Profitability Manager:

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 Feedback to Strategy PurchasingSales Human Resources R&DService Mfg & Maintenance Finance Set Strategic Objectives Plan and Budget Communicate Goals & Metrics Measure and Analyze Results Take Corrective Action Business Insight Delivery Analytic Foundation BI Technology Fusion Middleware BAM DashboardsCPM Transfer Pricing Public Sector Budgeting Demand Planning Enterprise Planning and Budgeting Profitability Manager Balanced Scorecard Financial Consolidation Hub

Oracle CPM Suite: Single, Unified Architecture Enterprise Performance Foundation supports all Oracle CPM applications 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 tools Oracle E-Business Suite Daily Business Intelligence Balanced Scorecard Oracle DB, Oracle BI OLAP Enterprise Performance Foundation (EPF) Oracle Portal Oracle Discoverer External Systems Enterprise Planning and Budgeting Profitability Manager Financial Consolidation Hub FSI Analytics: RCM, TP

CPM Market Opportunity The worldwide market for Business Intelligence Applications grew 12.3% in This was double the growth for the overall ERP market of 6% 2004 Analytic Apps $4.2B USD 2003 Analytic Apps $3.7B USD +12.3% Growth Source: IDC 2005, WW Business Analytics Software 2004 Vendor Share Source: IDC, WorldWide Financial and BPM Analytic Applications 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 7 Operating income88% Revenue growth81% On-time perf for customers67% Product / service line profitability66% Product reliability59% Customer response time54% Metrics of Maximum Interest Percent 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 Apanaschik Partner, PwC

Profitability Manager Addresses These Challenges… Who are my most profitable customers? What are my most profitable products and channels? Am I charging correctly for products or services? What products or services should we invest or divest in? How much does it cost to serve my customers? Where are the best opportunities to reduce costs? Am I making the best use of my resources?

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 and Terminology 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) RESOURCES Labor Material MFG. Ovhd Depreciation Activities ACTIVITIES Activity Rates/Unit Costs RESOURCE DRIVERS COST OBJECT Product Client/Customer Feeder stock Order Activity Drivers 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 enterprise operating costs Drive product and customer profitability Optimize capacity utilization Trace costs based on their demand for activities Trace costs based on their demand for activities Activities Cost Objects Resources Consumed by

400, ,000 25,000 88,000 62,000 _______ 700, , ,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 Allocation Traditional: 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 90, ,000 _______ 700,000 70, , ,000 90, ,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