1. hpcm introduction

Profitability and Cost ManagementIntroduction & Overview

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

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the functionality or products discussed on any additional platforms in the future.

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Agenda

• What Analysts are Saying About Profitability and Cost Management

• Solution Overview• Overview Profitability and Cost

Management• Delivering World Class Profitability and

Cost Management• HPCM Value Proposition• A Simple Example• Q&A

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“…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

Understanding Profitability Exposes Hidden Cost Behaviors

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Accurate Costing Is Key to Profitability

Ventana Research, 2008

“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...”

Companies are Using the Wrong Tools to Effectively Analyze Profitability

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<Insert Picture Here>

Solution Overview

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Oracle EPM Connects Management Processes

Common Integration & AnalysisData Quality and Consistent Dimensions

Common Reporting & Interaction

Strategic Planning

Financial Close

Planning & Forecasting

Profitability Management

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What-if Scenario Results

Drivers of Cost

World Class Profitability & Cost Management Process to support EPM

?? ??

Data CollectionAllocations ProfitabilityAnalysis

DecisionSupport

UpdatePlans

Financial Datafrom Close Process

Behavioral Datafrom ERP

CustomerProfitability

Full Product Costing

New Drivers to Conduct Business

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Critical Components to Implement Profitability and Cost Management Best Practices

Cost, Revenue and Profitability Analytics

Cost and Profitability Reporting

Cost and Revenue Allocation

Calculations

Allocate Organizational Improvement


Cost and Profitability Simulation

Analyze

Profitability and Cost Management

Who are the most and least profitable customers?

Why are customers profitable or unprofitable?

Evaluate business options through

scenarios.

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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

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Hyperion Profitability and Costing Models Provide:

• Reliability• Visibly defensible

profitability and cost results

• Agility• Timely reflection of

organizational changes

• Relevance • Allocate resources to the

most important opportunities Financial

ResultsRevenue &

Cost ModelsOperational

Results

FP&A

Senior Management

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Overview Profitability and Cost Management

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General

Ledger

(Account

Balance)

General

Ledger

(Account

Balance)

Accumulator

Financialtransactions

FinancialData

Statutory Reporting Provides a Limited View of Profitability

Bottom-lineResults

Organizational P&L

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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 specificcustomer consume?

• Why hasn’t increased revenue resulted in increased profitability?

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DecisionSupport

Product P&L by Activity

Costing / Profitability Solution

Organizational P&L

BehavioralData

RawData

MeaningfulAllocations

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Inefficiencies Caused by Using Wrong Tools

• Flexibility – lack of responsiveness to changes

• Time –missed opportunities and obsolete plans

• Cost – wasted resources, questionable benefits

• Quality – lack of standardization and communication

FP&A

Senior Management

Annual Plan & Forecast

Revenue & Cost Models

ResourceUtilization

Departmental Plans

Headcount Plans

Marketing Plans

CustomerRelationship

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Delivering World Class Profitability and Costing

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Best Practices For World Class Profitability and Cost Management

1 Create meaningful and defensible cost models

3 Identify causality of costs and profit

2 Examine details of profit and cost

4 Evaluate scenarios for performance improvement

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• Use industry knowledge and activity experience: • To allocate costs through appropriate stages of

transformation• Through the use of flexible drivers • And meaningful assignment rules


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Business Users Define Stages of Allocation

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Business Users Control Definition of Allocation Methods

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Business Users Control Definition of Assignment Rules

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• Model results reveal new ways of looking at costs and profitability:

• To identify which of our customers / products / services are profitable

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Traditional Reporting Provides an Accounting View of Profit

Organizational Profitability

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Profitability Management Provides a Business View

Product Profitability by Customer

Customer Profitability by Product

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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

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How Customers / Products Consume Activity Costs

Activity Costs consumed by product / customer

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How Efficiently Resources Are Being Used

Labor capacity and utilization

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• The model can be used to evaluate the impact proposed business changes

• To drive better resource utilization• And the opportunity for improved profitability

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Compare Scenario Results to Choose Best Course of Action

Scenario Results

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Best Practices For World Class Profitability and Cost Management


3 Identify causality of costs and profit



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Critical Components to Implement Profitability and Cost Management Best Practices

Cost, Revenue and Profitability Analytics

Cost and Profitability Reporting

Cost and Revenue Allocation

Calculations

Allocate Organizational Improvement


Cost and Profitability Simulation

Analyze

Profitability and Cost Management

Who are the most and least profitable customers?

Why are customers profitable or unprofitable?

Evaluate business options through

scenarios.

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Customer Success

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Optimize Product Mix to Maximize Profitability

Regional bank serving 19 Western and Midwestern states and 4 million households. Over $60B in assets

with more than 10,000 employees.

Before

IT resources demand exceeded capacity for profitability reporting

Needed business users to drive profitability modeling

Lack of insight how shared costs impacted economics of the business

Challenge to optimize product mix that maximizes bank profitability

After

Minimal IT involvement

Easy integration into EPM system infrastructure

Ability to offer a basket of products by mixing and matching products according to customer demographics

Benchmarking costs for developing and marketing new products

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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

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HPCM Value Proposition

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HPCM Benefits

Key Message Benefits

Discover Drivers of Costs and Profitability

• Identify sources and attributes of profitability with multidimensional analysis

• Improve decisions with scenario modeling capabilities• Enable management best practices by leveraging profitability as

a performance metric

Empower Users with Visibility and Flexibility

• Accurately allocate costs with our flexible allocation engine that supports any methodology

• Gain confidence into cost allocations and revenue flows with graphical traceability maps

• Quickly validate models with user-defined business rules

Improve Resource Alignment

• Impact budgets and plans through integration with other performance management applications

• Strategically allocate resources with accurate profitability and cost information

• Improve marketing programs through customer segmentation

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Value Proposition for Essbase customers

• Packaged Profitability functionality• Framework for profitability modeling• Support for Any Cost Allocation methodologies• Pre-built Model Validation reporting• Traceability Maps• Translation of Business rules into high-level Calcscript• Genealogy generation

• Designed for the business user• Integration with EPM system• Integration with ERP

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Value Proposition for Planning customers

• Purpose-built Costing and Profitability functionality• Designed for the business user• Essbase• Uses the same infrastructure as Planning

• Metadata sharing• Common Reporting Tools• Integration with EPM system• Integration with ERP

• Ease of User acceptance

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Value Proposition for EPM customers

• New module in the EPM System• Packaged Profitability functionality• Designed for the business user• Common EPM infrastructure

• Metadata sharing• Essbase• Common Reporting Tools• Integration with ERP

• Ease of User acceptance

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Competitive Differentiators

• Technical• Support for multiple cost allocation methodologies• Up to 9 stages of Cost Allocations• Traceability visualization• Multidimensional analysis• Integrated with the leading EPM and ERP Systems

• Business• Buyers familiarity (CFO’s office) with Hyperion (Essbase)• Business user driven profitability modeling• Leverage investments in existing Performance Management

applications

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• Drastic Cost Reduction in performing Cost Allocations

• Cuts IT delays; frees IT resources

• Rules based, Finance Controlled

• Business Analyst driven profitability model development and deployment

• Flexible Allocation Platform

• Methodology Independent

• Visual Modeling

• Advanced Calculation Engine

• Multi-dimensional, high performance calculation engine

• Allocation transparency

ALLOCATION ENGINE

• Understand basis of profitability

• High-performance, multi-dimensional analysis

• Profitability Measurement Reporting

• Cost Metric and Benchmarking

• Causality Reporting

• Discover root causes to enact change

• Predict results of contingent actions

• User Defined What-if Scenarios

• Change drivers, assumptions, allocations

• Scenario Comparison

• Affect on budget of implementing recommendation A vs. B

• Test and anticipate results of potential remedies

• Corporate agility

Oracle Differentiator

REPORTING & ANALYTICS ENGINE SCENARIO MODELER

HPCM – One System for Profitability Reporting, Analytics and Management

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A Simple Example:

Bikes Manufacturing

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Bikes Manufacturing

• Medium-sized bicycle manufacturer

• Recent increase in sales revenue:• Due mainly to increased

purchases by big-box store: Q-mart

• RESULT:• Monthly revenue has increased

• Profit and profit margin has decreased

• Q-mart has asked Bikes to supply more product

Bikes needs to better understand costs and

profitability of its customers!

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Bike is seeking answers to…Sample Questions

• How are my customers consuming activities?• Which department costs are being consumed by

products?• Which of my regions are profitable?

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Bikes Manufacturing – Depiction of Cost FlowGeneral Ledger

BusinessOperations

Products Customers

Markets

Build an Allocation model to transform costs through these

stages!

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What Is?

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Why?

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Bikes - Improvement

• After reviewing the sales costs, a program of customer education has reduced costs of:• Sales Order Processing• Service Costs• Returns Processing

• Improving the bottom line

What Now?

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Overhead Cost Allocations

How did BIKES use HPCM to build the

model….

A Simple Example:

Bikes Manufacturing

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Hyperion Profitability and Cost Management – Design Principles

1. Take advantage of common EPM technology• Use the power of Essbase for calculation and reporting

2. Flexible methodology

3. Allow a BUSINESS USER to control the design and creation of the allocation solution

• Let the application take care of the Essbase technical components

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Oracle’s Hyperion Profitability & Cost Management

OLTP & ODSSystems

Data WarehouseData Mart

SAP, Oracle, Siebel,PeopleSoft, Custom

ExcelXML

BusinessProcess

OLAP

BI Applications

EPM Workspace

Fusion Middleware

Business Intelligence Foundation

BI Applications

PERFORMANCE MANAGEMENT APPLICATIONS

StrategyManagement

BusinessPlanning

ProfitabilityManagement

FinancialReporting &Compliance

Performance Management Applications

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The Profitability Modeling Process

Reporting Cube with Allocation Genealogy:

• Profitability Analysis

• Cost & Revenue Contribution Analysis

Reporting, Analytics & Scenario Modeling

Create & Manage the Business Model:

1. Define the Stages

2. Define the Drivers

3. Assign Drivers

4. Define Assignment Rules

• Load Cost, Revenue & Driver Data

• Calculate Model & Store Results

5. Validate the Model

• Generate the Reporting Cube

Model Development

• Create & Manage Dimensions & Hierarchies

• Deploy the Application

Metadata Management

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The Profitability Modeling Environment





Web Analysis, Financial

Reporting, Smartview




3. Assign Drivers






Model Development

Hyperion Profitability &

Cost Management

Essbase Calculation

Cube(BSO)

Essbase Reporting

Cube(ASO)



Metadata Management

EnterprisePerformance Management

Architect

DimensionsHierarchiesAttributes

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StagesDrivers

Assignments

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Profitability and Cost Management – Design Principles

1. Take advantage of existing technology• Use the power of Essbase for calculation and reporting




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Flexibility

• Up to 9 stages of cost allocations• Intra-stage Allocations• Reciprocal Allocations

• Support for multiple cost allocation methodologies• ABC, Time estimation, Percentage allocation, Even Splits• Supports both cost and revenue allocations

• Integrated with the leading EPM and ERP Systems

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Profitability and Cost Management – Design Principles

1. Take advantage of existing technology• Use the power of Essbase for calculation and reporting




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Model Development



Metadata Management


Architect


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Model Development


Cost Management



Metadata Management


Architect


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Stages

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Define the Stages

General Ledger

BusinessOperations

Products Customers

Markets

Departments / Accounts

Departments / Activities

Products Customers

Customer / Product / Regions

Associate to Essbase Dimensions

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3. Assign Drivers


Model Development


Cost Management



Metadata Management


Architect


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StagesDrivers

Assignments

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Bikes Sample – Driver / Allocations

Human Resources/Compensation &

Benefits

Marketing/Media Buying

Marketing/Campaign

Development

Shipping/Order Assembly …

HeadCount

$

(3) (3) (4)

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3. Assign Drivers


Model Development


Cost Management



Metadata Management


Architect


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StagesDrivers

Assignments

Essbase Calculation

Cube(BSO)

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3. Assign Drivers



Model Development


Cost Management

Essbase Calculation

Cube(BSO)



Metadata Management


Architect


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StagesDrivers

Assignments

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Load Financial Data…

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Load Driver Data…

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Mass Load Data

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3. Assign Drivers






Model Development


Cost Management

Essbase Calculation

Cube(BSO)

Essbase Reporting

Cube(ASO)



Metadata Management


Architect


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StagesDrivers

Assignments

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Validation…

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Validation…

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Review Cost Flows

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Web Analysis, Financial

Reporting, Smartview




3. Assign Drivers






Model Development


Cost Management

Essbase Calculation

Cube(BSO)

Essbase Reporting

Cube(ASO)



Metadata Management


Architect


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StagesDrivers

Assignments

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