profitability cost mgt

Delivering World Class Profitability and Cost
Management
Edoardo Bacchini
Principal Sales Consultant – Oracle Italia - EPM

Agenda

• Come riportare i modelli di profitability e cost
management nelle mani dei business user
• Come comprendere in quale modo la vostra azienda
produce profitti, le relazioni tra gli oggetti di costo,
l’identificazione delle inefficienze
• Ho scoperto una fonte di inefficienza e adesso cosa
faccio? Come supportare le decisioni di business
attraverso simulazioni what-if
• Il caso di una famosa banca americana

Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 3

Even in this simple cartoon…

Understanding Profitability Exposes Hidden
Cost Behaviors

“…Technology vendors are spending, on average, 19% of their
selling, general, and administrative (SG&A) costs or $135,262 per
quota-carrying salesperson in support-related activities.
Few are aware of this enormous amount because the costs are
hidden .”

“Uncovering The Hidden Costs Of Sales Support”
Scott Santucci - April 13, 2009


Companies are Using the Wrong Tools to
Effectively Analyze Profitability

“Most companies are not using the right tools…spreadsheet
based models are hard to change, error prone and difficult and
time-consuming to use. Relying on desktop spreadsheets can
keep your company from doing the kind of analyses it needs to
do when it needs to do them...”

Accurate Costing Is Key to Profitability
Ventana Research, 2008


Finance Doesn’t Spend Enough Time
Understanding Profitability

“In an economic environment that offers limited visibility into
revenue growth, finance functions are focusing on activities
that help their companies manage the bottom line…
[but] most of the respondents say finance should spend more
time analyzing profitability and performance, as well as more
time focusing business units on financial impacts and metrics.”

“Driving Profitability in Turbulent Times with Agile Planning and Forecasting”
CFO Research Services- May 2009


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Solution Overview


Oracle EPM Connects Management
Processes

Common Reporting & Interaction

Strategic Planning Planning & Forecasting

Financial Close Profitability Management

Common Integration & Analysis
Data Quality and Consistent Dimensions


World Class Profitability & Cost Management
Process to support EPM

Financial Data Drivers of New
from Close Process Cost Drivers to
Conduct
Business
Behavioral Data
from ERP

Profitability Decision Update
Data Collection Allocations
Analysis Support Plans
?? ??

Customer
Profitability
What-if
Full Product Scenario
Costing Results


Critical Components to Implement
Profitability and Cost Management Best Practices

Common Reporting & Interaction

Cost and Cost, Revenue and
Cost and Profitability Cost and Profitability
Revenue Allocation Profitability
Reporting Simulation
Calculations Analytics

Forward-looking Analytic Engine

Allocate Analyze Improve
Performance


User Managed Profitability and Costing
Models
• Determine which products /
customers / services are
PROFITABLE and which are not

• Discover which DRIVERS impact
Costs and Profitability

• Flexible and powerful profitability
reporting and ANALYSIS

• MODEL scenarios to evaluate action
for improving profitability


Hyperion Profitability and Costing Models
Provide:

• Reliability
– Visibly defensible
profitability and cost Senior
Management
results

• Agility
– Timely reflection of FP&A
organizational changes

• Relevance
– Allocate resources to the
most important
opportunities Operational Financial Revenue &
Results Results Cost Models



Overview Profitability
and Cost Management


Statutory Reporting Provides a Limited View
of Profitability

General
Ledger
Financial
transactions
(Account
Balance)

Organizational P&L

Financial Accumulator Bottom-line
Data Results


Statutory Reports Don’t Answer Critical Business
Questions Like…

• What defines a profitable customer?
• What is the profit contribution margin of
a product or a service?
• What does it cost to sell to or to service
customers?
• What proportion of
resources does a specific
customer consume?
• Why hasn’t increased
revenue resulted in
increased profitability?

Costing / Profitability Solution

Organizational P&L

Behavioral
Data Product P&L by Activity

Raw Meaningful Decision
Data Allocations Support

Inefficiencies Caused by Using Wrong Tools

Customer
• Flexibility – lack of Relationship

responsiveness to changes
Marketing Resource
• Time –missed opportunities Plans Utilization

and obsolete plans
Senior Management
• Cost – wasted resources,
questionable benefits
Annual Plan &
Forecast
• Quality – lack of
Headcount
standardization and Plans
FP&A

communication

Departmental Revenue &
Plans Cost Models



Delivering World Class
Profitability and Costing


Best Practices For World Class Profitability
and Cost Management

1 Create meaningful and defensible cost models

2 Examine details of profit and cost

3 Identify causality of costs and profit

4 Evaluate scenarios for performance improvement


1 Create meaningful and defensible cost models

• Use industry knowledge and activity experience:
– To allocate costs through appropriate stages of
transformation
– Through the use of flexible drivers
– And meaningful assignment rules


Business Users Define Stages of Allocation


Business Users Control Definition of
Allocation Methods


Business Users Control Definition of
Assignment Rules


2 Examine details of profit and cost

• Model results reveal new ways of looking at costs and
profitability:
– To identify which of our customers / products / services are
profitable


Traditional Reporting Provides an
Accounting View of Profit

Organizational Profitability


Profitability Management Provides a
Business View
Product Profitability by
Customer

Customer Profitability by
Product


3 Identify causality of costs

• The model exposes previously unknown cost
behavior
– To highlight the business drivers that really matter
– And to reveal what is impacting business efficiency


How Customers / Products Consume
Activity Costs

Activity Costs consumed by
product / customer


How Efficiently Resources Are Being Used

Labor capacity and
utilization


4 Evaluate scenarios for performance improvement

• The model can be used to evaluate the impact
proposed business changes
– To drive better resource utilization
– And the opportunity for improved profitability


Compare Scenario Results to Choose Best
Course of Action

Scenario Results



Customer Success


HPCM representative customers

Defense /
Financial Healthcare Telecom High-Tech Utilities Govt / Non
Profit

Solving Common Customer Issues

Capabilities Delivered

• Shared Services Costing
• Product Profitability
• Pricing Contracts
• Regulatory Reporting
• Cost to Serve
• Regulatory Reporting
• Product Profitability
• Customer Profitability


Hyperion
Profitability &
Cost
Management …at work


Models Managed by Business User

• Business user manages the model definitions
• Built-in Validation Reporting
– Pre-Calculation
– Post-Calculation
• Extended Reporting Examples


Pre-Calc Validation Reports

Pre Calculation
Validation Reports

Next Steps

• Compare your company with industry best
practices

• Evaluate the gaps in your profitability and cost
management process

• Integrate profitability and cost management
into your EPM system


Self-Evaluation Questions

1. Does my company understand the true costs of its
products or services?
2. Are our costing models transparent enough? Can we
easily trace back the assigned costs to the activities
and line item expenses that drive them?
3. Do our costing methods operate at the right level of
detail?
4. Are we satisfied that we are allocating shared services
(such as IT or a centralized HR function) accurately?


Self-Evaluation Questions
5. Are people spending too much time maintaining our
costing models and other elements of our costing
system?
6. Can people in my company quickly test how changes to
commodity, input costs, lower or higher volumes will
affect our profitability?
7. Are we getting answers from our costing systems fast
enough to be actionable? Would reducing this process
time improve our competitiveness or profitability?
8. Is all of the data that I need to understand my true costs
available in a single ERP system? If not, what are the
initial and ongoing costs of integrating that data into our
ERP system?


Bank of the West


profitability cost mgt

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