Wednesday Feb 12, 2014

Strategic P&L Statements and Opportunities for Improvement in Retail

Do you have strategic profit and loss statements for your customers, stores, and stock keeping units (SKUs) or products? Having little experience with this type of statement before, I was very fortunate to have two experts join me for a discussion about how strategic profit and loss statements can make a significant bottom line impact for Retail companies. Mark Wright, Principal Sales Consultant for Oracle EPM Applications and Bart Stoehr, Senior Director of Product Strategy Development, both specialize in the Oracle Hyperion Profitability and Cost Management Product. Both have an amazing depth of experience to share on all matters pertaining to profitability and cost management practices.

To start, I asked Mark to describe shortcomings he has seen in Retail company management practices. Mark explained that for decades retailers have been tasked to improve shareholder value by making decisions based on statutory financial statements and rarely do these mandated statements represent strategic views that embody the business.  Marketing, sales and operations often have to recreate their financials to better serve their decision needs.  Mark offered that “financial” profit and loss statements are generated from ERP systems designed to meet statutory reporting requirements, not the needs of strategic executives. Transactions are recorded in accounting structures by division, department and account with little linkage to profit dimensions such as customer, product, and vendor. When a customer pays for a product, key hidden expenses such as labor, warehouse, transportation, vendor, etc., are recorded in unrelated and separate accounting formats. This lack of linkage and transparency can lead to incomplete, inefficient and sometimes bad decisions.

Mark told us about a company that he had worked with that completely changed their product strategic direction by switching from product and SKU gross margin management to strategic profit and loss statements. This change resulted in driving .5% to 2.5 % profit points to the bottom line!

Diving deeper into this subject area, Mark relayed that marketing executives want to know where to make money so they can plan advertising budgets.  Sales organizations focus more on who is buying so they can set sales targets and quotas. Operational managers focus on what and how so they can balance supply to demand. Merchandisers focus on store floors and aisles so they can plan.  Corporate level executives just want to know when so they can set profit expectations.  Everyone wants different views of profitability.



Mark offered a good example of how a mistake can be made from too little information. Merchandisers want to turn over high volume products but likely don’t understand the hidden costs associated with them such as import fees and distribution costs.  Sales may want to push high revenue products to high volume customers even though the customer may be unprofitable because they tend to buy massive loss-leading products. These are very conflicting agendas and objectives and will not lead to profitability.

Bart provided good insight as to how Hyperion Profitability and Cost Management can transform traditional profitability information into strategic profit and loss reporting, giving execs and others the information they need to make good decisions. “Imagine an executive in your company pulling up a dashboard that has four different points of view into the same profit number”, Bart said. Views such as customer, product, channel (i.e. store), and warehouse all tying to the same bottom line with each view showing a color coded profit graph with the most and least profitable members. Continuing the story, the executive then clicks on the negative portion of the product graph and it displays an independent strategic profit and loss statement showing revenue, discounts, rebates, vendor costs, warehouse costs, transportation costs, store activity costs, cogs and negative income - all fully loaded with transparency and linkage to profit drivers such as quantity, activities, allocations, and other inter-dependencies.  

That sounded like utopia for executives, but Bart kept going…Now imagine further drilling into the strategic profit and loss  report and getting details on the store, SKU, vendor, customer, sales person, zip code, store isle and other profit measures important to decision making. I was hooked!

Bart told our listeners that this is just the tip of the iceberg.  This type of tool can also address:

SKU rationalization
Inventory reduction
Vendor negotiations
Bulk & benchmarking
Customer targeted marketing
Market basket & behaviors; sales incentives
Pricing & policy
Cost plus margin and minimum orders
Capital expense alignment
Return on Investment (ROI) alignment
Operating Expense resource alignment
Capacity and process improvements

I was amazed at the power of strategic profit and loss statements for executives. So you really need to ask yourself, “Can my profit and loss statements do all this?"

To listen to the entire podcast, click here.
To learn more about Hyperion Profitability and Cost Management, click here.

Friday Jan 10, 2014

The Deeper Realities of Implementing Shared Service Costing with Hyperion Profitability and Cost Management

You may have heard this one before, but it remains true. Many companies around the world are still fighting to understand what their true costs and profitability are – by region, by customer, by product etc. I caught up with Stuart Croucher, Senior Associate at Marsh & McLennan Companies, and Mike Killeen, Vice President of Technology with Edgewater Ranzal, an Oracle Platinum Consulting partner, to talk about Mercer, a Marsh McLennan Company and their understanding of cost and profitability. Until recently – they too were struggling with this business issue.

Marsh & McLennan Companies are the premier global professional services firms providing advice and solutions for risk management, strategy and human capital management.  They are comprised of four companies:

+ Marsh- a global leader in insurance brokering and risk management  
+ Guy Carpenter- a global leader in risk and reinsurance intermediary services  
+ Oliver Wyman- a global leader in management consulting and
+ Mercer - a global consulting leader in talent, health, retirement, and investments

Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people.  Over the last several years, Marsh & McLennan Companies has seen transformational change with the establishment of a new shared service center to support the finance and information technology functions.  However that did not come easily.



Stuart shared with our listeners that two years ago, Mercer’s senior leadership changed overnight. In the new CEO’s  first town hall to the company, he spoke of the urgent need for Profit and Loss statements  by line of business and by country level.  He could not believe if he asked a business leader in Brazil what his profit was, that he didn’t know the answer.

How were they measuring cost? Previously, all Mercer measurements had been performed on a contribution margin basis; this simply meant that each LOB was judged on how much it contributed to Mercer’s central costs. Function costs were all held centrally and not allocated to the businesses. This was simply unacceptable to the new leadership team because it did not allow them to understand which businesses and countries were truly profitable.

As you might expect, under new management, finance was given the immediate task of implementing business/country level profit and loss statements, as the new CEO had made it one of his top priorities. This meant developing a rapid (like yesterday) solution using Excel. Eventually, with extraordinary effort, they were able to build and deliver a successful solution using many, extremely large MicroSoft Excel workbooks and MicroSoft Access - but they ran into all the usual Excel model based issues, after go live: 


+ It was very difficult to answer questions from the business -  in other words,  why did I get this allocation 
+ It was impossible to keep track of changes to the model 
+ It was difficult to re run the model for a different scenario --  for example,  running it for Budget and now wanting to run it for Prior Year Restated.

What Mercer wanted for the future was to deliver an allocation solution that combined the Oracle Hyperion Planning and Hyperion Profitability and Cost Management approach providing a platform for future growth and the ability to easily run multiple versions. Also key was low IT involvement when running the model -- they wanted Finance to completely own the day-to-day running of the model.

Mike further explained that Marsh & McLennan Companies needed to put together a new shared service center to support the controllership and Financial Planning & Administration within all of their operating companies. A key component of that shared service center was the selection and standardization of a performance management platform to create a consistent user experience for their users, and to lower the firm’s Total Cost of Ownership. For this reason, Hyperion Profitability and Cost Management was evaluated and selected as a tool that could meet the needs of this solution for the F-A-S-T requirements - specifically Flexibility, Audit and Control, Shared Methodology, and Transparency. For most of Mike’s clients, the F & T tend to be the most important.

The flexibility of Hyperion Profitability and Cost Management (HPCM) was critical to Mercer in the development process, because it allowed the business users to see the impact of an allocation methodology or attribution change. Mercer couldn’t have done that with a traditional “take the requirements and build it via a calc script” type approach. Additionally, the traceabilty maps in HPCM were helpful in getting sign off on the allocations, and additionally answering questions that came back from the Planners regarding where a charge came from. Finally, by moving the older model in Excel to an Oracle EPM packaged application, they were able to offer the audit and control needed to ensure confidence in the numbers, and additionally, provide an ability to run the models via shared methodologies for budgets, actuals, and forecast scenarios. Mercer took advantage of features that allowed them to run 2013 budget data through 2012 methodologies and 2013 methodologies, and seeing the impact of methodology change alone on results.

It became apparent quickly that there were deeper realities of implementing Shared Service costing with Hyperion Profitability and Cost Management. To hear more, click here to listen to the entire podcast.

To learn more about Hyperion Profitability and Cost Management, click here.

Wednesday Nov 20, 2013

Alignment of Ever Shrinking Budgets in Federal, State and Local Government

According to Josh Kahn, the Federal, State and Local government agencies are facing austerity, uncertainty and the need for accountability and transparency now more than ever. Josh Kahn, a Solution Specialist  Director at Oracle, and James Antisdel, Manager at KPMG (formerly with Deloitte Consulting), joined me for a podcast to discuss using Oracle Hyperion Profitability and Cost Management to align the ever shrinking budgets in government. Both James and Josh have a deep knowledge of and practical experience with the US Public Sector, particularly in government agencies.

We started off talking about the issues that government agencies are currently facing. Josh indicated that the agencies are facing many similar issues as the private sector in that transparency and efficiency are needed to help combat uncertainty and austerity. He felt that creating and using shared service centers enables organizations to provide a common product or service to a number of other organizations, thus increases efficiency and reducing effort. But without robust cost models to capture, analyze, and report on costs, it is difficult to measure and account for the new efficiencies, and equally difficult to explain the shared service charges.

So, I asked Josh what the barriers or limitations were to accomplishing this challenge. Josh explained that there are really three categories of limitations:

1) Legacy cost models are generally spreadsheet based. They rely on highly manual processes, lack transparency, lack a robust reporting solution and generally make analysis very difficult.
2) Data governance and quality. Many solutions rely on data that is sourced from disparate systems and commonly rely on data requests that require labor intensive processes and error prone manual transformation.
3) Cost models are generally kept simple.  Simple models limit analysis such as transaction level costing and commonly require a delay in producing results -- reducing the usefulness of data because it is likely old and irrelevant due to the delay

According to Josh, a good enterprise-level costing system like Hyperion Profitability and Cost Management can address all three of these limitations.

Next, James and I discussed how he had seen Hyperion Profitability and Cost Management used by his Federal, State and Local government customers. He told our listeners that he had seen it used for:

+ Cost allocations
+ Customer bill calculation/generation
+ Service center performance management
+ Assisting with planning and budgeting
+ Financial and operational analysis
+ Decision making

I was very impressed with the versatility of this application.

Digging deeper into a costing model for government, I asked James to tell us what an agency could hope to gain from implementing a costing system. James told our audience  that “development and management of the cost model can provide greater insight into the full cost of services provided to an agency’s customers, and can enable more informed decisions aimed at optimizing resources, increasing value, improving performance, gaining efficiencies, and reducing costs."  Furthermore he explained that Deloitte’s customers, armed with this new information, can begin taking next steps to improve business processes and work to refine their model to gain more insight into particular areas that offer opportunities for savings and improvements.  As a result, an agency will have the capability to accurately identify current and projected costs, formulate and justify budgets, and support operational process improvement and managerial decision making.

James emphasized that an enterprise costing solution can enable an agency to more readily pinpoint cost variances at a detailed-level and be far more responsive to requests for information from customers and other stakeholders.  It is a powerful analytical tool that can be used to support an agency in becoming transparent, efficient, and a Shared Services Center of Excellence.

So it seems that a powerful, versatile,  enterprise-level costing system can go a long way in helping to align the ever shrinking budgets in Federal, State and Local Government.

To listen to the entire podcast, click here
To learn more about Hyperion Profitability and Cost Management solution, click here

Tuesday Sep 10, 2013

Mastering the Cost of Higher Education with Hyperion Profitability and Cost Management


There is a perfect storm going on in the world of Higher Education right now. Over the last few years, the cost of higher education has been outpacing the consumer price index. To learn more about this important and disturbing phenomenon, I had the pleasure of interviewing Ida Quamina, Principal Solutions Consultant for EPM products at Oracle for our AppCast Series. She has a deep knowledge of and practical experience with Oracle’s Education and Research customers.

Parents are starting to ask how and why this perfect storm is happening. Well, both US college endowments and state appropriations are decreasing, while university expenses and enrollments are increasing. Yet universities are being forced to keep tuition costs flat. Ida also told us that Federal and State Governments are now starting to take a look at costs at institutions. President Obama, during his State of the Union address in February 2013, asked Congress to include affordability and value as a factor in determining which colleges receive federal aid. States are starting to require cost containment measures as part of their performance based funding models.

So how can Higher Education intuitions better understand and manage these issues? Ida told our listeners that Higher Education institutions already have good visibility into total operational costs and total revenue collected, but little or no visibility into individual program, degree and course costs, or the cost per student. Currently, colleges and universities have not implemented activity-based costing which is used in many commercial enterprises. Activity-based costing goes beyond the traditional allocation of overhead and provides institutions with better insight into information needed to make strategic decisions about cost containment and allocation of resources. With governing and regulatory bodies currently recommending (and likely soon requiring) this type of analysis and reporting, it is becoming critical for higher education institutions to have this type of insight for both long term and short term planning and reporting.

So which institutional processes benefit the most from understanding costs more? Ida explained that budget and spending decisions need to be based on data and not assumptions. Financial ERP systems and the current structure of institutions’ charts of accounts are not set up to support the type of analysis needed. Using activity-based cost and revenue modeling enables academic institutions to answer crucial questions and, more importantly, analyze many business scenarios to determine their best courses of action.

Ida further explained that for this type of process to be successful, collaboration between the academic and administrative teams in institutions is foundational and critical. These two groups need to start the discussion about how, and to what level, costs and revenues are to be allocated and which drivers are going to be used. This is the starting point to begin a good model. It is an iterative process and institutions will build upon this and create additional model scenarios as economic and academic conditions change.

So how can Oracle help? Ida told us that to survive, Higher Education institutions need to either make programs financial sustainable, or ensure there are other programs that have enough surplus to make up for the deficit of programs. Oracle can help with:

+ Transparency that enables institutions to ensure resources are aligned correctly based on actual measurable information
+ Understanding the true cost to implement new programs and the ability to make pricing decisions based on those costs
+ A thorough understanding of costs at a more granular level and the root cause of the costs. This information enables institutions to make informed decisions
+ Creating accountability that enables departments to understand the resources they consume as it relates to the revenue that they generating
+  Addressing concerns and questions from various stakeholders, e.g. CFO, Provost, Board of Trustees, State and other governing boards and accreditation bodies.

To stave off this perfect storm, it is imperative that our institutions now master the cost of Higher Education.

To listen to the entire interview, click here
To learn more about Oracle Hyperion Profitability and Cost Management in Higher Education click here
To learn more about Oracle Hyperion Profitability and Cost Management, click here


Tuesday Apr 02, 2013

Shared Service Costs: Are They Adding or Destroying Company Value?

Recently, Oracle published a very interesting podcast on shared service costs and whether shared services were adding or destroying company value. The information provided was extremely enlightening.

I had the pleasure of interviewing Bart Stoehr, Senior Product Management Director for Oracle Hyperion Profitability and Cost Management (HPCM), and Tom Gargas, a Principal Solutions Manager from Edgewater-Ranzal, an Oracle Partner. Here, I will summarize a few of the key points from the interview. 

According to Bart, shared services are really a concentration of company resources performing like activities, but they are spread out across the organization to service multiple, internal partners at a lower cost and providing higher levels of service. Most organizations have shared services, but often do not understand the value that they add to a company or the value that they can destroy. What are the goals for shared service centers? Bart explained that the goals are “To delight external customers and enhance corporate value”. These centers provide economies of scale and act much like centers of excellence. Examples of shared service centers mentioned by Bart include IT, Human Resources, Finance, Legal Services, Facilities and Communications.

We also discussed why it was so difficult to understand shared service costing. Bart revealed that it was really an aggregation issue. Organizations can see the total cost of a service that is shared, but not necessarily what the business units are consuming and therefore how they relate to products and customers. Understanding how each service is consumed by each part of the business will enable organizations to account for the services and charge back accordingly. But it is not only the financial aspects we are worried about. Understanding the costs of each shared service can help the company see how the costs of the service compare with the value of the service. If a service does not add value, then the company needs to take a hard look at why they are still performing it.

Tom gave us excellent information about a practical implementation approach for shared service costing which includes the FAST characteristics:


Flexibility  (in analysis and cost methods as shared services change)

Audit and Control (ensuring compliance and approved regulatory controls)

Shared Methodology (everyone uses consistent allocation methods which ensures accurate comparisons)

Transparency (details of allocations are provided to all)


Other details in the conversation covered how better understanding shared service costs can lead to organizational and management changes; becoming aligned on allocation methods and improving internal customer service levels. It can lead to excellence in business practices -- finding and exploiting core competencies, partnering with the strategic business units to help them increase their ability to create revenue, and adding value to the organization instead of destroying it through duplication of efforts and misalignment.

Tom indicated that Oracle Hyperion Profitability and Cost Management is an excellent tool for calculating shared service costs, and that these calculations can help in the financial planning process as well.  Shared service centers must plan both for the consumption of services (which services SHOULD they provide, volume of services, cost of services, etc.) and the supply side (workflow, accountability and what actually transpires). Being able to properly calculate service center costs and report against chargebacks by business unit just makes good sense. Being able to calculate and include service charges during budgeting and forecasting cycles makes forecasting more accurate.

“Using Hyperion Profitability and Cost Management with Oracle Hyperion Planning (and possibly Oracle Hyperion Workforce Planning) to manage the supply and consumption of shared services helps ensure that organizations are right-sized”, said Tom.

Bart and Tom convinced me that having well run shared service centers, understanding true shared service costs, and using those costs to plan for the future adds tremendous value to a company. Understanding these costs and using them to make sound business decisions can certainly make the difference between company financial profitability and loss.

To listen to the entire podcast, click here.

For more information about Hyperion Profitability and Cost Management, click here.

Thursday Jan 31, 2013

Profitability – the Proof is Deep Inside the Pudding

Recently, Oracle published a very interesting podcast on how the ability to view and analyze detailed costing is enabling us to better see the impact of costing on organizational success. To listen to the podcast, click here.

Bart Stoehr, Senior Product Management Director for Oracle Hyperion Profitability and Cost Management (HPCM), was interviewed by Nigel Youell, Director of Product Marketing for Oracle Performance Management Applications. Here I will summarize some of the key points. 

Bart started off by explaining why detailed costing is more important now than it has been in the past. More and more organizations have the need to understand costing and/or profitability on a granular level due to extreme competition, or due to inflexible regulation by governing bodies. For example:

- Financial institutions such as banks have to compete on a daily basis to keep a customer. For this reason they need to understand cost and profitability by customer for each of the products and services they consume: checking accounts, savings accounts, mortgages, loans, etc.

- Healthcare providers need to better understand the cost for each patient by the treatments they receive (DRGs) and types of services they consume.

- Transportation organizations (e.g., airlines, trains, etc.) have to understand costs by route, segment, seating class, etc. Without this crucial information, companies in these types of industries might not survive. Competition and regulation prevent them from jacking up price, so they instead must understand costs, how they are consumed, and therefore which products, services and customers are profitable and which are not. The ultimate business goal of detailed costing is to be able to manage the profit creating and profit destroying customers and parts of your business.

Applications like Oracle Hyperion Profitability and Cost Management enable our customers to analyze their customers, patients and subscribers (often counted in the millions) and to differentiate themselves through their sales, service and marketing functions.   These tools help managers find the “proof in the pudding” , and figure out what and who work(s) well and what and who does not.

When asked how most organizations currently perform this type of detailed analysis, Bart explained that most companies don’t attempt to do it because it is SUCH a daunting task despite the unprecedented insight into profit creation and profit destruction. Bart went on to explain that Oracle Hyperion Profitability and Cost Management has introduced detailed costing (available to the business user) to enable analysis and reporting at granular level, and to potentially enable 100’s of millions of allocations in a reasonable timeframe.

The podcast closed with the following thought – given the economic climate of today, is it enough to understand the average unit costs for an average customer, patient or subscriber? To stay competitive, or to convince a governing body that a service rate is unfair or unrealistic – you need to understand highly financially accurate and detailed records reflective of specific consumption. In other words, what each customer, patient or subscriber is REALLY costing you.

To replay this podcast, click here.

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This blog will highlight key EPM market trends, recent events and other news of interest to our field, customers and partners.

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