The Power of Allocations for Profitability Analysis - Using Financial Data to Improve Decision Making - Emtec, Inc.

Emtec, Inc. Proprietary & Confidential. All rights reserved 2015.
The Power of Allocations for Profitability Analysis
Using Financial Data to Improve Decision Making
Presented by Bill Lowry, Emtec

Agenda
•Introduction
•CFO Insights
•Why Profitability?
•Approaches to Profitability
•Practical Considerations
•How Emtec can Help
•Q&A
2

CFO Insights

What Are CFOs Thinking About Today?
The top three most pressing concerns for CFOs
1 Measuring and monitoring business performance
2 Providing inputs into enterprise strategy
3 Developing talent in the finance organization
* Source: Forbes Magazine & IBM CFO Study
Only 47% think they’re effective at measuring and managing performance
CFOs are dubious about how well their own finance organization fulfills some of these duties
82% of CFOs see the value of integrating enterprise-wide information
Only 24% think their team is up to the task
4

What Are Some Of The Keys To Success for CFOs?
95% 89% 85%
Measure/monitor
business performance
Optimize planning,
budgeting and
forecasting
Drive enterprise cost
reduction
“We need to have the right information, have it on time and invest the
right amount of effort in interpreting it.”
-- CFO, Industrial Products
* Source: IBM CFO Study
5

What Do The Most Profitable Finance Organizations Have Beyond Efficient Operations?
The ability to generate “Business Insight”
These finance organizations are called “Value Integrators”
They are on average 38% more profitable than other companies
Value Integrators have high finance efficiency and high business insight
Performance optimization
Predictive insights
Business decision making
Enterprise risk management
Value Integrator
Finance operations focused
Information provision
Performance interpretation
Disciplined Operator
Analytics focused
Sub-optimal execution
Fragmented data
Constrained Advisor
Data recording
Controllership
Multiple versions of the truth
Score Keeper
How mature is you finance organization?
Predictive insights
Value Integrators
6

What Are Our Clients’ Financial Organizations Doing To Move The Needle?
Predictive insights
Value Integrators
Performance Optimization
Predictive Insights
Business Decision Making
Enterprise Risk Management
Cost and
Profitability
Management
Optimize Planning,
Budgeting &
forecasting
Analytics
Predictive Analytics
Analytics Dashboards & KPI’sData Integration of
Information across
the Enterprise
Financial Process
Improvements
Big Data
Move From Just Focusing on Compliance to
Focusing on Enterprise Risk Management
Implementing Governance
Data Transparency
Data Mining Focused Analytics
Team
“Organizations are looking for
actionable insights to optimize
performance. At Emtec, we
believe this can best be
achieved by incenting the
business owners by providing
them with transparent
analytics”
Rich Reid
Managing Director of Strategy
& Innovation, Emtec
7

Why Profitability?

Detailed Costing Practices Are Needed To Stay In The Game Or Get Ahead
9
The desire to understand detailed costing practices has grown significantly this year.
• 71% increase over last year in companies planning to cost
individual customers this year
• 133% more for invoices
• 136% more for transactions
The economic downturn gave rise to an intensive focus on cost control. And
while growth has returned to its position of prominence on the finance agenda,
detailed costing practices are needed to stay in the game or get ahead. Drilling
down into more detailed costs is definitely on the minds of most.
- Oracle study “EPM, Top Trends for 2015”

Yet, Many Companies Are Still Over-burdening Their General Ledger With
Management Reporting Calculations
10
Nearly 1/3 or more companies indicated they were calculating detailed
costs inside of their GL, and as costing practices adopt even more
detailed levels, this will not end well. The GL is not the right tool for
developing and allocating granular costs – but many still do it.
Many of these organizations use profitability and cost management
tools to develop multidimensional cost pools, activity rates, and unit
costs as they develop P&L statements about individual subscribers,
accounts, assets, projects, and orders.

Measuring The True Profitability of Products, Services and Customers
What is the true
cost of the
products/services
we are selling?
FACT
Most companies have trouble determining
what their most profitable products or services
are
FACT
Most reporting structures are not designed for
managing profitability. For example,
processes are not reflected in the GL
FACT
Companies are making decisions on partial
information or the wrong information
FACT
Companies are having trouble incenting
business units to reduce costs and improve
service due to lack of transparency and
proper allocations
"Work mixed with management becomes
not only easier but more profitable. The
time is past when anyone can boast about
'hard work' without having a corresponding
result to show for it.”
Henry Ford
11

Measuring The True Profitability of Products, Services and Customers
What is preventing
me from gaining
the insight I need?
Allocations done today in an array of spreadsheets
No transparency of allocations to business owners
Allocations not based on the right drivers because
there is no clear understanding of what drives costs
Analysis process is time consuming
Allocations are arbitrary and not directly related
Process is complex and difficult to change & maintain
Complex allocations are difficult to perform
”The key to successfully managing profitability
and costs is putting the right information into
the business owners hands by simplifying the
process and increasing transparency”
-- Dan Franceschina, Director of EPM, Emtec
ACTIONABLE
Insight
12

Approaches to Profitability

Profitability as an Allocation
14
Typical Allocation Calculation
Expense x Driver = Result
Example: IT Costs x Percentage of Employees in Department =
Department IT Spend
Typical Profitability Calculation
Revenue – Expense x Driver(s) = Profitability
Example: Revenue by Customer – (Standard Costs x Units Sold by
Customer) = Customer Profitability

There’s More To It Than That
15
Example: Customer Profitability
• Not all data will be available
• Typical data that you might use:
- Customer volumes
- Price and discount data
- P&L line items
- Sales, Customer Service, and Marketing organizational information (to allocate people
costs)
- Marketing programs by Brand or Product
• The point is to be pragmatic about this. End product will not be an accounting exercise
where amounts have to be accurate down to the cent, but instead, we will attempt to produce a
high quality pragmatic approximation.
• Costs allocations: This is the most difficult and creative part of the process. Again the
idea here is to find a simple, yet highly accurate way to estimate an individual cost component
of a customer.

Technology Options
16
EBS
Essbase Stand Alone
Hyperion Profitability and
Cost Management
Excel
HPCM
Planning / Allocations
Framework
Oracle eBusiness Suite
Really? Might want to
cancel your life
Oracle’s OLAP database
Emtec’s Hyperion Planning
Accelerator

Emtec’s Allocation Framework (EAF) – Purpose Built For Fast Results
• Provides a Financial Analytics platform for better decision making
• Allows for a consistent, reliable and automated process
• Allocations are customized by user input and then calculated automatically
• Directly integrated into the Budget, Plan and/or Forecast
• The allocations framework allows for flexibility and extensibility
– new allocations, new drivers, new source or target inputs can be added with relative ease
• Provides a consistent user interface and process throughout all allocations
• Multi-Dimensional & Multi-Step Allocations supported
• Allocation Transparency
– Insight to Sources, Targets and Drivers
• A standardized process approach
EAF
EAF is a packaged driver-based allocations framework that is configured to
your needs. Built on Oracle Hyperion Planning, it accommodates any
allocation methodology at any level of complexity, adheres to a common
and simple data model and brings transparency to your process
17

Using The Best Tools To Create A Profitability Solution
18
ApplicationStack
Essbase
Unstructured Other
Data&Matadata
Source Systems
GL HR MFG Cust Ops
Emtec
Allocation Framework
Hyperion
Planning
Product Line
Profitability
Application
Toolset
Multidimensional
Database
Financial
Reports
SmartVie
w
Finance
General Users
LOBReporting
Calcs, Workflow, Security, UI tool,
Data
Solution, Constructs, Process, UI,
Transparency, Analytics
HPCM

Putting It All Together = Success = Happy CFO
19
Emtec Allocation
Framework
Hyperion
Planning
Essbase
• The most powerful
multidimensional OLAP engine
on the market today
• Being accessed by the most full-
featured UI and toolset
• Utilizing the best purpose-built,
user friendly allocations
framework to solve your most
complex product line profitability
needs

Practical Considerations

Some Things to Think About
21
Accuracy vs Precision
Do You Have the Data?
Don’t Boil the Ocean
You may need to make decisions about how
and what to include based on data available
Best Advice: Start with what you have
These are not the same thing
Best Advice: Aim for accuracy
This is exciting stuff, and CFOs want and need
this information
Best Advice: Start small
Precision
Accuracy

73%
YEARS
47serving clients
OUR COMPANY
500dedicated
associates
17
over
years
BEST
PLACES
TO WORK
2012
TECHNOLOGY
EMPOWERED
BUSINESS
SOLUTIONS
“right size provider”
“client for life”
India
Pune
Bangalore
USA
IL, PA, NJ,
GA, VA, MN,
FL
Canada
Toronto
Ottawa
GLOBAL
DELIVERY
OUR SERVICES
87% 14
prior tier 1
consultancies
avg. years
experience
fulltime
employees
OUR PEOPLE
25+
OTHER
PARTNERS
- onshore
- offshore
- nearshore
- blended
managed services
Advisory Applications Cloud Analytics Infrastructure
strategy
governance
process
ERP, HCM, CRM,
app. development,
mobile solutions
applications
infrastructure
enterprise reporting,
predictive analytics,
big data
service management
enterprise infrastructure
end user computing
Business and Technology Empowered

An Exciting Year For Emtec… And Or Clients!
Vertical Focus
• Strategy
• Enterprise
Solutioning
• Management
Consulting
• Line of Business
Expertise
Advisory Services Expansion
Services
GEO
Vertical
SMAC

Emtec Services Align Well
with each stakeholder community
ENTERPRISE
SUITE
SALES &
MARKETING
 360 degree view of the customer
 Sales force automation
 Customer Service
 Marketing Automation
 Customer and Product Data
Management
 BI / Analytics
HCM
 Workforce Planning
 HR Analytics
 Talent Management
 Employee Self-Service
 Performance Management
 Total Compensation
CFO
FINANCE
 Budget & Planning
 Financial Close Mgmt
 Procure to Pay
 SEC Reporting
 Financial Analytics
 Cash Management
OPERATIONS
 Forecasting
 Operational Analytics
 ERP
 Project Costing
TECHNOLOGY
 Advisory Services
 Application Development &
Maintenance services
 Business Intelligence & Big
Data
 Cloud Strategy and
Implementation
 Independent Verification &
Validation
 Infrastructure Services
 Managed Services
 IT Service Management
 Procurement Services
 Business Strategy
 Managed Services & Outsourcing
 Advisory Services
 Analytics
 Governance
POWER
The
of Emtec

For More Information About How Emtec and Oracle
Can Help You With Measuring Profitability
Contact Bill Lowry by email at Bill.Lowry@Emtecinc.com
Visit us at www.emtecinc.com

THANK YOU FOR YOUR TIME
Please visit us online at www.emtecinc.com
THANK YOU FOR YOUR TIME
Please visit us online at www.emtecinc.com

The Power of Allocations for Profitability Analysis - Using Financial Data to Improve Decision Making - Emtec, Inc.

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