1. hpcm introduction
DESCRIPTION
oracle hpcmTRANSCRIPT
Profitability and Cost ManagementIntroduction & Overview
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Disclaimer
The following is intended to outline our general product direction. It is intended for information purposes only,
and may not be incorporated into any contract. It is not a commitment to deliver any material, code,
functionality or platforms, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features, functionality or
platforms described for Oracle’s products remains at the sole discretion of Oracle. Oracle may not release
the functionality or products discussed on any additional platforms in the future.
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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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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
Common Reporting & Interaction
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
1 Create meaningful and defensible cost models
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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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2 Examine details of profit and cost
• Model results reveal new ways of looking at costs and profitability:
• To identify which of our customers / products / services are profitable
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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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4 Evaluate scenarios for performance improvement
• The model can be used to evaluate the impact proposed business changes
• To drive better resource utilization• And the opportunity for improved profitability
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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
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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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
Common Reporting & Interaction
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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Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
The Profitability Modeling Environment
Reporting Cube with Allocation Genealogy:
• Profitability Analysis
• Cost & Revenue Contribution Analysis
Reporting, Analytics & Scenario Modeling
Web Analysis, Financial
Reporting, Smartview
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
Hyperion Profitability &
Cost Management
Essbase Calculation
Cube(BSO)
Essbase Reporting
Cube(ASO)
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
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
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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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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Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
Profitability and Cost Management – Design Principles
1. Take advantage of existing technology• Use the power of Essbase for calculation and reporting
2. Flexible methodology
3. Allow a BUSINESS USER to control the design and creation of the allocation solution
• Let the application take care of the Essbase technical components
58
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The Profitability Modeling Environment
Reporting, Analytics & Scenario Modeling
Model Development
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
Metadata Management
EnterprisePerformance Management
Architect
DimensionsHierarchiesAttributes
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Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
The Profitability Modeling Environment
Reporting, Analytics & Scenario Modeling
Create & Manage the Business Model:
1. Define the Stages
Model Development
Hyperion Profitability &
Cost Management
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
Metadata Management
EnterprisePerformance Management
Architect
DimensionsHierarchiesAttributes
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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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64
Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
The Profitability Modeling Environment
Reporting, Analytics & Scenario Modeling
Create & Manage the Business Model:
1. Define the Stages
2. Define the Drivers
3. Assign Drivers
4. Define Assignment Rules
Model Development
Hyperion Profitability &
Cost Management
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
Metadata Management
EnterprisePerformance Management
Architect
DimensionsHierarchiesAttributes
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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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Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
69
Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
The Profitability Modeling Environment
Reporting, Analytics & Scenario Modeling
Create & Manage the Business Model:
1. Define the Stages
2. Define the Drivers
3. Assign Drivers
4. Define Assignment Rules
Model Development
Hyperion Profitability &
Cost Management
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
Metadata Management
EnterprisePerformance Management
Architect
DimensionsHierarchiesAttributes
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StagesDrivers
Assignments
Essbase Calculation
Cube(BSO)
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Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
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Copyright © 2009, Oracle and/or its affiliates. All rights reserved.
The Profitability Modeling Environment
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
Model Development
Hyperion Profitability &
Cost Management
Essbase Calculation
Cube(BSO)
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
Metadata Management
EnterprisePerformance Management
Architect
DimensionsHierarchiesAttributes
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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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The Profitability Modeling Environment
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
Hyperion Profitability &
Cost Management
Essbase Calculation
Cube(BSO)
Essbase Reporting
Cube(ASO)
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
Metadata Management
EnterprisePerformance Management
Architect
DimensionsHierarchiesAttributes
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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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The Profitability Modeling Environment
Reporting Cube with Allocation Genealogy:
• Profitability Analysis
• Cost & Revenue Contribution Analysis
Reporting, Analytics & Scenario Modeling
Web Analysis, Financial
Reporting, Smartview
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
Hyperion Profitability &
Cost Management
Essbase Calculation
Cube(BSO)
Essbase Reporting
Cube(ASO)
• Create & Manage Dimensions & Hierarchies
• Deploy the Application
Metadata Management
EnterprisePerformance Management
Architect
DimensionsHierarchiesAttributes
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StagesDrivers
Assignments
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