1. hpcm introduction

Editor's Notes

• #8: EPM is about three areas: Common Information Access: MS Office, Web, Reporting and Alerts EPM System Strategic Planning Planning & Forecasting Financial Close Profitability Management Common Integration & Analysis: Common Administration, Data Quality (Common Calculations and FDM), Dimension Management (consistent dimensions) and Oracle Essbase
• #9: As an ongoing process, Profitability and Cost Management integrates with the organization’s EPM processes. It uses results from its world-class close process as the source of its financial data. Models combine behavioral data with this financial data to reasonably and defensibly calculate the cost allocations. These allocations reveal information about costs and profitability that were previously not well understood, e.g., product or customer profitability. The model results provide better information divulge what drives costs and to highlight areas of cost sensitivity. This improved understanding of costs underpin the evaluation of what-if scenarios provide support for management proposals. New scenario results can be support the detailed planning and budgeting processes.
• #10: HPCM takes advantage of the underlying Essbase technology and its strengths for calculation and reporting to generate profitability and cost algorithms from model relationships defined by the end user using terminology comfortable to the end user. Profitability and Cost Management information can satisfy many levels of customer requirements: Allocation calculations can be used to valuate the organization’s inventory (i.e., for fully-absorbed product valuation) Cost and Profitability Reporting would reveal which customers or products are profitable (or unprofitable) Reviewing costs in a variety of ways (e.g., costs by activities, cost by resource pools) provided better analytics Using these results and models to simulate anticipated results leads to organizational improvement opportunities
• #11: Hyperion Profitability and Cost Management provides these world-class capabilities, but in an environment that is business-user managed. The models are defined using concepts and terminology that is comfortable to the business user. The application takes care of generating the underlying technology required to perform the allocations, analytics and scenarios.
• #12: Reliability: Provides the organization with the confidence to support decisions based its costing and profitability models Agility: Provides the ability to quickly evaluate the impact of proposed changes in the business operation Relevance Allows the organization to focus on those areas that will provide the biggest performance improvements Bank of the West uses its costing model to better understand the consumption of its internal costs by departments. By isolating the behavior of costs, they are better prepared to react to changes in its business model. Their model will allow them to actual evaluate potential business operational changes prior to actually investing in them.
• #14: Statutory reporting identifies an organization’s overall profitability … (usually summarized by account) at an aggregated level: For organization For business type or department But this summarized data often serves as a primary source (or validation) of data for cost and profitability analysis
• #15: Statutory reports, by themselves, don’t provide managers with a great deal of insight to answer operationally-focused questions – those that provide support for decisions that will impact the organization’s operational bottom line. To answer these type of questions, the organization needs to look at costs (and profit) in different ways – not just as a summarization of account performance.
• #16: The Cost / Profitability Solution starts with traditional organizational results, but supplements these financial data with “Behavioral Data”. Behavioral data may consist of operational results and statistics or any other performance measure that will help the organization to better understand financial interrelationships within the organization. These financial and operational are combined to create meaningful allocation models – e.g., to illustrate how costs by account can be transformed to costs by activity and, ultimately to costs (or profit) by product or customer. The allocation model results in new ways of looking at costs and provides better information than statutory reports, by themselves. Here we see reports illustrating profitability by customer, and product profitability by the consumed costs of activities – results that are not usually available from statutory reports.
• #17: Many organizations rely on tools that are not the best for creating and maintaining their cost and profitability models. Tools like spreadsheets or custom programmed applications may produce quick first results, but models using these tools requires too much time and effort to maintain going forward – and the organization becomes hostage to the technical expertise required to maintain these calculation models. Some of the symptoms exposed by using inappropriate tools include: Flexibility – lack of responsiveness to changes There needs to be a translation of business requirements to the technical requirements of the solution Changes to the way the business operates do not get reflected in the model because the technical resources are unavailable Time – takes too long, missed opportunities and obsolete plans The need to translate business requirements to technical requirements creates delays in acquiring new information from the model Can lead to missed opportunities Cost – many wasted resources, questionable benefits Too much time spent gathering information Limited time modeling and analyzing information Quality – data integrity, lack of standardization and communication Model becomes a “black box” to the business user; no simple way visually confirm the allocations through the model Errors in excel spreadsheets or programmed solution are difficult to uncover
• #19: A World-class Profitability and Cost Management solution includes these capabilities.
• #20: Starting with the organization’s financial and operational knowledge, allocation models are built to assign costs through various, meaningful stages of transformation.
• #21: Starting from the objectives of the model, the stages of allocations are defined. The stages define the sequence that the allocations will be performed, but they also define the different transformations that the costs undergo. In this example, costs are collected in Stage 1 by Accounts within Departments. In Stage 2, these costs are transformed to allow them to be viewed as cost by activities. Stage 3 shows costs to make products, while stage 4 shows costs to serve clients. Stage 5 presents the fully absorbed costs by customer and products.
• #22: Drivers define the methods that the model will use to transform selected source cost and revenue values to the destination cost and revenue values. Drivers can use one of the several pre-defined calculation templates, or can be custom developed.
• #23: Once the drivers are defined, source costs are assigned to destinations.
• #24: A properly defined model will reveal information that was previously unavailable to the organization: Profitability of customers, products or services, etc. Cost of activities or resource pools Costs to manufacture products, costs to serve customers.
• #25: Traditional, statutory reports will reveal costs and profitability summarized by accounts.
• #26: New information revealed by a Profitability and Cost Management solution could include: Product , service or customer profitability
• #27: A properly defined model will reveal cost and profitability behavioral information.
• #28: How activity costs are consumed by customers (or products / services)
• #29: How resources (and their associated costs) are being utilized by the organization.
• #30: A properly defined model can be used to evaluate the impact of proposed business changes. Profitability of customers, products or services, etc. Cost of activities or resource pools Costs to manufacture products, costs to serve customers.
• #31: Scenarios can be evaluated and results compared to each or to the actual results. E.g., In the Idle Labor scenario, management wants to understand the impact that “over hiring” has had on the profit. What if they had more fully utilized the additional workforce? By setting a driver value in PCM to simulate costs where the Scottsdale labor is 100% utilized, we can see that the total expenses could be reduced by $ 12,417. This reduction would drive straight to the bottom line increasing Eden’s profitability to $ 13,592 from $ 1,175. Eden now recognizes the potential of filling that idle labor with constructive work.
• #32: A World-class Profitability and Cost Management solution includes these capabilities.
• #33: HPCM takes advantage of the underlying Essbase technology and its strengths for calculation and reporting to generate profitability and cost algorithms from model relationships defined by the end user using terminology comfortable to the end user. Profitability and Cost Management information can satisfy many levels of customer requirements: Allocation calculations can be used to valuate the organization’s inventory (i.e., for fully-absorbed product valuation) Cost and Profitability Reporting would reveal which customers or products are profitable (or unprofitable) Reviewing costs in a variety of ways (e.g., costs by activities, cost by resource pools) provided better analytics Using these results and models to simulate anticipated results leads to organizational improvement opportunities
• #35: Bank of West is very committed to understanding what drives its cost and profitability, but are constrained by IT’s ability to support complex models. They sought a profitability and costing tool that would reduce the demands on IT – a business user managed tool. The chose HPCM. The tool satisfied their requirements and will allow them to grow through the multiple levels of use – calculation, reporting, analysis and management of cost and profitability.
• #36: These organizations have selected HPCM as their tool for providing their analytics for cost and / or profitability. Shared Services Costing – costs of internal, business support activities (e.g., HR, IT, etc.) and how they should be allocated to products / customers. Pricing Contracts – knowing the fully absorbed costs for a product or service allows the organization to determine pricing (for example, reflect a certain margin) Regulatory Reporting – for regulated industries or for those who are reimbursed based on their costs Cost to Serve – the process of determining the costs assigned to each customer (or customer type)
• #53: The new Hyperion Profitability and Cost Mgmt application is a part of the EPM platform. All of the PCM functionality is accessed through the Workspace. It is part of the upcoming (what we have been calling internally) the Kennedy release, which is now the Fusion 11.1.1 release.