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.
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.”
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.
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.
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.
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:
With better insight into their allocations, costs, and profits, these companies are ready for whatever the future holds.
Toby Hatch is a Senior Product Marketing Director for Enterprise Performance Management (EPM) with Oracle, focused on research, writing, video recording stories and speaking about EPM topics for 25 years. She is a host for the podcast series called AppCasts, and is a regular blogger for Oracle.