1. hpcm introduction

Profitability and Cost ManagementIntroduction & Overview

Disclaimer The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, functionality or platforms, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features, functionality or platforms described for Oracle’s products remains at the sole discretion of Oracle. Oracle may not release the functionality or products discussed on any additional platforms in the future.2 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Agenda • What Analysts are Saying About Profitability and Cost Management • Solution Overview • Overview Profitability and Cost Management • Delivering World Class Profitability and Cost Management • HPCM Value Proposition • A Simple Example • Q&A3 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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, 20094 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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, 20085 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Oracle EPM Connects Management Processes Common Reporting & Interaction Strategic Planning Planning & Forecasting Financial Close Profitability Management Common Integration & Analysis Data Quality and Consistent Dimensions7 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 Results8 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Critical Components to Implement Profitability and Cost Management Best Practices Who are the most and least Why are customers profitable customers? profitable or unprofitable? Common Reporting & Interaction Cost and Cost and Profitability Cost, Revenue and Cost and Profitability Revenue Allocation Reporting Profitability Analytics Simulation Calculations Evaluate business Profitability and Cost Management options through scenarios. Organizational Allocate Analyze Improvement9 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 profitability10 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 Models11 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Statutory Reporting Provides a Limited View of Profitability General Ledger Financial transactions (Account Balance) Organizational P&L Financial Accumulator Bottom-line Data Results13 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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

Costing / Profitability Solution Organizational P&L Behavioral Data Product P&L by Activity Raw Meaningful Decision Data Allocations Support15 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 & Cost Plans Models16 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 improvement18 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 rules19 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 profitable23 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 efficiency26 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 profitability29 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 improvement31 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Critical Components to Implement Profitability and Cost Management Best Practices Who are the most and least Why are customers profitable customers? profitable or unprofitable? Common Reporting & Interaction Cost and Cost and Profitability Cost, Revenue and Cost and Profitability Revenue Allocation Reporting Profitability Analytics Simulation Calculations Evaluate business Profitability and Cost Management options through scenarios. Organizational Allocate Analyze Improvement32 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Optimize Product Mix to Maximize Profitability Regional bank serving 19 Western and Midwestern states and 4 million households. Over $60B in assets with more than 10,000 employees.Before After  IT resources demand exceeded  Minimal IT involvement capacity for profitability reporting  Easy integration into EPM system  Needed business users to drive infrastructure profitability modeling  Ability to offer a basket of products by  Lack of insight how shared costs mixing and matching products impacted economics of the business according to customer demographics  Challenge to optimize product mix that  Benchmarking costs for developing maximizes bank profitability and marketing new products34 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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 Profitability35 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

HPCM Benefits Key Message Benefits Discover Drivers of • Identify sources and attributes of profitability with Costs and Profitability multidimensional analysis • Improve decisions with scenario modeling capabilities • Enable management best practices by leveraging profitability as a performance metric Empower Users with • Accurately allocate costs with our flexible allocation engine that Visibility and Flexibility supports any methodology • Gain confidence into cost allocations and revenue flows with graphical traceability maps • Quickly validate models with user-defined business rules Improve Resource • Impact budgets and plans through integration with other Alignment performance management applications • Strategically allocate resources with accurate profitability and cost information • Improve marketing programs through customer segmentation37 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Value Proposition for Essbase customers • Packaged Profitability functionality • Framework for profitability modeling • Support for Any Cost Allocation methodologies • Pre-built Model Validation reporting • Traceability Maps • Translation of Business rules into high-level Calcscript • Genealogy generation • Designed for the business user • Integration with EPM system • Integration with ERP38 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Value Proposition for Planning customers • Purpose-built Costing and Profitability functionality • Designed for the business user • Essbase • Uses the same infrastructure as Planning • Metadata sharing • Common Reporting Tools • Integration with EPM system • Integration with ERP • Ease of User acceptance39 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Value Proposition for EPM customers • New module in the EPM System • Packaged Profitability functionality • Designed for the business user • Common EPM infrastructure • Metadata sharing • Essbase • Common Reporting Tools • Integration with ERP • Ease of User acceptance40 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Competitive Differentiators • Technical • Support for multiple cost allocation methodologies • Up to 9 stages of Cost Allocations • Traceability visualization • Multidimensional analysis • Integrated with the leading EPM and ERP Systems • Business • Buyers familiarity (CFO’s office) with Hyperion (Essbase) • Business user driven profitability modeling • Leverage investments in existing Performance Management applications41 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

HPCM – One System for Profitability Reporting, Analytics and Management ALLOCATION ENGINE REPORTING & ANALYTICS ENGINE SCENARIO MODELER • Drastic Cost Reduction in • Understand basis of profitability • Predict results of contingent actions performing Cost Allocations • Cuts IT delays; frees IT resources • High-performance, multi-dimensional • User Defined What-if Scenarios • Rules based, Finance Controlled analysis • Change drivers, assumptions, • Business Analyst driven profitability allocations model development and deployment • Profitability Measurement Reporting • Flexible Allocation Platform • Cost Metric and Benchmarking • Scenario Comparison • Methodology Independent • Affect on budget of implementing • Visual Modeling recommendation A vs. B • Causality Reporting • Advanced Calculation Engine • Multi-dimensional, high performance • Test and anticipate results of • Discover root causes to enact calculation engine potential remedies change • Allocation transparency • Corporate agility Oracle Differentiator42 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Bikes Manufacturing • Medium-sized bicycle manufacturer Bikes needs to better understand costs and • Recent increase in sales profitability of its revenue: customers! • Due mainly to increased purchases by big-box store: Q- mart • RESULT: • Monthly revenue has increased • Profit and profit margin has decreased • Q-mart has asked Bikes to supply more product44 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Bike is seeking answers to… Sample Questions • How are my customers consuming activities? • Which department costs are being consumed by products? • Which of my regions are profitable?45 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Bikes Manufacturing – Depiction of Cost Flow General Ledger Build an Allocation model to transform costs through these stages! Business Operations Products Customers Markets46 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Bikes - Improvement • After reviewing the sales costs, a program of customer education has reduced costs of: • Sales Order Processing • Service Costs • Returns Processing • Improving the bottom line What Now?49 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Hyperion Profitability and Cost Management – Design Principles 1. Take advantage of common EPM technology • Use the power of Essbase for calculation and reporting 2. Flexible methodology 3. Allow a BUSINESS USER to control the design and creation of the allocation solution • Let the application take care of the Essbase technical components51 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Oracle’s Hyperion Profitability & Cost Management EPM Workspace PERFORMANCE MANAGEMENT APPLICATIONS Business Management Planning Profitability Management Financial Performance Management Applications Strategy Reporting & BI Applications BI Applications Compliance Business Intelligence Foundation Fusion Middleware OLTP & ODS Data Warehouse OLAP SAP, Oracle, Siebel, Excel Business Systems Data Mart PeopleSoft, Custom XML Process52 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Process Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the • Load Cost, Revenue Reporting Cube with Dimensions & Business Model: & Driver Data Allocation Genealogy: Hierarchies • Profitability Analysis 1. Define the Stages • Calculate Model & • Deploy the Store Results 2. Define the Drivers • Cost & Revenue Application 3. Validate the Model Contribution Analysis 3. Assign Drivers • Generate the 4. Define Assignment Reporting Cube Rules53 53 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the • Load Cost, Revenue Reporting Cube with Dimensions & Business Model: & Driver Data Allocation Genealogy: Hierarchies • Profitability Analysis 1. Define the Stages • Calculate Model & • Deploy the Store Results 2. Define the Drivers • Cost & Revenue Application 3. Validate the Model Contribution Analysis 3. Assign Drivers • Generate the 4. Define Assignment Reporting Cube Rules Essbase Stages Calculation Essbase Dimensions Hierarchies Drivers Cube Reporting Attributes Assignments (BSO) Cube (ASO) Enterprise Performance Management Web Analysis, Architect Hyperion Profitability & Financial Cost Reporting, Management Smartview54 54 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Profitability and Cost Management – Design Principles 1. Take advantage of existing technology • Use the power of Essbase for calculation and reporting 2. Flexible methodology 3. Allow a BUSINESS USER to control the design and creation of the allocation solution • Let the application take care of the Essbase technical components55 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Flexibility • Up to 9 stages of cost allocations • Intra-stage Allocations • Reciprocal Allocations • Support for multiple cost allocation methodologies • ABC, Time estimation, Percentage allocation, Even Splits • Supports both cost and revenue allocations • Integrated with the leading EPM and ERP Systems56 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Profitability and Cost Management – Design Principles 1. Take advantage of existing technology • Use the power of Essbase for calculation and reporting 2. Flexible methodology 3. Allow a BUSINESS USER to control the design and creation of the allocation solution • Let the application take care of the Essbase technical components57 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Dimensions & Hierarchies • Deploy the Application Dimensions Hierarchies Attributes Enterprise Performance Management Architect58 58 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the Dimensions & Business Model: Hierarchies 1. Define the Stages • Deploy the Application Dimensions Stages Hierarchies Attributes Enterprise Performance Management Architect Hyperion Profitability & Cost Management60 60 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Define the Stages Associate to Essbase Dimensions General Ledger Departments / Accounts Business Operations Departments / Activities Products Customers Products Customers Markets Customer / Product / Regions61 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the Dimensions & Business Model: Hierarchies • Define the Stages • Deploy the • Define the Drivers Application • Assign Drivers • Define Assignment Rules Dimensions Stages Hierarchies Drivers Attributes Assignments Enterprise Performance Management Architect Hyperion Profitability & Cost Management64 64 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

Bikes Sample – Driver / Allocations Human Resources/ $ Compensation & Benefits HeadCount Marketing/ Shipping/ Marketing/ Media Buying Campaign Order Assembly … Development (3) (3) (4)65 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the Dimensions & Business Model: Hierarchies • Define the Stages • Deploy the • Define the Drivers Application • Assign Drivers • Define Assignment Rules Essbase Dimensions Stages Drivers Calculation Hierarchies Attributes Assignments Cube (BSO) Enterprise Performance Management Architect Hyperion Profitability & Cost Management69 69 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the • Load Cost, Revenue Dimensions & Business Model: & Driver Data Hierarchies 1. Define the Stages • Deploy the 2. Define the Drivers Application 3. Assign Drivers 4. Define Assignment Rules Essbase Stages Calculation Dimensions Hierarchies Drivers Cube Attributes Assignments (BSO) Enterprise Performance Management Architect Hyperion Profitability & Cost Management71 71 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the • Load Cost, Revenue Dimensions & Business Model: & Driver Data Hierarchies 1. Define the Stages • Calculate Model & • Deploy the Store Results 2. Define the Drivers Application 3. Validate the Model 3. Assign Drivers • Generate the 4. Define Assignment Reporting Cube Rules Essbase Stages Calculation Essbase Dimensions Hierarchies Drivers Cube Reporting Attributes Assignments (BSO) Cube (ASO) Enterprise Performance Management Architect Hyperion Profitability & Cost Management75 75 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

The Profitability Modeling Environment Metadata Reporting, Analytics & Model Development Management Scenario Modeling • Create & Manage Create & Manage the • Load Cost, Revenue Reporting Cube with Dimensions & Business Model: & Driver Data Allocation Genealogy: Hierarchies • Profitability Analysis 1. Define the Stages • Calculate Model & • Deploy the Store Results 2. Define the Drivers • Cost & Revenue Application 3. Validate the Model Contribution Analysis 3. Assign Drivers • Generate the 4. Define Assignment Reporting Cube Rules Essbase Stages Calculation Essbase Dimensions Hierarchies Drivers Cube Reporting Attributes Assignments (BSO) Cube (ASO) Enterprise Performance Management Web Analysis, Architect Hyperion Profitability & Financial Cost Reporting, Management Smartview79 79 Copyright © 2009, Oracle and/or its affiliates. All rights reserved.

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