3 ways profitability and cost management can help you during rocky financial times

Current supply chain disruptions, rising inflation, and more complex ways of selling products and services all mean that your costs and profits are changing more often than in the past. Being able to quickly account for changing conditions—or, better yet, being able to play what-if scenarios around likely or possible conditions—could give you a leg up on managing costs and revenues associated with what you sell, or to whom.

Profitability and Cost Management, part of Oracle Cloud EPM, gives you exactly this kind of flexibility. It can help you track and manage:

1. Profitability and costs: know where your costs and profits are coming from
2. Allocations: easy allocations with data from many systems, all in one place
3. What-if modeling: modeling (not coding) of costs, profits, and tax by the business (not IT)

Deloitte notes, in an article on Managing allocations effectively in the insurance sector

“In today’s world of bundled pricing, centers of excellence, and shared services, organizations must actively manage profitability and accountability across products, customers, regions, and channels—driving the need for structured and sometimes complex allocations.”

1. Profits and costs

In addition to direct costs associated with your products, services, and customers, complexities in delivering products or serving customers must also be allocated to get the entire cost and profitability picture—a profit and loss statement by customer, product, or service, if you will. Indirect costs, like overhead allocations, delivery options, and tax transfer pricing also need to be accounted for. Since many of these costs are tracked in different systems, cobbling them together in spreadsheets or trying to manage homemade integrations can cause delays and errors. If you try to add dimensions to your general ledger (GL) to do the allocations, you will slow it down considerably for  regulatory reporting, and the allocations you do get won’t be easily understood or traceable—not a good use of the GL.

2. Allocations

Profitability and Cost Management enables you to build flexible allocation models that can easily bring current data from multiple systems together in one place. You can add more business dimensions not typically found in a GL to make allocations easy to understand and trace. Allocation rules are applied by the business, not IT, and changing rules is easy to do. What you end up with is reporting where everyone sees the real costs consumed by their line of business, or a product or customer, and how changing their use of shared resources or activities can affect the allocation. You promote a culture of accountability and the new information could be used to help modify employee and customer behavior, possibly changing how a product or service is made or delivered so it might become more profitable.

3. What-if models

Gas prices, inflation, and supply chain challenges are good examples of conditions that are currently changing rapidly. Your costs today might not be the same next week, or your customer ordering patterns might change. The ability to run what-if scenarios around changing conditions (worst case, best case, likely case, and cases involving possible opportunities) helps you prepare more effectively for many possible outcomes.

Oracle continues to enhance profitability and cost management capabilities with new models, reporting, dashboards and infolets.  Enterprise Profitability and Cost Management models are built with combined data from many sources including cost, revenue, tax, operations, and more. The models are rules-based using plain language, not coding, and you can change rules and assumptions quickly and see the potential impact without affecting the base model. New, built-in dashboards and improved reporting tools will help you track profit and cost so you can spend more time on analysis and opportunities for improvement. Built-in tools make integration with other systems simpler, helping you automate processes more easily. Lastly, you will have less reliance on IT since the business can build and change the models themselves—as often as is needed. Oh, and you automatically get step-by-step audit trails of allocation methods, and automatic documentation of rules, so you don’t have to worry about that either.

Customer examples

Hundreds of organizations from healthcare to insurance, manufacturing to banking, government to higher education, and more, are getting value from more easily allocating costs and revenues, understanding their profit and costs in more detail, and running what-if scenarios. For example:

• A hospital system is using Profitability and Cost Management to help them with new hospital acquisitions, conducting what-if analysis around new cost pools and cost drivers. They are also able to do allocations at the encounter- and patient-level for accurate decision-making.
• A large mutual insurance company reduced the number of allocation rules they use by 33% and reduced their dependency on IT.
• A well-known beverage manufacturer achieved a 99% improvement in monthly item cost allocations for customer and product profitability; they can now determine if they should discontinue products, and decide to which customers they should provide discounts.
• A large European bank has been able to automate its tax transfer pricing and shared services costing and chargebacks. 
• A large healthcare insurance company streamlined the close by removing allocations from their PeopleSoft GL. They also switched from SAS and Cognos to Oracle Cloud EPM for product and market segment cost and profitability, reducing their processing time from 10 days to 3-4 hours.

With better insight into their allocations, costs, and profits, these companies are ready for whatever the future holds.

How can Oracle Cloud EPM Profitability and Cost Management help you?