ProfitabilityManager:

Expectations for today

• Introduce you to Profitability Manager• Prepare you to deliver the Profitability Manager Demo

• Walk you through the demo• Have you experiment with the application• Be candid with you about what is here

• Lots of powerpoint AND lots of hands-on time• Leave you with the knowledge that:

• This is real product, ready to go• Legacy customers have large, robust implementations• There is a large market potential for this type of solution

In the 1980’s and early 1990’s, back office departments used ABC for cost analysis and to improve the bottom line, while the front office worried about revenue and the top line. Today a more integrative approach is needed - profitability analysis.” Gartner, Inc 2005“ABC Provides the Basics of Corporate Performance Management”Frank Buytendijk, Nigel Rayner, 08-Aug-2005

Corporate Performance Management

Provide Feedbackto Strategy

PurchasingSales HumanResourcesR&D ServiceMfg &

Maintenance Finance

Set StrategicObjectives

Plan andBudget

CommunicateGoals & Metrics

Measure andAnalyze Results

Take CorrectiveAction

Business Insight Delivery

Analytic Foundation

BI Technology

Fusion Middleware

BA

M

DashboardsCPM• Transfer Pricing

• Public Sector Budgeting

• Demand Planning

• Enterprise Planningand Budgeting

• Profitability Manager

• Balanced Scorecard

• Financial Consolidation Hub

Oracle CPM Suite: Single, Unified Architecture

Enterprise Performance Foundation supports allOracle CPM applications

• Robust, shared relational dimensional model

• Common engines & utilities

• Seamless integration with Oracle General Ledger, open APIs for any source data

• Discoverer Reporting, opento 3rd party reporting tools

OracleE-Business

Suite

Da

ily B

usi

ne

ss

Inte

llig

en

ce

Ba

lan

ced

Sco

reca

rd

Oracle DB, Oracle BI OLAP

Enterprise Performance Foundation (EPF)

Enterprise Performance Foundation (EPF)

Oracle PortalOracle Discoverer

External Systems

Ent

erpr

ise

Pla

nnin

g a

nd B

udge

ting

Pro

fitab

ility

M

anag

er

Fin

anci

al

Con

solid

atio

n H

ub

FS

I A

nal

ytic

s: R

CM

, T

P

CPM Market OpportunityThe worldwide market for Business Intelligence Applications grew

12.3% in 2004. This was double the growth for the overall ERP market of 6%

2004Analytic Apps

$4.2B USD

2003Analytic Apps

$3.7B USD

+12.3%

Growth

Financials and BPM34%

CRM Analytic Apps24%

SCM & Operations

42%

Source: IDC 2005, WW Business Analytics Software 2004 Vendor Share

Costing11%

Consolidation27%Planning

43%

Scorecards19%

Source: IDC, WorldWide Financial and BPM Analytic Applications 2005-2009 Forecast”, June 2005

$1.4 B $1.0 B$1.8 B$4.2 Billion

$1.4 Billion

Financial performance metrics are the highest priority for successful companies.

• PwC, 2004 Trendsetter Barometer study

77

Operating income 88%

Revenue growth 81%

On-time perf for customers 67%

Product / service line profitability 66%

Product reliability 59%

Customer response time 54%

Metrics of Maximum InterestPercent of Respondents “A direct correlation

exists between the number of corporate performance measures used regularly, and the average size and growth of companies surveyed”

Gary ApanaschikPartner, PwC

Benefits of Profitability Manager

• Cost identification and management• Understand WHY ‘indirect’ costs are incurred• Discover customer and supplier support costs• Identify best cost structures and business processes• Measure internal effectiveness• Ascertain true shared service costing

• Enable Profit Management• Determine product, channel and customer profitability• Use to decide correct product mix and pricing, • Use to identity cross & upsell opportunities• Use to set customer service levels, and improve customer

and supplier relationships

Profitability Manager

• A new product …• …but the integration of 2 successful products:

• Activity-Based Management• Performance Analyzer

Other Oracle Apps offering similar functionality?

• Other solutions that get mentioned:

• Daily Business Intelligence• G/L• Manufacturing• Project Costing

Key Concepts andTerminology

• The Business Practices• Multi-Dimensional Profitability• Customer Profitability• Allocations and Costing• ABC Terminology

• Resources• Activities• Cost Objects

Multi-Dimensional

• Multi-Dimensional Profitability• Cost Center• G/L Account• Product• Customer• Channel• Geography• Activity or transaction

Multi-Dimensional• Different combinations of dimensions for each part of the process• Idea of moving across dimensions• Example

• Load financial data by• Cost Center• G/L Account Segments (Natural Account)

• Map together with operational detail by• Product• Channel

• Determine final summary profitability by• Customer• Industry• Geography

Customer

• Customer Profitability• Start as low as individual transactions

• an invoice, an order, a loan• Customer may have many accounts with us• Need to be able to aggregate

• Transactions to accounts• Accounts to Customers

• Apply customer-level (relationship) costs• More than one reporting view of customer

• the parent/final customer

Allocations and Costing

• Allocations• Also called mapping, assignment• Allocate from and to

• Source• Method• Target

• Along same dimensions or across dimensions

Allocations and Costing

• Costing• Often use the same solutions as allocations• Focus on determining:

• Cost per event• Internal benchmarking• Comparison to industry piers, standards• Assist in pricing process

Costing: Activity-Based

• ABC Terminology• Resources• Activities• Cost Objects

Activity Based Management - A Review

“Activity based costing (ABC) is a methodology that measures the cost and performance of activities, resources, and cost objects. Resources are assigned to activities, activities are assigned to cost objects based on their use. ”

Computer Aided Manufacturing International (CAM-I)

RESOURCESRESOURCES

• Labor• Material• MFG. Ovhd• Depreciation

ActivitiesActivitiesActivitiesActivities

ACTIVITIESACTIVITIES

Activity Rates/Unit Costs

RESOURCEDRIVERS

COST OBJECTCOST OBJECT

• Product• Client/Customer• Feeder stock• Order

ActivityDrivers

Activity-based management (ABM) is a powerful methodology which supports managers in the decision making process. ABM puts the decisions to work from ABC information.

Activity Based Management

• Develop effective cost management systems

• Reduce enterpriseoperating costs

• Drive product and customer profitability

• Optimize capacity utilization

Trace costs based ontheir demand for activities

Trace costs based ontheir demand for activities

ActivitiesActivities

Cost ObjectsCost Objects

ResourcesResources

Consumed byConsumed by

Consumed byConsumed by

400,000

125,000

25,000

88,000

62,000

_______

700,000

400,000

125,000

25,000

88,000

62,000

_______

700,000

Salaries

Materials

Supplies

Depreciation

Rent

Total

Salaries

Materials

Supplies

Depreciation

Rent

Total

Traditional:G/L Based AllocationTraditional:G/L Based Allocation

Take Orders

Mix Batter

Bake Layers

Frost Cakes

Deliver Cakes

Total

Take Orders

Mix Batter

Bake Layers

Frost Cakes

Deliver Cakes

Total

70,000

250,000

150,000

90,000

140,000

_______

700,000

70,000

250,000

150,000

90,000

140,000

_______

700,000

ABC/M:Activity Based Allocation

ABC/M:Activity Based Allocation

Activity Based Management

Profitability Manager

• PFT does it all!• Multi-dimensional• Customer• Allocation/Costing