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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
The Issue
Even in this simple cartoon…
“…Technology vendors are spending, on average, 19% of theirselling, general, and administrative (SG&A) costs or $135,262 perquota-carrying salesperson in support-related activities.
Few are aware of this enormous amount because the costs arehidden .”
“Uncovering The Hidden Costs Of Sales Support”
Scott Santucci - April 13, 2009
Understanding Profitability Exposes Hidden
Cost Behaviors
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 6
Accurate Costing Is Key to Profitability
Ventana Research, 2008
“Most companies are not using the right tools…spreadsheetbased models are hard to change, error prone and difficult andtime-consuming to use. Relying on desktop spreadsheets cankeep your company from doing the kind of analyses it needs todo when it needs to do them...”
Companies are Using the Wrong Tools to
Effectively Analyze Profitability
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 7
“Driving Profitability in Turbulent Times with Agile Planning and Forecasting”
CFO Research Services- May 2009
“In an economic environment that offers limited visibility intorevenue growth, finance functions are focusing on activitiesthat help their companies manage the bottom line…
[but] most of the respondents say finance should spend moretime analyzing profitability and performance, as well as moretime focusing business units on financial impacts and metrics.”
Finance Doesn’t Spend Enough Time
Understanding Profitability
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 8
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Solution Overview
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Oracle EPM Connects Management
Processes
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Common Integration & AnalysisData Quality and Consistent Dimensions
Common Reporting & Interaction
Strategic Planning
Financial Close
Planning & Forecasting
Profitability Management
What-if Scenario Results
Drivers of Cost
World Class Profitability & Cost Management
Process to support EPM
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Data Collection AllocationsProfitability
Analysis
Decision
Support
Update
Plans
Financial Datafrom Close Process
Behavioral Datafrom ERP
CustomerProfitability
Full Product Costing
New Drivers to Conduct Business
Critical Components to Implement
Profitability and Cost Management Best Practices
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Cost, Revenue and Profitability Analytics
Cost and Profitability Reporting
Cost and Revenue Allocation
Calculations
Allocate ImprovePerformance
Common Reporting & Interaction
Cost and Profitability Simulation
Analyze
Forward-looking Analytic Engine
User Managed Profitability and Costing
Models
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• 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 results
• Agility– Timely reflection of
organizational changes
• Relevance – Allocate resources to the
most important opportunities
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 14
Financial Results
Revenue & Cost Models
Operational Results
FP&A
Senior Management
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Overview Profitability
and Cost Management
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 15
GeneralLedger
(AccountBalance)
Accumulator
Financialtransactions
FinancialData
Statutory Reporting Provides a Limited View
of Profitability
Bottom-lineResults
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 16
Organizational P&L
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?
DecisionSupport
Product P&L by Activity
Costing / Profitability Solution
Organizational P&L
BehavioralData
RawData
MeaningfulAllocations
Inefficiencies Caused by Using Wrong Tools
• Flexibility – lack of
responsiveness to changes
• Time –missed opportunities
and obsolete plans
• Cost – wasted resources,
questionable benefits
• Quality – lack of
standardization and
communication
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 19
FP&A
Senior Management
Annual Plan & Forecast
Revenue & Cost Models
ResourceUtilization
Departmental Plans
Headcount Plans
Marketing Plans
CustomerRelationship
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Delivering World Class
Profitability and Costing
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 20
Best Practices For World Class Profitability
and Cost Management
1 Create meaningful and defensible cost models
3 Identify causality of costs and profit
2 Examine details of profit and cost
4 Evaluate scenarios for performance improvement
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 21
• Use industry knowledge and activity experience:
– To allocate costs through appropriate stages of
transformation
– Through the use of flexible drivers
– And meaningful assignment rules
1 Create meaningful and defensible cost models
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Business Users Define Stages of Allocation
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Business Users Control Definition of
Allocation Methods
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Business Users Control Definition of
Assignment Rules
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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
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 26
Traditional Reporting Provides an
Accounting View of Profit
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Organizational Profitability
Profitability Management Provides a
Business View
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 28
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
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 29
How Customers / Products Consume
Activity Costs
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Activity Costs consumed by
product / customer
How Efficiently Resources Are Being Used
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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
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 32
Compare Scenario Results to Choose Best
Course of Action
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Scenario Results
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Customer Success
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HPCM representative customers
Financial Healthcare Telecom High-Tech Utilities
Defense /
Govt / Non
Profit
Solving Common Customer Issues
Capabilities Delivered
• Shared Services Costing
• Product Profitability
• Shared Services Costing
• Pricing Contracts
• Regulatory Reporting
• Shared Services Costing
• Cost to Serve
• Shared Services Costing
• Regulatory Reporting
• Product Profitability
• Customer Profitability
<Insert Picture Here>
Hyperion
Profitability &
Cost
Management …at work
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 39
Models Managed by Business User
• Business user manages the model definitions
• Built-in Validation Reporting
– Pre-Calculation
– Post-Calculation
• Extended Reporting Examples
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Business User Sees
Business User Sees
Business User Sees
Business User Sees
Pre Calculation Validation Reports
Pre-Calc Validation Reports
Post-Calc Validation Reports
Allocation Tracing
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
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 50
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
Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 51
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?
Self-Evaluation Questions
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<Insert Picture Here>Bank of the West
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