Meeting the Profitability and Costing Analysis Challenge John Fitzmaurice CPM Product Strategy

S Meeting the Profitability and Costing Analysis Challenge We are going to talk about the challenges facing organizations - small, large, for profit and not-for-profit in understanding their current operations and performance explain to you how we position the Oracle CPM Suite and Oracle Profitability Manager to meet these challenges

S Meeting the Profitability and Costing Analysis Challenge … tying this to the theme of Oracle OpenWorld 2006 … Better Information Better Results

Program Agenda Introduce the Oracle CPM Suite Examine some of the challenges Meeting the challenge with Profitability Manager A demonstration of Profitability Manager Q&A – your chance to describe your challenges

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, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle’s products remains at the sole discretion of Oracle.

Our Mission Making our software a source of continual competitive advantage for our customers Better Information Better Results

Unique, customer focused strategy FUSION Customers continue to get innovation in existing release and choose when they are ready to move to next generation technology. EBS 12EBS 12.2EBS 12.1 Enterprise 9Enterprise 9.2Enterprise 9.1 Siebel 8Siebel 8.2Siebel 8.1 EnterpriseOne 9.0World A9.1EnterpriseOne 9.1World A9.2

Rapidly Changing Conditions How can I accelerate my planning and decision cycles? How do I monitor conditions and take early corrective action? Accountability, Transparency How do I comply with corporate governance requirements? How can I ensure accurate, timely reporting? Ineffective Decision Support How do I filter extraneous data and focus on relevant information? How can I access and rationalize disparate, fragmented data? Efficiency & Cost Control How can I sustain / improve profitability? How do I keep information current? Business Pressures Marketing Purchasing Service Sales Project Mgmt Human Resources Manufacturing Finance Plan & Model Plan & Model Execute Report & Analyze Report & Analyze

To Meet These Challenges, Businesses Must …  Connect strategies to plans  Connect strategies to plans to align the organization for execution  Monitor Execution  Monitor Execution to drive a culture of accountability  Drive Performance  Drive Performance by operationalizing execution

Blueprint for the Insight-Driven Enterprise CxOPartnersSuppliersProcess Workers ManagersCustomersSales Teams Information-Driven Oracle Fusion Applications BI Applications Corporate Performance Management Supply ChainSalesServiceHuman CapitalMarketingFinance Enterprise Information Model Industry Specific Oracle Fusion Middleware Enterprise Applications Oracle Databases Syndicated Data Other Operational & Analytic Sources Other Databases

Make timely decisions with integrated information systems Target information delivery with role- based dashboards Protect organizational integrity with secure information delivery Financials, Supply Chain, Projects, PLM, Sales & Marketing, HR, Service Transaction Processing Users Sensor Based Services Analysts Managers Executives Operational Reporting Profitability Analysis Performance Scorecards Consolidation & Compliance Reporting Planning Greater Insight Comprehensive Corporate Performance Management Forecasting & Modeling Ad-Hoc Reporting Goal Setting Budgeting

My Challenges Include …

need an integrated approach to analytics need more dimensionality need costing insights need to bring discipline to the process need ever more detailed profitability analysis

Challenge: need an integrated approach to analytics Have initiatives going on all over the place … Planning Do it centrally, but it’s spreadsheet based Consolidation Merged two entities together, but cannot get a complete view of operations Performance measurement The major business units allocate costs and calculate profitability … but there is no comparison to plans/forecasts

Challenge: need more dimensionality The Finance Department do not want to perform management accounting in the G/Ledger …and Line of Business Managers keep saying… Need more dimensionality for our analytics for processing business rules, and for analysis and reporting

Challenge: need costing insights The industry regulator is asking for another review Communications, Utilities Health Care, Hospitals, Education Financial Services Need to provide justification for rate increases Need to compare the costs at our 3 Help Desks We have a Shared Services model, but no agreement Our Customers are telling us that we’ve got to drop our prices as their income is down

Challenge: need to bring discipline to the process No formal process management No formal approval process for changes to the process Methodologies get revised, but want to see the prior versions – rules and hierarchies Lack the ability to run ‘what if’ analysis

Challenge: need ever more detailed profitability Behavior of the market and customers is changing We know the numbers at the enterprise level, but … Now need to know revenues and expenses by Customer, and by Product, and by Channel for every transaction

Oracle Profitability Manager (PFT)

Profitability Manager Profitability Manager was launched September 2005 Merges Oracle Performance Analyzer and Oracle ABM Use to model and analyze costs and profitability of products, customers, channels... Customers include financial services, telcos, public sector Integration to Oracle G/L Shares data with EPB & FCH, for planning, profitability analysis on consolidated results Profitability Manager: Analyze Cost & Calculate Profitability

Build, Model and Analyze Profitability Integrates Multiple Data Sources Easy to Use Embedded Activity-Based Management Oracle Profitability Manager The Value

Reporting Layer Control Security Business Process Rule Sets Definitions Oracle Profitability Manager Methodology Transactional Data General Ledger Other Rules Engine PrimedData Reconciliation Cleansing Mgmt Ledger Customer Data Statistics Validation Control P&L Ad Hoc Audit Drivers Activity Rates Methods Role Based Users

Meeting the Challenge with Profitability Manager

Meeting the challenge: need an integrated approach to analytics The Oracle CPM Suite

Oracle CPM Suite: Single, Unified Architecture Robust, shared relational dimensional model Common engines & utilities Seamless integration with Oracle General Ledger, open APIs for any source data Discoverer Reporting, open to 3 rd party reporting Oracle E-Business Suite Daily Business Intelligence Balanced Scorecard Oracle DB, Oracle BI OLAP Enterprise Performance Foundation (EPF) Oracle Business Intelligence External Systems Enterprise Planning and Budgeting Profitability Manager Financial Consolidation Hub FSI Analytics: FTP Internal Controls Manager Enterprise Performance Foundation supports all Oracle CPM applications

Meeting the challenge: need more dimensionality A rich multi dimensional model Dimensions and hierarchies centrally managed and maintained Ability to extend and customize to meet your analysis and reporting challenge

Dimension Define dimensions and hierarchies

Dimensional Model Basic Facts 19 Base Dimensions 10 User Defined Dimensions Numerous Application Specific Dimensions Dimension Member Support Unlimited number of members Grouping of members into Levels Filtering of member list based on the Ledger

Dimensional Model Analytic Dimensions COMPANY/CCTR/ORG PRODUCT CHANNEL PROJECT CUSTOMER TASK ACTIVITY COST OBJECT CAL PERIOD GEOGRAPHY + 10 User Defined Financial Characteristics FINANCIAL ELEM NATURAL ACCOUNT LINE ITEM Financial Consolidation INTERCOMPANY ENTITY Data Management SOURCE SYSTEM LEDGER DATASET CODE CURRENCY CODE

Dimensional Model Attribute Support Simple vs. Attributed Dimensions Unlimited number of Attributes Level-specific Attributes

Dimensional Model Hierarchy Support Unlimited number of hierarchies per dimension Unlimited number of levels per hierarchy Creation & Maintenance Create, Maintain in Hierarchy User Interfaces Load with Dimension Hierarchy Loader Load using OGL Integration Versioning, Effective Dating Supported to track changes

Meeting the challenge: need costing insights An analysis approach that includes activity-based costing as a core part of the 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.” “ABC Provides the Basics of Corporate Performance Management” Frank Buytendijk, Nigel Rayner, Gartner Inc August 08, 2005

Oracle Profitability Manager Methodology Traditional Financial Statement Activities Resources Models Drivers Methods Analytics Percent Distributions Rate X Volume Cost Pools Transactions Costs/Revenues Statistics

Meeting the challenge: need to bring discipline to the process Embed process management into the application

Oracle Profitability Manager Models and Rules Separation of Data, Model, Rules Role Based Security Process Admin. Controls Rule Sets /Processing Rules Restate and Reverse Entries Validation and Reconciliation Scalability

Meeting the challenge: need ever more detailed profitability A sophisticated data model, allowing the right level of detail for each analysis challenge

The right level of detail for each analysis challenge Management Ledger G/L data – single view of truth Multi dimensional analysis Use aggregated transaction drivers Customer Profitability Aggregate to Customers Rollup to Corporates or Households Account Analysis Model revenue and expenses Develop a P&L per account Transaction Detail Model transaction volume and cost/revenue – millions of events Aggregate to drive business rules

A demonstration of Profitability Manager

Profitability Manager Demonstration Demo Flow Present a demo flow, highlighting the functionality Navigation Preview the main screen interfaces of the application Create a Business Rule Create a Mapping Rule, step by step

Profitability Manager Demo Script Flow: Vision Support Dept. has a support help desk The support operators answer Customer support calls covering these issues: Browser Modem / Network Hardware

Profitability Manager Demo Script Flow: Vision Corp wants to calculate the profitability of the Customers that use the Support Dept. Profitability Manager is used to calculate customer profitability, including determining the activity rates for the services performed

Profitability Manager Demo Script Flow: The data model has received data from multiple sources: G/L data: Balance Sheet and P&L Customer detail Support transaction detail

Profitability Manager Demo Script Flow: Business Rules to cover: Map indirect costs to operational cost centers Determine activity rates for the support center Show the results, highlighting unused capacity Apply the costs to the customer transactions Determine customer profitability

Profitability Manager

Profitability Manager (PFT) Navigation

Navigation Profitability Manager tabs Business Rules Process Management Administration Documents Home

Business Rules Profitability Manager Business Rule tab Mapping Activity Customer Dimension Condition Data Inspector

Mapping Profitability Manager Mapping page Adjustment By Dimension Field Percent Distribution Retrieve Statistic Simple Source On

Activity Profitability Manager Activity page Activity Rate Cost Object Cost Rollup Statistic Rollup

Customer Profitability Manager Customer page Account Consolidation Profit Aggregation Value Index Formula Profit Calculation

A Q &

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Profitability Manager (PFT) Create a Business Rule

Create a Business Rule Here’s the business situation: Facilities is a department that provides real estate and security services to operational departments We are going to map the Facilities expenses out to the operational departments that Facilities serves The operational departments are going to receive the expenses based upon the square feet the departments occupy

Mapping Rule Formula Type: Percent Distribution Let’s now look at a demonstration of the Percent Distribution mapping rule We are going to include a local condition and a global condition with this rule Filter on the source using a Local Condition Filter on the percent distribution set using a Global Condition The global condition will use both individual dimension values and a dimension hierarchy

Preview: The Source and the Results

Preview: Percent Distribution Set

Preview: Impact on Support Department

Step 1: Create Mapping Rule Define the Folder, Name, and Description Create Mapping Rule

Step 2: Create Mapping Definition Define the Version and Description. Select the Formula Type: Percent Distribution Create Mapping Definition

Update Source: Define the Table Name and the Column Name. Select Create Local Condition. Update Source

Define the Dimension Components: The dimensions are added, and the values are selected for the Source. Select Dimension Components

Update Source completed: Here we see that we have defined a Local Condition, and the dimension values that we selected are displayed. Review Source Selections

Update Percentage Of: Select the Table Name and Column Name. Define whether the rule output target will be the Debit or the Credit. Force to 100: Default is enabled. Define the Percent Statistics

Percent Dimension Details: Select the Usage method: We are selecting Percent Distribution for the CoyCCtrOrg dimension. Match Statistics to Source

Percent Dimension Details: Select the Usage method: We are also selecting Percent Distribution for the Department dimension. Define Distribution Output Dimensions

Choose Global Conditions: We are selecting a Global Condition, created in a prior demonstration. Global Condition to Identify Statistic Rows

Choose Global Conditions: Here we can see our Global Condition selection, and the dimensions and their selections are displayed. Review Percent Distribution Selections

Update Debit: Select the Table Name and the Column Name for the target. We already defined the Debit as our target, and we can see that 2 dimensions are defined as being mapped to the percent distribution set values. Define the Target Output

Update Debit: We are defining a specific value as the rule output for our Line Item target (debit). We select Value as the usage. Map the Output Results

Update Debit: We are defining a specific value as the rule output for our target (debit). We select the dimension value from the list. Select Target Dimension Values

Debit: Our selections are displayed here. CoyCCtrOrg and Dept are defined as “Same As Pct”. Line Item is defined as a specific value. Review Target Output

Credit: For this demonstration rule, the Credit is enabled, and the selection for all the dimensions is “Same As Source”. This will create offset rows, so that our rule nets to $-nil-, and the result is the expenses are allocated to the targets. Review Offset

Review: Mapping Rule Output