the power of allocations for profitability analysis - using financial data to improve decision...

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

ACTIONABLEInsight

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

Ap

plic

atio

n S

tack

Essbase

Unstructured Other

Da

ta &

Ma

tad

ata 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

LO

B R

ep

ort

ing

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

associates17

over

years

BESTPLACES

TO WORK2012

TECHNOLOGYEMPOWERED

BUSINESSSOLUTIONS

“right size provider”

“client for life”

IndiaPune

Bangalore

USAIL, PA, NJ,

GA, VA, MN,

FL

CanadaToronto

Ottawa GLOBAL

DELIVERYOUR SERVICES

87% 14prior 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

infrastructureenterprise 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

ENTERPRISESUITE

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

POWERThe

of Emtec


For More Information About How Emtec and Oracle

Can Help You With Measuring Profitability

Contact Bill Lowry by email at [email protected]

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

http://www.emtecinc.com/

http://www.emtecinc.com/

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