Profitability Management with HPCM

Dallas EPM ShowcaseDallas EPM Showcase

Profitability Management with HPCM

Dallas, TX, Feb 18, 2014

Mike Killeen

Vice President of Technology

[email protected]

► Introduction

► The Need for Profitability Management

► How HPCM Enables Profitability Management

Agenda

► How HPCM Enables Profitability Management

► Profitability Management Case Study

► Closing and Q&A

► Oracle Platinum Consulting Partner - 100% Focus on Oracle/Hyperion Business Analytics (EPM/BI)

– 175+ Full time EPM/BI Billable Consultants throughout the US, Canada and the United Kingdom

► EPM & BI Experience & Success

– 1,500+ Oracle EPM & BI projects successfully delivered since our founding in 1996

► Depth & Breadth of EPM & BI Service Offerings

– Product Experts across the full EPM/BI Suite - Planning, HFM, HSF, HPCM, Essbase, OBIEE, DRM, FDMEE

– Visioning & Roadmaps, Full Life Cycle Implementations, Tech Review & Assessments, Staff Augmentation

► Additional Value Added Service Offerings

– Exalytics – Installation, Configuration & Benchmarking Services

Edgewater Ranzal Overview & Differentiators

– Exalytics – Installation, Configuration & Benchmarking Services

– Infrastructure Services – Design, Configuration, Performance Tuning & Upgrades

– Support Services – Remote Help Desk, Lev 1 Support, Patch release Support

– Training Services - Customized and Pre-Packaged EPM/BI Training Delivery

► 3 Ranzal Oracle ACEs Across EPM/BI Platform (Planning/BI, HFM & FDMEE)

► Co-Development Efforts with Oracle Product Management

► Customer Advisory Boards, Beta Testing, Certification Exam Development

• Workforce Planning

• Balance Sheet Planning

• Capital Planning & PFP

• HFM

• Financial Close Mgmt

• Disclosure Management

• HPCM

• HSF

• FDMEE/ERPi & EPMA

Dashboards & Scorecards, Financial Analytics &

Reporting, Operational Analytics, What-if Analysis,

Query & Reporting, Visual Exploration

Financial performance, Legal,

Segment & Mgmt Reporting, Financial Close

HFM Optimization, Performance Lab

SOX Compliance Support

Strategic Finance, Planning, Budgeting,

Forecasting, Workforce Planning, Capital

Planning, Project Financial Planning

Installation, Upgrades, Migration,

System Monitoring, Backup and

Recovery, Disaster Recovery, Load

Consolidation

Business

Intelligence

Enterprise

Planning

Edgewater Ranzal EPM & BI Service Offerings

HPCM Standard & Detailed Models,

Data Integration, Financial Data

Management, Data Warehousing,

Master Data Management &DRM,

ETL Services, Automation

Project/Program Mgmt, EPM Road Maps,

Application Reviews, Business Requirements,

Process Change, Documentation


Testing, Hardware Sizing, Exalytics

Benchmarking Infrastructure

Training &

Support Services

Project

Management

Data

Services

Costing &

Profitability

Mgmt

Support Services – Infrastructure &

Application Support Contracts

Key Teach Course Delivery: Planning, Essbase, Financial

Reporting, Smart View, HPCM, HFM, FDM, DRM, OBIEE

Custom Training Delivery: Process & Reporting


Waterfall Allocations, Activity Based

Costing, Customer, Product & LOB

Profitability

Dashboards & Scorecards, Financial Analytics &

Reporting, Operational Analytics, What-if Analysis,

Query & Reporting, Visual Exploration

Financial performance, Legal,

Segment & Mgmt Reporting, Financial Close

HFM Optimization, Performance Lab

SOX Compliance Support

Strategic Finance, Planning, Budgeting,

Forecasting, Workforce Planning, Capital

Planning, Project Financial Planning

Installation, Upgrades, Migration,

System Monitoring, Backup and


Consolidation

Business

Intelligence

Enterprise

Planning

Edgewater Ranzal EPM & BI Service Offerings


Ranzal has a long history of delivering Profitability Management Solutions

� 1998 - Custom Essbase BSO Profitability Apps (5.x)

� 2004 - Custom ASO/BSO Profitability Apps (7.x) – “Angel/Demon Customers”

� 2007 – Paid Engagement with Hyperion Dev to review HPCM (Project Oslo)

Data Integration, Financial Data

Management, Data Warehousing,

Master Data Management &DRM,

ETL Services, Automation

Project/Program Mgmt, EPM Road Maps,

Application Reviews, Business Requirements,

Process Change, Documentation


Testing, Hardware Sizing, Exalytics

Benchmarking Infrastructure

Training &

Support Services

Project

Management

Data

Services

Costing &

Profitability

Mgmt

Support Services – Infrastructure &

Application Support Contracts

Key Teach Course Delivery: Planning, Essbase, Financial

Reporting, Smart View, HPCM, HFM, FDM, DRM, OBIEE

Custom Training Delivery: Process & Reporting


Waterfall Allocations, Activity Based

Costing, Customer, Product & LOB

Profitability

� 2009 – First HPCM Implementation replacing HBM (11.1.1.3)

� 2012 – Co-Developed Key Teach HPCM Training Course (11.1.2.1)

� Today – 20 Successful HPCM Project Implementations

The Need for Profitability ManagementThe Need for Profitability Management

Profitability Management Goal – Delivery of Strategic P&Ls

Profitability Challenge #1 -

Statutory Reports are not Timely or Detailed Enough

• 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

Financial

transactionsConsolidation

(GL or HFM) to or to service

customers?

• What proportion of

resources does a specific

customer consume?

• Why hasn’t increased

revenue resulted in

increased profitability?

transactions

Financial

Data

(GL or HFM)

AccumulatorBottom-line

Results

Organizational P&L

Profitability Challenge #2 -

Indirect Cost Assignment to Products, Services & Customers

No Standard Process

Standard,

accepted

process

No Standard Process

� Indirect Costs are tracked

against supply side

structures, not demand side

needs. This makes

measurement difficult

Profitability Challenge #3 – Ensuring Consistent Performance as

Users, Data Volumes, & Frequency of Use Increases

Sales/Product Managers

Cost Center Managers

1000’s

1000’s

Departments

Products & CustomersUser

CountsData

VolumesFrequency

Of Use

1 MM’s Daily

LOB Execs.

Finance10’s

100’s

1000’s

LOB/Functions

Segments/Entities

100’s

1000’s

10K’s

Qtrs

Monthly

Weekly

Profitability Management Solution Elements

Reporting & Analysis

Product P&L by Activity

Financial P&L

Operational

Data

SourceData

MeaningfulAttributions &

Allocations

Source Data - Financial P&L

Legend

C Customer Specific Costs

P Product Specific Costs

F Financial/Overheads

Type P&L Line $ % of Rev

C/P Units Sold 100

C/P Gross Sales 1,000$ 102%

C/P Less Disc, Rtrns & Allow. (20)$ -2%

Net Sales 980$ 100%

C/P COGS @ Std 400$ 41%

Raw Materils,

Labor, Freight In,

Mfg Ovhd

► Core Statutory Fields

► Account

► Company/Legal Entity

► Affiliate/Partner

► High Level Management Fields

► Cost Center/Department/Geography

► Profit Center/Product Line/Channel

► Project and Related Attributes

► While some elements of product profitability C/P COGS @ Std 400$ 41%

F COGS @ Var 23$ 2%

Less: Total COGS 423$ 43%

Gross Profit 557$ 57%

P/F/O Selling & Marketing Exp 150$ 15%

F G&A Exp 100$ 10%

Less: Total Operating Exp 250$ 26%

Operating Income 307$ 31%

F Depreciation & Amortization (75)$ -8%

F Other Inc/(Exp) (50)$ -5%

Net Income Before Taxes 182$ 19%

Less: Income Taxes @ 40% 73$ 7%

Net Income After Taxes 109$ 11%

Dept Costs:

Accounting

Mgmt

IT

Mfg Plant

Departmental Exp

Variances

► While some elements of product profitability and customer profitability may be present, they are typically at a much higher level (e.g. many SKUs rolling up to a Product Line, or many Customers rolling up to a Channel)

► Significant manual effort may be involved in achieving this (e.g. Thick G/L, XL, Manual Journals)

► Complete Financial Results also occur at the close, where its often too late to react

► Need to be more detailed, timely, transparent & automated to be actionable

SHIPPED TO SOLD TO TERMS: FROM INVOICE DATEXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

2% 15 daysNet 16, USD

DIRECT INQUIRIES TO:1 (800) 999-9999

INVOICE SHIP DATE 11/01/2004INVOICE DATE 11/01/2004

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

PURCHASE ORDER NO. SHIP NO. CUST. NO. SALES DIST. PLEASE SHOW THIS INVOICE NUMBERWHEN REMITTINGTEST ORDER #1 S901999 B901999 2377

DATE INV’D11/01/04 2002009999

ORDER DATEMM/DD

DELIVERY DATEMM/DD ACCT. AT CUST. CARRIER SALES ORDER

19929988811/01 11/11 1202 Customer pick-up

QUANTITY UNITS PRODUCT CODE DESCRIPTION UNIT PRICE AMOUNT

Source Data – Sample Operational Data

QUANTITY UNITS PRODUCT CODE DESCRIPTION UNIT PRICE AMOUNT

700 CA 4100000295 TBAH 24/500 75.35 52,745.00

700 CA 4100000295 Efficiency Allowance 333333 0.05- 35.00-700 CA 4100000295 SpecAllow-OI RateCs 654737 0.50- 350.00-700 CA 4100000295 Freight-Backhaul 1.08- 155.74-700 CA 4100000295 Fuel Allow Percent 6% 9.34-700 CA 4100000295 Unload Allowance 0.04- 28.00-

Data Sources: Order Mgmt, A/R, Billing, Trade Spending apps

Customer

- By Customer

- Bill To/Sold To

- Shipped To

- By Market

- Mkt (Channel)

- Sales ID

- Shipped To

Product

- Category

- Sub-Category

- Brand

- Sku

Time

- Year

- Quarter

- Month(5-4-4)

- Week

- Day

Accounts

- Net Sales Dollars

- Gross Sales Dollars

- Less: Cash Disc

- 2% 15 days

- Efficiency Allow

- Spec Allow, etc

Attributes

Quantity

- SKU A

(Case = 12)

- SKU B

(Case = 1000)

Meaningful Allocations – Varying Approaches by Line Item

•Revenues, Returns

•Discounts, Allowances, Accruals

•Customer By Product

•Customer Specific

•Invoice Details

•% Net Sales to Product

•COGS

•Inventory Charges

•Customer By Product

•Product Specific

•Invoice Details

•% Net Sales to Customer

P&L Line Items Typical Dimensionality Allocation Method & Drivers Used

14

•Operating Expense - Labor

•Operating Expense – Non Labor•Org Channel or Product Line

•% Time Spent (Activities, Employee)

•% Net Sales to Customer

•Selling Expense

•Marketing Expense

•Org, Channel

•Org, Product Line

•Rep Commission, % Net Sales

•Initiatives, Trade Spend $

•Shared Services (IT, Fin, HR)

•Corporate Overhead

•Organization

•Overall Corporate

•Service Catalog, Projects, Mgmt Fee

•FTEs, Net Revenue, Square Footage

Reporting & Analysis: Interactive Analysis via Dashboards

Outcomes: Expectations of a Profitability Management Solution

► Reliability– Visibly defensible profitability and

cost results through transparency & audit/control

► Agility

Senior Management

► Agility– Timely reflection of results to be

actionable

► Relevance– An ability to Allocate resources to

the most important opportunities

Financial Results

Revenue & Cost Models

Operational Results

FP&A

Overview of Oracle Business AnalyticsOverview of Oracle Business Analytics

Profitability Management Solution

Oracle Business Analytics – EPM/BI Software Architecture

EPM Apps: Information Generation

BI Foundation: Info Delivery

Master Data, Data Quality & Data Integration Tools: Information Management

• Packaged Profitability functionality

• Computes Profitability for Units, Segments and Services

• Pre-Built Framework for profitability modeling:

• Pre-built Measures dimension

• Support for Multiple Cost Allocation methodologies

• Pre-Built Validation reporting

• Graphical Interactive Traceability Maps

• Genealogy Reporting shows flow from any stage to any stage

• A User-Driven application

Solution Element: Hyperion Profitability & Cost Management (HPCM)

20

• A User-Driven application

• Measures, Allocates and Assigns Cost and Revenues via User

Defined Rules

• Finance User-facing Administration

• Provides Scenario Modeling for Decision Making

• Tightly integrated with the full Hyperion EPM Suite

• Shared Data and Master Data via EPMA

• Shared Reporting Tools like Financial Reports & Smart View

• Proven Technology Stack

Organizations need information management

solutions to address the challenges.

Why HPCM? To Meet these key requirements…

Flexibility

• Analyze different chargeback approaches to yield optimal mix of

Audit & Control

• Provide key stakeholders confidence in the numbers produced

Shared Methodology

• Define consistent allocation and charge back methodology across all

Transparency

• Give Units the detail costs they incur for the service consumed.

Organizations need information management

solutions to address the challenges. These needs

can be abbreviated as F-A-S-T!

optimal mix of services versus costs incurred by the shared service center.

• Rapidly evolve methodologies as the maturity model of the shared service center evolves.

numbers produced and methodologies employed to ensure compliance.

across all management cycles.

• Ensures consistent comparisons when reviewing and updating methodology result and planning for future management cycles.

consumed.

• Compare effectiveness of internal unit services with those of external providers to ensure efficiency.

Published Reports & Interactive Analytics

Model Development

• Create & Manage

Dimensions &

Hierarchies

• Deploy the Application

• Define Data Integrations

from Source Systems

• Manage User Security

Master Data & Data

Integration Management

Produce Management and

Performance Reports:

• Financial Results Books

• Margin Analysis

• Cost & Revenue

Contribution Analysis

• What-If Scenarios

Execute a Model POV:

1. Load Cost/Revenue Data

2. Load Driver Metric Data

3. Validate Model Inputs

4. Execute Calculations

5. Trace Allocations & Validate

Create & Manage the Business

Model:

1. Define the Stages

2. Create a Model Point-Of-

View (POV)

3. Define the Drivers

4. Define Assignment Rules

Model Execution

HPCM Workflow and Architecture

• Manage User Security

Enterprise Performance

Management Architect

(EPMA)

DimensionsHierarchiesAttributes

Hyperion Profitability & Cost

Management

(HPCM)

StagesDrivers

Assignments

Essbase

Calculation

Cube

(BSO)

Essbase

Reporting

Cube

(ASO)

Financial Reports, Smart View,

Business Intelligence Foundation

• What-If Scenarios

• Genealogy Reports

5. Trace Allocations & Validate

Model Results

6. Publish the Model POV

4. Define Assignment Rules

5. Assign Drivers

6. Create Assignments

Demo - Define POV, Business & Driver Metrics in EPMA

POV Dimensions Business Dims Driver Metrics

Demo - Business User Defines Stages in HPCM for Allocation Flow

Stage definition is wizard Stage definition is wizard driven, and provides the appropriate selections for

stage creation.

HPCM: Direct and Indirect (Genealogy) Allocations via Stages

Source StageProject Detail

Target StageCustomer

Project

Dept

Resource

Customer

ProjectDriver

Driver Selections – Defines what Driver

Definitions to use against the Source stage,

typically the dimension identified as the

driver definition.

Assignment Rules Definitions– Defines the

member combination in the target dimension

for the assignment.

Assignments– Defines the source dimension

Driver Definitions – Create an allocation

formula/methodology that references a

loaded metric within the model.

1

2

3

4

2 3

14

4

HPCM Model Definition Components

Assignments– Defines the source dimension

combination and the target Assignment Rule44

Demo - End Users Define Drivers in HPCM1

Select from list of user defined driver

metrics and allocation methodologies.

Demo - End Users Assign Drivers to Source Cost Pools in HPCM2

Select Default Drivers for Cost Pools, with an ability

to provide exceptions for unique projects.

Demo - End Users Create Target Range Assignment Rules in HPCM3

Demo - End Users Map Source Stage to Targets Via Assignments4

Or Allocation Assignments can be

bulk loaded via a staging table.

Demo – Traceability Analysis – What makes up a client charge?

35% of China Costs come from Asia Region Office Project 212375

2% of China Charge came from resource wswain from Dept X working on Project Y

What’s New in 11.1.2.2 HPCM – Detailed Profitability Models

What’s New – Performance Improvements & Exalytics Certification► 11.1.2.3.351 HPCM is Exalytics

Certified

► New Parallel Calc

► Non EPMA Mode

Profitability Case StudyProfitability Case Study

HR Consulting Firm

Podcast Available At:

https://blogs.oracle.com/epm/entry/the_deeper_realities_of_implementing

Mercer HR– Attributions & AllocationsImplemented Solution

● Edgewater Ranzal experts took only 4 months to build, test and put into production an HPCM application. ● Sourced data from Planning. ●Delivered multi-step, multi-stage Attributions & Allocations ● Provided traceability map reports. ● Developed self-service standardised reports for business partners to consume allocation results.

Results

● HPCM offers an outstanding accurate, transparent and flexible client profitability and cost management system that supports their daily client

Client Overview

● Mercer HR is a human resource and related financial services consulting firm headquartered in New York City. ●The world's largest human resources consulting firm providing retirement and health benefits services, human capital surveys, outsourcing services and other financial services to a large client base. ● Has over 18000 employees in 180 cities in 40 countries.

profitability and cost management system that supports their daily client activities. ● Cost allocations can be traced end-to-end across the entire organisation, giving a clear view of profitability and understanding of cost-to-serve for each business area and region. ● User-friendly self-service application negating the need to ask IT whenever allocations need to be changed.

Client Since January 2008

Date Services Delivered October 2012

Vertical HR Consulting

Products HPCM, Planning

Challenges and Opportunities

● A powerful, flexible, easy-to-use client profitability and cost management system to accurately allocate costs and clearly show profitability across the entire organisation. ● A transparent, out-of-the-box solution to provide all the features for improved profitability and cost management while offering critical interoperability and self-service functionality.

● Interface with existing HFM implementation.

Technology

● HPCM. ● Planning

EPMAHyperion Planning

Multi User Data Entry

Task Lists & Workflow

Bottoms Up Calculations

Reporting & Commentary

HPCM

Multi-Step Allocation Modeling

Validation Reporting

Traceability Maps & AnalysisData synch:

Costs by Account & Dept

Data synch: Direct Attribution to LOB

Data synch: Drivers by

Shared Dimensions &

Hierarchies (EPMA)

HPCM & Planning – Better Together

Reporting & AnalysisFinancial Reports

Smart View for Office

BI Foundation (OBIEEE/Essbase)

Data synch: Drivers by

Account & Dept & LOB

Data synch: Results by

Account & Dept & LOB

Driver Data

Hyperion Planning

Hyperion Profitability & Cost Management

Microsoft Excel

Attributions & Allocations - Solution Architecture

Load Costs

Load Driver Metrics

Attribute Load Pools Run

AttributionPlanning

HPCMCost Allocations

Budget PlanningApplication

HPCM StageManagement Utility

Set POV Variables

Load Costs Attribute Data

Load Pools

Update Alloc Rules

Run AllocsValidatePublish

Attributions & Allocations – Attribution Data Entry Form

Allocation Requirements

EntityBusiness Account

EntityBusiness

Stage 1 - Global

Stage 2 - Regional

Stage 3 - Local

HPCM Model Architecture

► HPCM allocates Costs &

Revenue Pools through

one or more stages in a

top down capacity

► Stage – Step in the

allocation process that EntityBusiness

EntityBusiness

Department

Stage 4 - Business

Stage 5 - Department

allocation process that

has similar pool

characteristics

► Separate stages enable

traceability.

Key Model Validation – HPCM Stage Balancing Report

Key Analysis – Trace Allocations in HPCM

Trace Allocation

Allocation Source

Closing and Q&AClosing and Q&A

► Does your company understand the true costs of its products or services?

► Are costing models transparent enough? Can you easily trace back the assigned costs to the activities and line item expenses that drive them?

► Do your costing methods operate at the right level of detail?

► Are you satisfied that you are allocating shared services (e.g. IT/HR) accurately?

► Are people spending too much time maintaining our costing models and other elements of our costing system?

Self-Evaluation Questions

Are people spending too much time maintaining our costing models and other elements of our costing system?

► Can people in your company quickly test how changes to commodity, input costs, lower or higher volumes will affect our profitability?

► Are you getting answers from our costing systems fast enough to be actionable? Would reducing this process time improve our competitiveness or profitability?

► Is all of the data that you need to understand true costs available in a single ERP system? If not, what are the initial and ongoing costs of integrating that data into your ERP system?

Closing and Q&A

Edgewater Ranzal Contact Info:

108 Corporate Park Drive, Suite 105, White Plains, NY, USA 10604US: +1-914-253-6600 E-mail: [email protected] UK: +44 (0)2033 717174

Profitability Management with HPCM

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