1
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 busi...
The Issue
Even in this simple cartoon…
Understanding Profitability Exposes Hidden
               Cost Behaviors


      “…Technology vendors are spending, on ave...
Companies are Using the Wrong Tools to
               Effectively Analyze Profitability



      “Most companies are not u...
Finance Doesn’t Spend Enough Time
               Understanding Profitability



         “In an economic environment that ...
<Insert Picture Here>


               Solution Overview




Copyright © 2009, Oracle and/or its affiliates. All rights re...
Oracle EPM Connects Management
               Processes


                                                      Common Rep...
World Class Profitability & Cost Management
               Process to support EPM

                           Financial Da...
Critical Components to Implement
               Profitability and Cost Management Best Practices



                      ...
User Managed Profitability and Costing
               Models
    • Determine which products /
      customers / services a...
Hyperion Profitability and Costing Models
               Provide:

               • Reliability
                        – ...
<Insert Picture Here>


               Overview Profitability
               and Cost Management




Copyright © 2009, Ora...
Statutory Reporting Provides a Limited View
               of Profitability




                                          ...
Statutory Reports Don’t Answer Critical Business
Questions Like…


• What defines a profitable customer?
• What is the pro...
Costing / Profitability Solution




 Organizational P&L


Behavioral
  Data                                          Prod...
Inefficiencies Caused by Using Wrong Tools

                                                                              ...
<Insert Picture Here>


               Delivering World Class
               Profitability and Costing




Copyright © 200...
Best Practices For World Class Profitability
               and Cost Management


              1            Create meanin...
1            Create meaningful and defensible cost models

             • Use industry knowledge and activity experience:
...
Business Users Define Stages of Allocation




Copyright © 2009, Oracle and/or its affiliates. All rights reserved.   23
Business Users Control Definition of
               Allocation Methods




Copyright © 2009, Oracle and/or its affiliates....
Business Users Control Definition of
               Assignment Rules




Copyright © 2009, Oracle and/or its affiliates. A...
2            Examine details of profit and cost

             • Model results reveal new ways of looking at costs and
    ...
Traditional Reporting Provides an
               Accounting View of Profit

                                              ...
Profitability Management Provides a
               Business View
                                                         ...
3            Identify causality of costs

             • The model exposes previously unknown cost
               behavior...
How Customers / Products Consume
               Activity Costs



                                                        ...
How Efficiently Resources Are Being Used




                                                                       Labor ...
4            Evaluate scenarios for performance improvement

             • The model can be used to evaluate the impact
 ...
Compare Scenario Results to Choose Best
               Course of Action




                 Scenario Results




Copyrigh...
<Insert Picture Here>


               Customer Success




Copyright © 2009, Oracle and/or its affiliates. All rights res...
HPCM representative customers

                                                           Defense /
Financial   Healthcare...
Solving Common Customer Issues

                      Capabilities Delivered

                  • Shared Services Costing
...
<Insert Picture Here>


               Hyperion
               Profitability &
               Cost
               Manageme...
Models Managed by Business User


               • Business user manages the model definitions
               • Built-in V...
Business User Sees
Business User Sees
Business User Sees
Business User Sees
Pre-Calc Validation Reports




 Pre Calculation
Validation Reports
Post-Calc Validation Reports
Allocation Tracing
Next Steps


               • Compare your company with industry best
                 practices

               • Evaluat...
Self-Evaluation Questions

           1. Does my company understand the true costs of its
              products or servic...
Self-Evaluation Questions
             5. Are people spending too much time maintaining our
                costing models...
<Insert Picture Here>
               Bank of the West




Copyright © 2009, Oracle and/or its affiliates. All rights reser...
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Copyright © 2009, Oracle and/or its affiliates. All rights reserved.   60
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 profitability cost mgt
 profitability cost mgt
 profitability cost mgt
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profitability cost mgt

  1. 1. 1
  2. 2. Delivering World Class Profitability and Cost Management Edoardo Bacchini Principal Sales Consultant – Oracle Italia - EPM
  3. 3. 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
  4. 4. The Issue
  5. 5. Even in this simple cartoon…
  6. 6. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 6
  7. 7. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 7
  8. 8. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 8
  9. 9. <Insert Picture Here> Solution Overview Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 9
  10. 10. Oracle EPM Connects Management Processes Common Reporting & Interaction Strategic Planning Planning & Forecasting Financial Close Profitability Management Common Integration & Analysis Data Quality and Consistent Dimensions Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 10
  11. 11. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 11
  12. 12. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 12
  13. 13. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 13
  14. 14. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 14
  15. 15. <Insert Picture Here> Overview Profitability and Cost Management Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 15
  16. 16. Statutory Reporting Provides a Limited View of Profitability General Ledger Financial transactions (Account Balance) Organizational P&L Financial Accumulator Bottom-line Data Results Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 16
  17. 17. 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?
  18. 18. Costing / Profitability Solution Organizational P&L Behavioral Data Product P&L by Activity Raw Meaningful Decision Data Allocations Support
  19. 19. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 19
  20. 20. <Insert Picture Here> Delivering World Class Profitability and Costing Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 20
  21. 21. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 21
  22. 22. 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 Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 22
  23. 23. Business Users Define Stages of Allocation Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 23
  24. 24. Business Users Control Definition of Allocation Methods Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 24
  25. 25. Business Users Control Definition of Assignment Rules Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 25
  26. 26. 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
  27. 27. Traditional Reporting Provides an Accounting View of Profit Organizational Profitability Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 27
  28. 28. Profitability Management Provides a Business View Product Profitability by Customer Customer Profitability by Product Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 28
  29. 29. 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
  30. 30. How Customers / Products Consume Activity Costs Activity Costs consumed by product / customer Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 30
  31. 31. How Efficiently Resources Are Being Used Labor capacity and utilization Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 31
  32. 32. 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
  33. 33. Compare Scenario Results to Choose Best Course of Action Scenario Results Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 33
  34. 34. <Insert Picture Here> Customer Success Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 36
  35. 35. HPCM representative customers Defense / Financial Healthcare Telecom High-Tech Utilities Govt / Non Profit
  36. 36. 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
  37. 37. <Insert Picture Here> Hyperion Profitability & Cost Management …at work Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 39
  38. 38. Models Managed by Business User • Business user manages the model definitions • Built-in Validation Reporting – Pre-Calculation – Post-Calculation • Extended Reporting Examples Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 40
  39. 39. Business User Sees
  40. 40. Business User Sees
  41. 41. Business User Sees
  42. 42. Business User Sees
  43. 43. Pre-Calc Validation Reports Pre Calculation Validation Reports
  44. 44. Post-Calc Validation Reports
  45. 45. Allocation Tracing
  46. 46. 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
  47. 47. 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? Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 51
  48. 48. 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? Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 52
  49. 49. <Insert Picture Here> Bank of the West Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 53
  50. 50. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 54
  51. 51. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 55
  52. 52. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 56
  53. 53. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 57
  54. 54. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 58
  55. 55. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 59
  56. 56. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 60
  57. 57. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 61
  58. 58. Copyright © 2009, Oracle and/or its affiliates. All rights reserved. 62

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