profitability cost mgt - [Download PDF]

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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

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

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

“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

Solution Overview

Oracle EPM Connects Management

Processes

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

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

• 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

Financial Results

Revenue & Cost Models

Operational Results

FP&A

Senior Management

Overview Profitability

and Cost Management

GeneralLedger

(AccountBalance)

Accumulator

Financialtransactions

FinancialData

Statutory Reporting Provides a Limited View

of Profitability

Bottom-lineResults

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

FP&A

Senior Management

Annual Plan & Forecast

Revenue & Cost Models

ResourceUtilization

Departmental Plans

Headcount Plans

Marketing Plans

CustomerRelationship

Delivering World Class

Profitability and Costing

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

• 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

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

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

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

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

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?

Self-Evaluation Questions

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