Hyperion Business Modeling              ®Release 3.0Solutions Guide                  Hyperion Solutions Corporation       ...
© 2000-2002 Hyperion Solutions Corporation. All rights reserved.Hyperion, Essbase, Hyperion Analyzer, Hyperion Business Mo...
ContentsPreface .............................................................................................................
Justifying Investment and Re-engineering ....................................................................... 23Plannin...
Calculating the Scenario ........................................................................................... 73   ...
How the Solution was Developed .................................................................................. 128    S...
Preface            This guide introduces you to building Hyperion Business Modeling models and            using them to so...
PrefaceDocument Structure          This document contains the following information:          q   Chapter 1, “Introduction...
PrefaceConventions            The following table shows the conventions used in this document:             Item           ...
PrefaceRelated Documentation          Hyperion Solutions provides the following related documentation for this product:   ...
PrefaceOnline Help            The Hyperion Business Modeling Solutions Guide is available in an online PDF            form...
Preface          2. Double-click Solutions Guide.              The online PDF version of the Solutions Guide is displayed....
PrefacePrinting the Online Guide        ➤ To print the guide or a range of pages:            1. Select Help > Information ...
PrefaceAdditional Support          In addition to providing the documentation and online help, Hyperion offers the        ...
PrefaceConsulting Services            Hyperion Consulting Services assists customers in maximizing the use of, and the    ...
Prefacexvi s     Hyperion Business Modeling Solutions Guide
Chapter            Introduction       1            This guide demonstrates how Hyperion® Business Modeling can provide sol...
IntroductionBefore You Start               Familiarity with some common business challenges will help you better          ...
Introduction                                                                                                   1     How t...
Introduction20 s           Hyperion Business Modeling Solutions Guide
Chapter            Your Business Issues       2            Hyperion Business Modeling can help you address important chall...
Your Business IssuesMeasuring Customer and Product Profitability            A large part of business success is knowing yo...
Your Business IssuesJustifying Investment and Re-engineering            Managers must weigh the costs and benefits of incr...
Your Business IssuesIntroducing a New Product            Hyperion Business Modeling can predict the ripple effect of intro...
Chapter            The Model Approach       3            The Model Approach® (TMA) is an established eight-step process us...
The Model ApproachStep 1: Defining the Project Scope           Define the parameters of your project by identifying:      ...
The Model ApproachStep 3: Developing the Schematic            You create a schematic or graphical representation of the ac...
The Model Approach                        Summary Boxes                        These symbols group activities and resource...
The Model ApproachStep 5: Building the Model            Using the schematic developed in Step 3 and the data collected in ...
The Model ApproachStep 7: Interpreting the New Activity-BasedInformation           The validated model provides new inform...
Chapter            Product Profitability Case       4               Study            OK Plastics Inc. took operational, fi...
Product Profitability Case StudyBusiness Issue             The OK Plastics company manufactures three lines of products:  ...
Product Profitability Case Study            Product Line C            q   A high profit margin in this product line gives ...
Product Profitability Case Study                The table below compares standard costs to activity-based costs (ABC) for ...
Product Profitability Case Study     Step 1: Defining the Project Scope            The OK Plastics’s activity-based manage...
Product Profitability Case Study              Activities/Resources                      Unit of Measure              Energ...
Product Profitability Case Study            OK Plastics Schematic Box Definitions            Each box in the schematic is ...
Product Profitability Case Study             Resource Boxes (Fixed)                   Box ID          Box Name            ...
Product Profitability Case Study         OK Plastics                                                         $            ...
Product Profitability Case Study       Interpreting the OK Plastics Schematic             Since the requirements for activ...
Product Profitability Case Study             Follow the Flow Upwards (cont’d)             Box                             ...
Product Profitability Case Study       Step 4: Collecting Data and Rules             The team gathered the relevant operat...
Product Profitability Case Study            OK Plastics Income Statement Revenue                             Sales of Prod...
Product Profitability Case Study             Operational and Financial Data             These spreadsheets contain detaile...
Product Profitability Case Study            Table 2: Product Analysis Detail for Product B (cont’d)            Sales      ...
Product Profitability Case Study             Table 3: Product Analysis Detail for Product C (cont’d)             Sales    ...
Product Profitability Case Study            Costs of Services and Consumables            The team also collected the follo...
Product Profitability Case Study             Financial Accounts              Number       Name                         Num...
Product Profitability Case Study            Fixed Resource Costs            The financial value is the user-assigned value...
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Hbm solution
Upcoming SlideShare
Loading in …5
×

Hbm solution

485 views

Published on

Hyperion Business modelling

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
485
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
32
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Hbm solution

  1. 1. Hyperion Business Modeling ®Release 3.0Solutions Guide Hyperion Solutions Corporation P/N: D503530000
  2. 2. © 2000-2002 Hyperion Solutions Corporation. All rights reserved.Hyperion, Essbase, Hyperion Analyzer, Hyperion Business Modeling and the “H” logo areregistered trademarks of Hyperion Solutions Corporation. Hyperion Solutions is a trademarkof Hyperion Solutions Corporation.Economic Value Add (“EVA”) is a registered trademark of Stern Stewart & Co. All otherbrand and product names are trademarks or registered trademarks of their respective holders.No portion of this manual may be reproduced or transmitted in any form or by any means,electronic or mechanical, including photocopying, recording, or information storage andretrieval systems, for any purpose other than the purchaser’s personal use, without the expresswritten permission of Hyperion Solutions Corporation.Notice: The information contained in this document is subject to change without notice.Hyperion Solutions Corporation shall not be liable for errors contained herein orconsequential damages in connection with the furnishing, performance, or use of this material. Hyperion Solutions Corporation 1344 Crossman Avenue Sunnyvale, CA 94089
  3. 3. ContentsPreface ......................................................................................................................... vii Who Should Use This Guide .................................................................................... viiDocument Structure ........................................................................................................ viiiConventions ....................................................................................................................... ixRelated Documentation ...................................................................................................... xOnline Help ....................................................................................................................... xi Viewing the Online Guide ......................................................................................... xi Printing the Online Guide ....................................................................................... xiiiAdditional Support .......................................................................................................... xiv Documentation ......................................................................................................... xiv Education Services .................................................................................................. xiv Consulting Services .................................................................................................. xv Technical Support ..................................................................................................... xvChapter 1: Introduction ....................................................................................... 17What You Gain ................................................................................................................. 17Before You Start ............................................................................................................... 18Using the Case Studies ..................................................................................................... 18 How the Case Studies are Organized........................................................................ 18 How to Use the Case Studies .................................................................................... 19The Case Studies .............................................................................................................. 19Chapter 2: Your Business Issues ................................................................... 21Managing Capacities and Constraints .............................................................................. 21Measuring Customer and Product Profitability ................................................................ 22Controlling Costs .............................................................................................................. 22Hyperion Business Modeling Solutions Guide s iii
  4. 4. Justifying Investment and Re-engineering ....................................................................... 23Planning Process Improvements ...................................................................................... 23Introducing a New Product ............................................................................................... 24Where to Find the Case Studies ....................................................................................... 24Chapter 3: The Model Approach ..................................................................... 25Step 1: Defining the Project Scope................................................................................... 26Step 2: Identifying Activities, Resources, and Measures ................................................. 26Step 3: Developing the Schematic.................................................................................... 27Step 4: Collecting Data and Rules .................................................................................... 28Step 5: Building the Model .............................................................................................. 29Step 6: Validating the Results .......................................................................................... 29Step 7: Interpreting the New Activity-Based Information ............................................... 30Step 8: Performing Activity-Based Management ............................................................ 30Chapter 4: Product Profitability Case Study ............................................ 31Business Issue ................................................................................................................... 32 Marketing Analysis ................................................................................................... 32 Cost Analysis ............................................................................................................ 33Activity Based Management Solution Result .................................................................. 33 Activity-based Costing (ABC) Results ..................................................................... 33How the Solution was Developed .................................................................................... 34 Supporting The Model Approach ............................................................................. 34 Step 1: Defining the Project Scope ........................................................................... 35 Step 2: Identifying Activities, Resources, and Measures ......................................... 35 Step 3: Developing the Schematic ............................................................................ 36 Interpreting the OK Plastics Schematic .................................................................... 40 Step 4: Collecting Data and Rules ............................................................................ 42 Step 5: Building the Model ....................................................................................... 51 Step 6: Validating the Results ................................................................................... 55Activity-Based Cost Analysis .......................................................................................... 60 Step 7: Interpreting New Information ....................................................................... 60Activity-Based Management ............................................................................................ 64 Step 8: Performing Activity-Based Management ..................................................... 64 Finding a Solution to Product Profitability ............................................................... 64iv s Hyperion Business Modeling Solutions Guide
  5. 5. Calculating the Scenario ........................................................................................... 73 Next Steps ................................................................................................................. 73Chapter 5: Customer Profitability Case Study ........................................ 75Business Issue .................................................................................................................. 76 Market Conditions .................................................................................................... 77 Current Costs ............................................................................................................ 77 Profit/Loss Projection ............................................................................................... 78ABM Solution Result ....................................................................................................... 78 Activity-based Costing (ABC) Results .................................................................... 79 Activity-based Management Strategy ...................................................................... 80How the Solution was Developed .................................................................................... 80 Supporting The Model Approach ............................................................................. 80 Step 1: Defining the Project Scope ........................................................................... 81 Step 2: Identifying Activities, Resources, and Measures ......................................... 81 Step 3: Developing the Schematic ............................................................................ 82 Step 4: Collecting Data and Rules ............................................................................ 87 Step 5: Building the Model ...................................................................................... 95 Step 6: Validating the Results ................................................................................ 101Activity-Based Cost Analysis ........................................................................................ 105 Step 7: Interpreting New Information .................................................................... 105Activity-Based Management .......................................................................................... 111 Step 8: Performing Activity-Based Management................................................... 111 Calculating the Scenario ......................................................................................... 117 Next Steps ............................................................................................................... 120Chapter 6: Improving Economic Profit Case Study ........................... 121Economic Profit Concepts.............................................................................................. 121Business Issue ................................................................................................................ 123Company Profile ............................................................................................................ 124 Product Lines .......................................................................................................... 124 Strategy ................................................................................................................... 125EP Solution Results ........................................................................................................ 126 Business Modeling Strategy ................................................................................... 126Hyperion Business Modeling Solutions Guide s v
  6. 6. How the Solution was Developed .................................................................................. 128 Supporting The Model Approach ........................................................................... 128 Step 1: Defining the Project Scope ......................................................................... 128 Step 2: Identifying Activities, Resources, and Measures ....................................... 129 Step 3: Developing the Schematic .......................................................................... 130 Interpreting the OK Plastics’ Schematic ................................................................. 134 Step 4: Collecting Data and Rules .......................................................................... 136 Step 5: Build the Model .......................................................................................... 146 Adding Changes to Model EP ................................................................................ 149 Step 6: Validating the Results ................................................................................. 163Activity-Based Cost Analysis ........................................................................................ 167 Step 7: Interpreting New Information ..................................................................... 167Activity-Based Management .......................................................................................... 172 Step 8: Performing Activity-Based Management ................................................... 172 Evaluating the Impact of New Process Technology on Economic Profit .............. 174 Calculating the Scenario ......................................................................................... 177 Next Steps ............................................................................................................... 178Chapter 7: Next Steps ........................................................................................ 179Appendix A: Concepts ....................................................................................... 181Activity-Based Costing and Management ...................................................................... 181 The Problem of Indirect Costs ................................................................................ 181 Activity-Based Costing ........................................................................................... 182 Process Modeling .................................................................................................... 182 Activity-Based Management .................................................................................. 183Solution .......................................................................................................................... 184Index ............................................................................................................................ 185vi s Hyperion Business Modeling Solutions Guide
  7. 7. Preface This guide introduces you to building Hyperion Business Modeling models and using them to solve business issues. It explains the Hyperion Business Modeling features and options and contains case studies that implement the model building method, The Model Approach®. This preface includes the following topics: q “Who Should Use This Guide” on page vii q “Document Structure” on page viii q “Conventions” on page ix q “Related Documentation” on page x q “Online Help” on page xi q “Additional Support” on page xivWho Should Use This Guide This guide is intended for developers of activity-based management models, activity-based costing project leaders, and managers who are looking for a solution to their business problems.Hyperion Business Modeling Solutions Guide s vii
  8. 8. PrefaceDocument Structure This document contains the following information: q Chapter 1, “Introduction,” provides an overview to the entire guide, including how to use the guide, the benefits of following the case studies, and a brief description of the enclosed case studies. q Chapter 2, “Your Business Issues,” describes some of the financial and operational problems organizations commonly face in today’s business environment. q Chapter 3, “The Model Approach,” describes the eight-step methodology for building models using Hyperion Business Modeling to solve common business problems. q Chapter 4, “Product Profitability Case Study,” is a case study of a manufacturing company and how it uses The Model Approach and Hyperion Business Modeling to address product profitability issues. q Chapter 5, “Customer Profitability Case Study,” is a case study of a service company and how it uses The Model Approach and Hyperion Business Modeling to address customer profitability issues. q Chapter 6, “Improving Economic Profit Case Study,” is a case study demonstrating the application of Economic Profit (Economic Value Add or EVA) to evaluate proposed initiatives on the profitability of a manufacturing company. q Chapter 7, “Next Steps,” directs you to sources of support and information to help you launch your own activity-based management project. q Appendix A, “Concepts,” describes the underlying principles of the product.viii s Hyperion Business Modeling Solutions Guide
  9. 9. PrefaceConventions The following table shows the conventions used in this document: Item Meaning ➤ Arrows indicate the beginning of a procedure that consists of sequential steps. Bold Bold text indicates words or characters that you type exactly as they appear on the page. Bold in procedural steps highlights major interface elements. CAPITAL LETTERS Capital letters denote commands and various IDs. (Example: CLEARBLOCK command) Ctrl + 0 Keystroke combinations shown with the plus symbol (+) indicate that you should press the first key and hold it while you press the next key. Do not type the + symbol. Courier italics Courier italic text indicates a variable field in command syntax. Substitute a value in place of the variable shown in Courier italics. Ellipses (...) Ellipsis points indicate that text has been omitted from an example. Example text Courier font indicates that the material shown is a code or syntax example. Italics Document titles are shown in italics. Mouse orientation This document provides examples and procedures using a right-handed mouse. If you use a left-handed mouse, adjust the procedures accordingly. Menu options Options in menus are shown in the following format: Menu name > Menu command > Extended menu command For example: File > Desktop > Accounts n, x The variable n indicates that you must supply a generic number; the variable x indicates that you must supply a generic letter.Hyperion Business Modeling Solutions Guide s ix
  10. 10. PrefaceRelated Documentation Hyperion Solutions provides the following related documentation for this product: q The Hyperion® Business Modeling Installation Checklist provides a high-level list of tasks required to install Hyperion Business Modeling. The checklist also supplies information regarding additional templates that are shipped with Hyperion Business Modeling, and identifies other available product-related tools and documentation. q The Hyperion® Business Modeling New Features describes the new or enhanced features for this release. q The Hyperion® Business Modeling Model Builder’s Guide explains the features and options of Hyperion Business Modeling, and contains the concepts, processes, procedures, formats, tasks, and examples that you need to use the software to build a model or enterprise model. q The Hyperion® Business Modeling Results Analysis and Reports Guide discusses saving and analyzing reports, and contains an explanation of how to access calculated results and project information reports for models and enterprise models. q The Hyperion® Business Modeling Solutions Guide provides information about building models and using them to solve business issues and maximize profitability. The guide explains the Hyperion Business Modeling features and options, and contains case studies that implement the model building method, The Model Approach®. q The Hyperion® Business Modeling Hyperion Analyzer Views Guide explains how to view Hyperion® Business Modeling results using Hyperion® Analyzer. q Hyperion® Business Modeling Database Tables Reference is a reference guide for Database Administrators that describes the Hyperion Business Modeling database schema. All documentation for the software is available from the Hyperion Business Modeling Information Map. To access the Information Map, select Help > Information Map.x s Hyperion Business Modeling Solutions Guide
  11. 11. PrefaceOnline Help The Hyperion Business Modeling Solutions Guide is available in an online PDF format, which can be used to view the guide online, or print the document, as outlined in the following procedures: q “Viewing the Online Guide” on page xi q “Printing the Online Guide” on page xiiiViewing the Online Guide The PDF version of the Hyperion Business Modeling Solutions Guide is available from the Information Map in the application. ➤ To display the online guide: 1. Select Help > Information Map from the main menu of the application. The Hyperion Business Modeling Information Map is displayed.Hyperion Business Modeling Solutions Guide s xi
  12. 12. Preface 2. Double-click Solutions Guide. The online PDF version of the Solutions Guide is displayed. The cover of the online manual is displayed in the right frame, and a list of all topics and sub-topics is presented in the Bookmarks tab in the left frame. The PDF version is fully hyperlinked and indexed to make it easy to find and jump to related topics. 3. In the Bookmarks tab, click the topic that you want to view. The first page of the selected section displays in the right frame.xii s Hyperion Business Modeling Solutions Guide
  13. 13. PrefacePrinting the Online Guide ➤ To print the guide or a range of pages: 1. Select Help > Information Map from the main menu of the application. The Hyperion Business Modeling Information Map is displayed. 2. Double-click Solutions Guide on the Information Map. The PDF version of the guide is displayed. 3. Select File > Print. The Print window displays. 4. Select your requirements for the print job, such as the portion of the document that you want to print, whether you want to print double-sided, and so on. 5. Click OK to submit the print job. Tip: Screen shots are a low resolution image type. If the printed screen shots are unreadable and you are using a non-PostScript printer, upgrade to an Acrobat 4.0 viewer. If you do not have Adobe Acrobat Reader, you can download the most current version free from Adobe’s Web site at www.adobe.com.Hyperion Business Modeling Solutions Guide s xiii
  14. 14. PrefaceAdditional Support In addition to providing the documentation and online help, Hyperion offers the following support for product information.Documentation A complete set of documentation is included in PDF or HTML format, or in the form of online help as part of the installed product. For more information on how to order printed documentation, visit our Web site at http://www.hyperion.com, call Customer Service at 877-901-4975, or contact your local support office.Education Services Hyperion offers a variety of training options, including instructor-led training, custom training, and eTraining. This education covers all Hyperion applications and technologies and is geared to administrators, end users, and information systems (IS) professionals. Instructor-led training is delivered in formats and in locations suited to Hyperion’s diverse, global customers. Hyperion Authorized Training Centers are certified to deliver courses developed by Hyperion. Custom Education Services—training on the configured and tailored applications that employees use on the job—is another option to enhance user productivity and to ensure smooth day-to-day operations. eTraining—including computer-based training, Web-based training, and interactive Virtual Classroom training—provides a cost-effective means of giving users a hands-on introduction to product features and functions. Computer-based training (CBT) and Web-based training (WBT) provide high-quality, self-paced training at the user’s convenience, regardless of location. For more information about training, contact your Regional Education Manager or visit our Web site at http://www.hyperion.com to see a list of all training classes.xiv s Hyperion Business Modeling Solutions Guide
  15. 15. PrefaceConsulting Services Hyperion Consulting Services assists customers in maximizing the use of, and the return on investment in, Hyperion products. Experienced Hyperion consultants and Hyperion Alliance Partners assist organizations in tailoring solutions to their particular requirements, such as reporting, analysis, modeling, and planning. Specific services include implementation consulting, custom business solutions, data integration, and technical consulting. Additionally, Hyperion offers a variety of Services Packages and Reviews. For more information about Consulting Services, Services Packages, and Reviews, as well as the services offered by Alliance Partners, contact your local consulting services representative or visit our Web site at http://www.hyperion.com to see a list of all Hyperion Alliance Partners.Technical Support Hyperion provides telephone and Web-based support to ensure that clients resolve product issues quickly and accurately. This support is available for all Hyperion products at no additional cost to clients with a current maintenance agreement. q For Hyperion Solutions Customer Service, call 877-901-4975. A complete list of all local Customer Service numbers is available on the Information Map under Contacts. q For Web-based support or to see complete information on available support options, visit our Web site at http://www.hyperion.com. When standard support does not meet specific requirements, a Hyperion support package that meets your needs can usually be designed. For more information, contact your local Customer Service office.Hyperion Business Modeling Solutions Guide s xv
  16. 16. Prefacexvi s Hyperion Business Modeling Solutions Guide
  17. 17. Chapter Introduction 1 This guide demonstrates how Hyperion® Business Modeling can provide solutions to the challenges facing your business. Realistic case studies illustrate and address contemporary business issues using activity-based management models. Each study gives the vital statistics used to build the model in the case and describes how the model is built using a proven, industry-tested methodology, The Model Approach® (TMA). The following sections introduce you to the Solutions Guide, describe how to use the guide to its fullest advantage, and what to expect from the case studies inside: q “What You Gain” on page 17 q “Before You Start” on page 18 q “Using the Case Studies” on page 18 q “The Case Studies” on page 19What You Gain At the end of a case study, you will understand the following concepts: q The typical business issues Hyperion Business Modeling can address q The kinds of solutions Hyperion Business Modeling can provide q The process of developing a model using Hyperion Business Modeling q The value of scenario-playing in planning the future of your business q The ability to apply the concepts of Economic Profit to the models that you createHyperion Business Modeling Solutions Guide s 17
  18. 18. IntroductionBefore You Start Familiarity with some common business challenges will help you better understand the problems in the case studies and their solutions. q Business Issues Read Chapter 2, “Your Business Issues,” to grasp the kinds of situations that businesses are frequently forced to address, such as operational capacities, profitability, market growth, and cost control, to name a few. q The Model Approach® The Model Approach (TMA) is an eight-step methodology for constructing models using Hyperion Business Modeling. It shows you how to build effective models, use results to support decisions, and play scenarios using the program. For an introduction to TMA, see Chapter 3, “The Model Approach.”Using the Case Studies The case studies represent a subset of Hyperion Business Modeling’s capabilities. We encourage you to take your time to understand the details of the models, but an in-depth study of the data provided is not essential to understand the management value of the software. You will learn more from the case studies if you understand how the studies are organized. How the Case Studies are Organized Each case study is presented in the following sections: q Summary: Brief statements of the business issue and solution q Business Issue: A brief profile of the company and a description of its business challenges q Business Modeling Solution Result: A description of how activity-based costing located the real problem and how activity-based management found the solution q How the Solution was Developed: A detailed description of how the solution was found using TMA18 s Hyperion Business Modeling Solutions Guide
  19. 19. Introduction 1 How to Use the Case Studies q Highlight the case study that most interests you and follow its story to see how the eight steps outlined by TMA are applied. q Using the software, play the scenarios described in the case study. It takes about 45 minutes to work through a case study. q Use the scenario tutorial to evaluate suggested management and operational strategies. Or, test some of your own.The Case Studies Each case study contains a company description, an issue, and a management resolution: Case Study Business Issue Description Manufacturing: Product Competition for one of OK Plastics’s OK Plastics Profitability product lines calls for a review of product and pricing mix. Service: Customer OK Service Bureau management OK Service Profitability wants to understand the effects of Bureau increased demand for its billing services and aggressive competition. Manufacturing: Economic Profit Management needs to evaluate the OK Plastics impact that purchasing new process technology will have on the organization.Hyperion Business Modeling Solutions Guide s 19
  20. 20. Introduction20 s Hyperion Business Modeling Solutions Guide
  21. 21. Chapter Your Business Issues 2 Hyperion Business Modeling can help you address important challenges faced by most industries today, such as: q “Managing Capacities and Constraints” on page 21 q “Measuring Customer and Product Profitability” on page 22 q “Controlling Costs” on page 22 q “Justifying Investment and Re-engineering” on page 23 q “Planning Process Improvements” on page 23 q “Introducing a New Product” on page 24 See “Where to Find the Case Studies” on page 24 to locate where each of the previous business issues are addressed in the case studies.Managing Capacities and Constraints To respond to increased demand, companies must know where their capacity limits exist, what the limits are, and options for improving capacity. Capacity planning helps managers foresee the need for replacing or improving their human and physical resources. It also helps them plan for outsourcing on a temporary or seasonal basis when internal improvements and expansion are not feasible. Using Hyperion Business Modeling, you can efficiently maximize revenues, avoid bottlenecks from increased workloads, and plan for demand variations.Hyperion Business Modeling Solutions Guide s 21
  22. 22. Your Business IssuesMeasuring Customer and Product Profitability A large part of business success is knowing your customers and product lines. How profitable are they? Could they be more profitable? Knowing the answers enables you to manage your customers, products, and, as a result, your operations and your profits. As both a process modeling and costing application, Hyperion Business Modeling can: q Calculate customer and product revenues, costs, and profits from the activities and resources of your operation. q Identify process costs and cost drivers on activities that are associated with products and customers. q Make direct financial comparisons among customers or products, uncovering weak product lines or customers who cost more than they are worth to service. Hyperion Business Modeling can also model profitability by region, channel, and facility.Controlling Costs Effective cost control relies on knowing what your true costs are and what part of your business operation will be affected by resource and supply price increases. Modeling your business and testing cost initiatives can reveal savings in unexpected places. Hyperion Business Modeling lets you model your business and test cost strategies to support your cost control initiatives.22 s Hyperion Business Modeling Solutions Guide
  23. 23. Your Business IssuesJustifying Investment and Re-engineering Managers must weigh the costs and benefits of increasing capital and staff before making the costly decision to proceed. Modeling the changes can help make that 2 decision. Similarly, modeling the changes makes Economic Profit (EP) analysis possible. Economic Profit (also known as Economic Value Add or EVA) accounts for the cost of capital for investment and the returns from that investment, thus amortizing the expense over the period of time in which the benefits are reaped. EP is also associated with shareholder wealth. If your business earns a rate of return higher than the cost of capital, the value of the company increases. You can use Hyperion Business Modeling to take a longer view of an investment, showing bottom-line impacts beyond the investment year. Applying economic profit formulas to existing models enables you to evaluate business decisions in terms of creating or keeping value for the company, based on the capital costs involved in implementing business strategies.Planning Process Improvements Activity-based management can uncover the hidden costs of two kinds of activities: q Those that do not add value to either the company or its customers q Those that could be carried out with greater efficiency Process improvement initiatives, performance innovations, and the introduction of new products and services can make companies more responsive to market demands and create the conditions for long-term growth and profitability. With Hyperion Business Modeling, you can develop and test multiple scenarios without risk. You can compare potential performance improvements and evaluate the operational and financial impact of various production and management strategies by making changes to: q The model’s data (for example, costs, revenues, capacities) q The model itself (for example, adding a resource)Hyperion Business Modeling Solutions Guide s 23
  24. 24. Your Business IssuesIntroducing a New Product Hyperion Business Modeling can predict the ripple effect of introducing new products throughout an organization. A modestly profitable product might strain production capacities and inhibit expanding production of a more profitable product. Or it might, in fact, increase overall profitability by sharing more of the company’s overhead costs.Where to Find the Case Studies The check marks in the following table show which business issues are addressed in each of the case studies in this guide: Service: Manufacturing: OK Service Economic Profit: OK Plastics Bureau OK Plastics Business Issue Chapter 4 Chapter 5 Chapter 6 Managing Capacities and Constraints ✔ ✔ ✔ Measuring Customer and Product Profitability ✔ ✔ ✔ Controlling Costs ✔ ✔ Justifying Investment and Re-engineering (Economic ✔ ✔ Profit) Introducing a New Product ✔24 s Hyperion Business Modeling Solutions Guide
  25. 25. Chapter The Model Approach 3 The Model Approach® (TMA) is an established eight-step process used to implement an activity-based management project. Successful activity-based management projects have been completed in manufacturing, service, finance, health care, and other sectors. The steps of the process are briefly described in this chapter: q “Step 1: Defining the Project Scope” on page 26 q “Step 2: Identifying Activities, Resources, and Measures” on page 26 q “Step 3: Developing the Schematic” on page 27 q “Step 4: Collecting Data and Rules” on page 28 q “Step 5: Building the Model” on page 29 q “Step 6: Validating the Results” on page 29 q “Step 7: Interpreting the New Activity-Based Information” on page 30 q “Step 8: Performing Activity-Based Management” on page 30Hyperion Business Modeling Solutions Guide s 25
  26. 26. The Model ApproachStep 1: Defining the Project Scope Define the parameters of your project by identifying: q The area or areas of the organization to be modeled q The major services or products that this area provides (in other words, the demands) q The length of time and number of people needed to complete the projectStep 2: Identifying Activities, Resources, andMeasures To find out what processes and resources the organization uses to deliver services or products, this step requires you to conduct interviews and activity analysis to identify: q The major activities of the area or areas being studied q The resources needed to perform these activities q An appropriate unit to measure each activity and resource26 s Hyperion Business Modeling Solutions Guide
  27. 27. The Model ApproachStep 3: Developing the Schematic You create a schematic or graphical representation of the activities and resources identified in Step 2. This schematic depicts and clarifies the relationships among the demands, activities, and resources of the project area. Schematic Symbols The schematic uses eight symbols (boxes and their connectors) to represent the 3 components of the area being studied. Supply Boxes These symbols represent supply of a variable resource (for example, raw materials). Resource Boxes Resource boxes represent resources that are consumed in fixed amounts within a time period. They may be resources whose costs are committed for the time period being modeled (such as a machine or a labor pool). Fixed resources have period costs associated with them. Activity Boxes These symbols represent activities performed to support the delivery of the area’s product or services (such as order processing, assembling products, supervising employees). Activities do not have costs associated with them. Route Boxes These symbols represent a choice of inputs to an activity or final outputs, such as a product or service. For example, you can choose regular or overtime labor hours to support an activity and decide how much of each you use.Hyperion Business Modeling Solutions Guide s 27
  28. 28. The Model Approach Summary Boxes These symbols group activities and resources that are always used together. Inventory Boxes These symbols are used to carry items (and their costs) forward from one period to the next. For example, finished goods can be assembled in one period and sold in another period. Demand Boxes These symbols represent the outputs of the area of study. For example, producing a manufactured product, or providing an internal or external service. Connectors Although not modeling symbols, connectors are used to simplify the presentation of the schematic. A connector is used to show where a link (in other words, a relationship) exists between boxes in the schematic.Step 4: Collecting Data and Rules During this step, you gather the relevant operational and financial data. The schematic developed in Step 3 serves as the roadmap to identify the data required. Required data includes: q Demand volumes: The amount of output produced for the period of the model q Factors: For example, the amount of a resource that is required to generate a unit of activity q Capacities: The maximum units of output actually available from a resource for the time period of the model q Financial Data: Costs and/or revenues that are associated with a resource28 s Hyperion Business Modeling Solutions Guide
  29. 29. The Model ApproachStep 5: Building the Model Using the schematic developed in Step 3 and the data collected in Step 4, you create a model that includes the following types of information: Type of Information Includes Project Information Model title Time period 3 Global Data Units of measure Variables Revenue and cost categories Boxes (graphical symbols) Name and Box ID (identifier) Unit of measure Operational and financial data as identified on the schematic The software confirms that the data used to define the model conforms to the rules of process model building. Once verified, the model can be used to produce operational and financial results.Step 6: Validating the Results After the model is verified for logical flow, the model must be validated for accuracy. Operational validation is done before financial validation, because the financial results are based on the operational flow. q Operational Validation: Operational results generated by the model reflect the historical experience of the project area for the period being modeled. q Financial Validation: After any operational inconsistencies in the model are corrected, total costs and revenue generated by the model are compared to the actual experience of the project area. Financial validation ensures consistency.Hyperion Business Modeling Solutions Guide s 29
  30. 30. The Model ApproachStep 7: Interpreting the New Activity-BasedInformation The validated model provides new information about the project area. q New Operational Information: The model provides the utilization rates for resources. These rates help identify inefficiencies, bottlenecks, and idle capacity issues. q New Financial Information: You can use the model to cost products, services, or any activity in the project area. The results can reveal hidden losses and profits. q Improvement Opportunities: Combining financial and operational data enables you to identify non-value added activities and to prioritize areas for process improvement.Step 8: Performing Activity-Based Management After the model is verified and reviewed, you can use it to evaluate what-if scenarios. These scenarios let you evaluate different possibilities within the project area before implementing them. Typical uses of what-if scenario-playing include: q Preparing activity-based budgets q Evaluating opportunities for improving productivity and reducing costs q Identifying ways to improve customer, product, and channel profitabilities q Testing potential scenarios and evaluating their consequences30 s Hyperion Business Modeling Solutions Guide
  31. 31. Chapter Product Profitability Case 4 Study OK Plastics Inc. took operational, financial, and marketing initiatives to reverse the sagging profitability of its three product lines. Using The Model Approach, the firm uncovered cost, revenue, and profit distortions created by its standard accounting system. OK Plastics introduced activity-based management techniques to target greater efficiencies, plan marketing strategies, and shift and expand existing resources. One scenario suggested a 240% increase in overall profitability, pointing the company to a more promising direction. The case study is broken down into the following sections: q “Business Issue” on page 32 q “Activity Based Management Solution Result” on page 33 q “How the Solution was Developed” on page 34 – “Step 1: Defining the Project Scope” on page 35 – “Step 2: Identifying Activities, Resources, and Measures” on page 35 – “Step 3: Developing the Schematic” on page 36 – “Step 4: Collecting Data and Rules” on page 42 – “Step 5: Building the Model” on page 51 – “Step 6: Validating the Results” on page 55 q “Activity-Based Cost Analysis” on page 60 – “Step 7: Interpreting New Information” on page 60 q “Activity-Based Management” on page 64 – “Step 8: Performing Activity-Based Management” on page 64Hyperion Business Modeling Solutions Guide s 31
  32. 32. Product Profitability Case StudyBusiness Issue The OK Plastics company manufactures three lines of products: q Product A: High volume, simple products produced in large batches q Product B: Medium volume, more complex products q Product C: Low volume, small order, highly complex products OK Plastics has lost total market share. Product analysis reveals that stagnant growth among some products cannot compensate for the market share decline in others. In response to this problem, OK Plastics has ordered the following business studies for each of its product lines: q Marketing Analysis q Cost Analysis Marketing Analysis A summary of the Marketing Department’s report on the three product lines appears below: Product Line A q The market share for Product Line A dropped from 50% to 25% over a two-year period. A major competitor has consistently priced its comparable products 5% below the Product Line A equivalent. q Sales volumes for Product Line A will continue to decline unless a lower price can be offered. q Current product profitability analysis shows that the company cannot afford to drop the price for Product Line A. Product Line B q OK Plastics maintained a consistent market share of 15% over the past two years, experiencing only minor fluctuations in a relatively stable economy. q Not enough product cost data exists to make price changes.32 s Hyperion Business Modeling Solutions Guide
  33. 33. Product Profitability Case Study Product Line C q A high profit margin in this product line gives OK Plastics room to increase sales volumes and market share through a 10% price discount. q One study suggests that the market is so elastic that such a price discount could double sales. Cost Analysis Using standard costing, the Accounting Department prepared a profitability analysis by product line using the current year’s data. Current Year Product Line A Product Line B Product Line C 4 Volume (000) pieces 1000 500 150 Selling price/piece $2.450 $3.550 $5.900 Total cost/piece $2.269 $3.163 $4.501 Income/piece $0.181 $0.387 $1.399 Total profit ($000) $181 $193 $209Activity Based Management Solution Result The activity-based management solution begins with determining the activity-based costs of OK Plastics and continues with a what-if scenario played in the OK Plastics model. These scenarios point the company in a more profitable direction. Activity-based Costing (ABC) Results The activity-based management project revealed that Product Line C was undercosted. Costs that should have been charged to Product Line C were, in fact, carried by the other product lines, making them appear less profitable than they really were. So, the pricing strategies suggested by the standard costing method seemed now irrelevant with more accurate costing methods.Hyperion Business Modeling Solutions Guide s 33
  34. 34. Product Profitability Case Study The table below compares standard costs to activity-based costs (ABC) for all product lines: Current Year Product Line A Product Line B Product Line C Standard ABC Standard ABC Standard ABC Volume 1000 1000 500 500 150 150 Price/piece $2.450 $2.450 $3.550 $3.550 $5.900 $5.900 Cost/piece $2.269 $1.891 $3.163 $2.854 $4.501 $8.064 Income/piece $0.181 $0.559 $0.387 $0.696 $1.399 $-2.164 Total Profit $181.00 $559.48 $193.00 $348.13 $209.00 -$324.54How the Solution was Developed This section describes the journey taken by the activity-based management team using The Model Approach as its map. You will see how the solution unfolds from defining the project scope in step 1 to revealing new possibilities in step 8. Supporting The Model Approach The management in OK Plastics has given full support to a multi-disciplinary team assigned to develop an activity-based management model using The Model Approach. See Chapter 3, “The Model Approach,” for a description of the eight-step methodology. Before starting the project, the team secured management’s commitment to providing project resources, including staff time, to the project. Team members also attended The Model Approach workshop to understand the essential concepts of process modeling and acquire practical software training for carrying out the project successfully.34 s Hyperion Business Modeling Solutions Guide
  35. 35. Product Profitability Case Study Step 1: Defining the Project Scope The OK Plastics’s activity-based management team performed the following tasks for Step 1 of The Model Approach: 1. Identify the areas of study. 2. Select the model time period. 3. Determine the project demands. 4. Identify the activities required to complete the project. 5. Identify available resources to assist in the project. 6. Establish the time frame to complete the project. 7. Find a reliable reporting mechanism for distributing and analyzing the results. 4 For this activity-based costing study, the project team decided to focus on the cost and profitability of the products produced by OK Plastics. Therefore, the three product lines became the model’s demands. The study decided that the model should take a macro view of the organization and include all the operations and resources of the company. The multi-functional team believes it can obtain meaningful results in six weeks. Step 2: Identifying Activities, Resources, and Measures The team identified the resources, associated activities, and units of measure required to deliver the services or products identified by the project scope. After interviewing the appropriate representatives from operations, the team identified the following activities, resources, and units of measure: Activities/Resources Unit of Measure Operators Operator Hours (OperHrs) Maintenance Mechanics Mechanic Hours (MechHrs) Supervision People (#People) Building (Occupancy Costs) Square Feet (SqFt) Molding Machines Machine Hours (MchHrs) Raw Materials (Resin & Additives) Thousand Pieces (Pcs [000])Hyperion Business Modeling Solutions Guide s 35
  36. 36. Product Profitability Case Study Activities/Resources Unit of Measure Energy Megawatt Hours (MWh) Machine Supplies Machine Hours (MchHrs) Molding Process Machine Hours (MchHrs) Set Ups Setups (#Setups) Sales and Marketing Calls (#Calls) Order Processing Orders (#Orders) Computer Services Orders (#Orders) Advertising Ads (#Ads) Step 3: Developing the Schematic At this stage, the team prepared an operational schematic, a diagram which represents the interrelationships among an organization’s resources, activities, and demands. The following pages show the operational schematic developed for OK Plastics from the findings of Step 2. For the schematic containing all the model data up through Step 3, see “OK Plastics Schematic 1” on page 39. A description of how to interpret the model follows the schematic.36 s Hyperion Business Modeling Solutions Guide
  37. 37. Product Profitability Case Study OK Plastics Schematic Box Definitions Each box in the schematic is assigned a unique box identifier and name. The following boxes are used in the OK Plastics schematic to represent the demands, activities, and resources identified in Step 2: Demand Boxes Box ID Box Name Description DEMA Demand A Demand for product line A DEMB Demand B Demand for product line B DEMC Demand C Demand for product line C 4 Activity Boxes Box ID Box Name Description MLDPRO Molding Process Process of manufacturing pieces ORDPRO Order Processing Activities for processing orders SALMKT Sales & Marketing Activities for sales and marketing SETUP Setting up Activities to set up machinesHyperion Business Modeling Solutions Guide s 37
  38. 38. Product Profitability Case Study Resource Boxes (Fixed) Box ID Box Name Description MAINMCH Maintenance People keeping machines in good repair Mechanics MCAP Machinery Capital Capital charges for machinery Charge MLDMC Molding Machines Machines for product manufacturing OCCY Occupancy OK Plastics’s building facility OPRL Operators People handling the machines ORDDEPT Order Processing Resources for processing orders Department SPVN Supervision All supervisors Supply Boxes (Variable) Box ID Box Name Description ADVT Advertising Advertising for product lines A, B, and C COMP Computer Computers used by order processing ENERGY Energy Energy to run the machines MTLA Material A Raw materials required for product lines A, B, and C MTLB Material B MTLC Material C OPEROT Operator Overtime Overtime hours performed by operators SUPL Machine Supplies Consumable supplies for the molding process38 s Hyperion Business Modeling Solutions Guide
  39. 39. Product Profitability Case Study OK Plastics $ OCCY c= $ COMP Schematic 1 Sq #Orders $ c= $ MLDMC c= $ $ SALDEPT c= MCAP c= ORDDEPT Molding Machinery Sales & Order Machines Capital MchH MchH #Call #Orders MLD MCA $ SALMKT c= $ $ ORDPRO c= Sales & $ Order $ #Call #Orders SPVN c= SLM Supervision ORDP $ c= OPEROT #Peop Operator Oper c= $ $ MAINMC c= ENERGY $ OPRL Operators H Energy MWh 4 MechHrs ENER Oper $ c= OPERCH $ ADVT SUPL Operator Choice Machine Advertising Oper #Ads Mch MLD ENER MLD ENER ADV MLDPRO SETUP Molding Mch #Set MLDP SET $ MTLA $ $ MTLB MTLC Pcs(000) Pcs(000) Pcs(000) MLDPRO SETUP SLMKTORDPROADVT SLMKT ADVT MLDP SETUP SLMKT ORDPRO ADVT MLDP SET ORDPRO PRSA SASA PRSB PRSC SASC SASB Production Sales & Admin Production Sales & Admin Production Sales & Admin $ v= v= $ v= DEMA $ DEMC DEMBHyperion Business Modeling Solutions Guide s 39
  40. 40. Product Profitability Case Study Interpreting the OK Plastics Schematic Since the requirements for activities are demand driven, the operational results of the OK Plastics model will be calculated using a bottom-up approach. The schematic illustrates the relationships among the resources and activities required to support the production of, for example, Product Line A. At the bottom of the schematic, you find the symbol for Demand A (DEMA) which represents the total of all activities and resources required for the production of Product Line A. Follow the flow upwards, as detailed on the following table. The logic of the model reflects the logic of OK Plastics’s operations. Activities and resources are involved in the creation of products. As you move up through the schematic, you see how the activities and resources draw from others in the organization. Follow the Flow Upwards Box Requires Box ID Demand A (DEMA) Production Support PRSA Sales & Administration SASA Production Summary A Molding Processing MLDPRO (PRSA) Raw Material: Product Line A MTLA Setting up activities SETUP Machinery Capital Charges MCAP Sales & Administration Sales & Marketing SALMKT (SASA) Order Processing ORDPRO Advertising ADVT Molding Process (MLDPRO) Machine Supplies SUPL Molding Machine MLDMC Energy ENERGY Operator Choice OPERCH Maintenance Mechanic MAINMCH Setting up (SETUP) Maintenance Mechanics MAINMCH Energy ENERGY Molding Machine MLDMC Operators (OPRL) Supervision SPVN40 s Hyperion Business Modeling Solutions Guide
  41. 41. Product Profitability Case Study Follow the Flow Upwards (cont’d) Box Requires Box ID Mechanics (MAINMCH) Supervision SPVN Order Processing (ORDPRO) Order Processing Department ORDDEPT Molding Machines Building space OCCY (MLDMC) Sales & Marketing Sales & Marketing Department SALDEPT (SALMKT) The schematic can be used similarly to describe the activities and resources required to support product lines B and C. 4Hyperion Business Modeling Solutions Guide s 41
  42. 42. Product Profitability Case Study Step 4: Collecting Data and Rules The team gathered the relevant operational and financial data needed to complete the model. Through a process of interviews with OK Plastics staff, the team gathered data on the processes and activities. It is summarized in the following statements: Report Content OK Plastics Income An income statement for the current year Statement Operational and Detailed information about each product line Financial Data Costs of Services and Costs of internal and external variable supplies Consumables Resource Availability Resource availability and utilization for the current year and Utilization Variable Data A description of the variables used in the model Financial Accounts A list of all revenue and cost categories used in the model. Fixed Resource Costs Resource financial, volume, and unit data Occupancy Data Square footage use of building by resource Note: Not all data items in the model are contained in the above tables.42 s Hyperion Business Modeling Solutions Guide
  43. 43. Product Profitability Case Study OK Plastics Income Statement Revenue Sales of Product Line A $2,450 Sales of Product Line B 1,775 Sales of Product Line C 885 Total Revenue $5110 Cost of Sales Raw Materials $1,865 Operators 690 4 Shared Production Costs Maintenance Mechanics $60 Supervision 90 Machine Depreciation 390 Production Overhead 669 $3764 Gross Margin $1,346 Selling & Administration Expenses Sales & Marketing $190 Office Salaries 120 Rent & Insurance 270 Advertising 85 Computer Costs 73 Other Expenses 25 Total SG & A $763 Income Before Taxes $583Hyperion Business Modeling Solutions Guide s 43
  44. 44. Product Profitability Case Study Operational and Financial Data These spreadsheets contain detailed operational and financial data gathered by the company for each member of the three product lines. Each product line consists of several different products of varying units and resource requirements. A summary of the data to be used for each of the product lines in the activity-based costing model appears below: Table 1: Product Analysis Detail for Product A Sales Sales Material Product Units Revenue Cost Operator Machine Code (000) $(000) $(000) Hours Hours Set Ups Orders A110 500 1181 499 8970 950 5 15 A120 200 498 210 3635 394 4 8 A130 120 304 131 2189 252 3 7 A140 80 204 92 1476 172 4 8 A150 50 129 59 950 115 5 6 A160 50 134 59 881 117 4 6 Total A 1000 2450 1050 18200 2000 25 50 Unit A 2.45 1.05 18.20 2.00 .025 .050 Table 2: Product Analysis Detail for Product B Sales Sales Material Product Units Revenue Cost Operator Machine Code (000) $(000) $(000) Hours Hours Set Ups Orders B201 100 331 112 3033 330 5 16 B202 70 242 79 2174 238 4 12 B203 50 174 57 1560 173 3 10 B204 50 175 58 1565 175 6 8 B205 40 142 46 1256 140 6 6 B206 40 144 46 1264 140 6 7 B207 30 110 35 948 108 7 844 s Hyperion Business Modeling Solutions Guide
  45. 45. Product Profitability Case Study Table 2: Product Analysis Detail for Product B (cont’d) Sales Sales Material Product Units Revenue Cost Operator Machine Code (000) $(000) $(000) Hours Hours Set Ups Orders B208 30 113 35 959 110 6 6 B209 25 94 30 806 93 6 6 B210 25 96 30 817 93 7 7 B211 20 77 24 699 76 7 7 B212 20 78 24 720 76 7 7 Total B 500 1775 575 15800 1750 70 100 4 Unit B 3.55 1.15 31.6 3.50 .140 .20 Table 3: Product Analysis Detail for Product C Sales Sales Material Product Units Revenue Cost Operator Machine Code (000) $(000) $(000) Hours Hours Set Ups Orders C301 23 122 35 938 104 5 18 C302 16 86 25 660 74 4 12 C303 12 68 19 501 56 3 15 C304 10 57 16 423 47 4 14 C305 8 47 13 342 38 6 13 C306 7 42 11 302 34 6 15 C307 7 42 11 302 34 5 16 C308 7 43 11 303 34 6 13 C309 6 36 10 259 29 6 14 C310 6 38 10 259 29 5 17 C311 6 38 10 259 29 5 15 C312 5 31 8 219 25 5 11 C313 5 32 8 221 25 4 12 C314 5 32 8 226 25 3 14Hyperion Business Modeling Solutions Guide s 45
  46. 46. Product Profitability Case Study Table 3: Product Analysis Detail for Product C (cont’d) Sales Sales Material Product Units Revenue Cost Operator Machine Code (000) $(000) $(000) Hours Hours Set Ups Orders C315 5 32 8 229 25 4 12 C316 4 26 7 183 20 3 11 C317 4 26 7 183 20 6 8 C318 4 26 7 184 21 4 12 C319 3 19 5 138 16 6 10 C320 2 13 4 91 11 7 8 C321 1 6 2 47 5 6 6 C322 1 6 2 47 5 6 10 C323 1 6 2 48 6 7 7 C324 1 6 2 49 6 7 8 C325 1 5 2 49 6 7 9 Total C 150 885 240 6460 720 130 300 Unit C 5.90 1.60 43.07 4.80 0.867 2.0 Table 4: Product Analysis Detail for All Products Sales Sales Material Product Units Revenue Costs Operator Machine Code (000) $(000) $(000) Hours Hours Set Ups Orders Total 1650 5110 1865 40460 4470 225 45046 s Hyperion Business Modeling Solutions Guide
  47. 47. Product Profitability Case Study Costs of Services and Consumables The team also collected the following on internal and external costs: Service Cost Advertising $8.5 per advertisement Computers $0.05 per order Energy $0.0048 per megawatt hour (MWh) Machine Supplies $0.025 per machine hour Material C $1.60 per Product Line C piece Material A $1.05 per Product Line A piece 4 Material B $1.15 per Product Line B piece Resource Availability and Utilization Max. Used Last Resource Availability/Year Year Utilization% Maintenance Mechanics 3200 hours 2876.3 90 Molding Machines 5928 hours 5595.25 94 Occupancy 100,000 sq. ft. 100,000 100 Operators 45,000 hours 40,460 89 Occupancy Data Occupancy Square Feet Molding Machines 60,000 Sales and Marketing 15,000 Order Processing 25,000 Total 100,000Hyperion Business Modeling Solutions Guide s 47
  48. 48. Product Profitability Case Study Financial Accounts Number Name Number Name 10 Revenue from Product A 600 Occupancy Costs 20 Revenue from Product B 610 Rent & Insurance 30 Revenue from Product C 700 Selling/Administration Expense 100 Cost of Sales 710 Order Processing Salaries 101 Raw Materials 720 Sales/Marketing Salaries 102 Operators 725 Office Supplies Costs 500 Shared Production Costs 750 Computer Costs 510 Maintenance Mechanics 760 Advertising 520 Supervision 790 Other Expenses 550 Machine Depreciation 560 Machine Supplies 570 Energy48 s Hyperion Business Modeling Solutions Guide
  49. 49. Product Profitability Case Study Fixed Resource Costs The financial value is the user-assigned value, multiplied by the appropriate variable. Financial Resource Financial Category Value Variable Maintenance Maintenance Mechanics $30.00 #mnt Mechanics Salaries Molding Machines Machine Depreciation $130.00 #mch Occupancy Rent and Insurance $675.00 Operators Operator Salaries $22.30 #opr 4 Order Processing Computer Costs $50.50 Order Processing Salaries $24.00 #ord Other Expenses $5.00 #ord Sales & Marketing Sales & Marketing Salaries $23.75 #sal Supervision Supervisor Salaries $45.00 #spv Variable Data To make the model more flexible, some of the data collected is defined in the model as variables. For another operator, you change the variable. Variable Represents Value efmc Machine efficiency rate 0.95 #mch Number of machines 3 #mnt Number of maintenance staff 2 #opr Number of operators 30 #ord Number of order processors 5 #sal Number of sales people 8 #sft Number of shifts 1 #spv Number of supervisors 2Hyperion Business Modeling Solutions Guide s 49

×