implementation Shortfall

P27, CFAI Book 6 states Delay Costs reflect the price difference dude to the delay in filling the order. It states also on p 26, that in the example the benchmark price is mondays 10.00 close so on tuesday, 700 shares sell for 10.05. 700/1000([10.05-10.00]/10.00) = .35% Ok makes total sense. Moving on. P58, prob 11 Benchmark 10.00, Monday 600 shares purchased, 10.02 Close monday 9.99 Tuesday 100 purchased 10.08 Solution P 63: Delay Monday 600/1000 x [(10.00 - 10.00)/10.00]=0 Monday 100/1000 x [(9.99-10.00)/10.00]=-.01% What??!!?? Why isn’t it: Monday 600/1000 x [(10.02 - 10.00)/10.00]=.0012 Monday 100/1000 x [(10.08-9.99)/9.99]=.0009

Ok , so I see my “why isn’t it” calc is the realized profit and loss - but in the delay where are the 10.00 and the 9.99 coming from in the [10.00-10.00] and [9.99-10.00] I get the 9.99 is the tuesday open, but where is the 10 coming from and why are we using the 9.99 open price anyway? In the sample on page 16 it shows the tuesday close as the first factor less the benchmark 10.05 - 10.00… That is not consistent with the 10.00-10.00 in the #11 problem, becasue never does it close at 10… Whats the deal?

Delay cost is: (Filled Shares/Ordered shares)*((Revised Benchmark - Original Benchmark)/Original Benchmark) On Monday, there is no revised benchmark since the decision to make the trade was on that day and the original benchmark is designated as \$10. Tuesday’s revised benchmark is Monday’s closing price of \$9.99.

bpdulog Wrote: ------------------------------------------------------- > Delay cost is: > > (Filled Shares/Ordered shares)*((Revised Benchmark > - Original Benchmark)/Original Benchmark) > > On Monday, there is no revised benchmark since the > decision to make the trade was on that day and the > original benchmark is designated as \$10. Tuesday’s > revised benchmark is Monday’s closing price of > \$9.99. Huh? I thought Delay costs = Filled Shares/Ordered Shares * (Previous close - Original BM)/(Original BM)

CFABLACKBELT Wrote: ------------------------------------------------------- > bpdulog Wrote: > -------------------------------------------------- > ----- > > Delay cost is: > > > > (Filled Shares/Ordered shares)*((Revised > Benchmark > > - Original Benchmark)/Original Benchmark) > > > > On Monday, there is no revised benchmark since > the > > decision to make the trade was on that day and > the > > original benchmark is designated as \$10. > Tuesday’s > > revised benchmark is Monday’s closing price of > > \$9.99. > > Huh? I thought Delay costs = Filled > Shares/Ordered Shares * (Previous close - Original > BM)/(Original BM) Read my post. The revised benchmark = previous close, which is \$9.99.

I see it as: Original benchmark is always the denominator. Always the observable price when you want to make the trade. Delay: diff beween benchmark and closing price if the full order isnt filled. If the order is filled the next day, the delay is 0 (10 benchmark = 10 prior days closing price). If it takes more than a day to fill the order, the following days will compare prior closing prices to original benchmark (thats the 9.99 monday closing price vs. 10.00 original benchmark when shares are bought on tuesday).

bpdulog Wrote: ------------------------------------------------------- > CFABLACKBELT Wrote: > -------------------------------------------------- > ----- > > bpdulog Wrote: > > > -------------------------------------------------- > > > ----- > > > Delay cost is: > > > > > > (Filled Shares/Ordered shares)*((Revised > > Benchmark > > > - Original Benchmark)/Original Benchmark) > > > > > > On Monday, there is no revised benchmark > since > > the > > > decision to make the trade was on that day > and > > the > > > original benchmark is designated as \$10. > > Tuesday’s > > > revised benchmark is Monday’s closing price > of > > > \$9.99. > > > > Huh? I thought Delay costs = Filled > > Shares/Ordered Shares * (Previous close - > Original > > BM)/(Original BM) > > Read my post. The revised benchmark = previous > close, which is \$9.99. I see. I wasn’t reading the prices correctly in the OP.