A Hot Topic - Profitability and Cost Management
- by john.orourke(at)oracle.com
Maybe it's due to the recent recession, or current economic recovery but a hot topic and area of focus for many organizations these days is profitability and cost management. For most organizations, aggressive cost-cutting and cost management were critical to remaining profitable while top line revenue was flat or shrinking. However, now we are seeing many organizations taking a more "surgical" approach to profitability and cost management, by accurately allocating revenue and costs to individual product lines, services, customer segments, locations, channels and other lines of business to understand which ones are truly profitable and which ones are not. Based on these insights, managers can make more informed decisions about which products or services to invest in or retire, how to price their products or services for different customer segments, and where to focus their marketing and customer service resources.
The most common industries where this product, service and customer-focused costing and profitability analysis is being adopted include financial services, consumer packaged goods, retail and manufacturing. However we are seeing adoption of profitability and cost management applications in other industries and use cases. Here are a few examples:
Telecommunications Industry:
Network Costing and Management to identify the most cost effective and/or profitable network areas, to optimize existing resources, infrastructure and network capacity. Regulatory Cost Accounting to perform more accurate allocations of revenue and costs across services and customer segments, improve ability to set billing rates for future periods, for various products and customer segments and more easily develop analysis needed for rate case proposals.
Healthcare Insurance:
Visually, justifiable Medical Loss Ratio results, better knowledge of the cost to service healthcare plans and members, accurate understanding of member segment and plan profitability, improved marketing programs through better member segmentation.
Public Sector:
Statutory / Regulatory Compliance: A variety of statutory and regulatory documents state explicitly or implicitly that the use of government resources must be properly tracked and tied to performance goals. Managerial costing methods implemented through Cost Management applications provide unparalleled visibility into costs and shared services usage throughout a Public Sector agency.
Funding Support: Regulations require public sector funding requests to be evaluated based upon the ability to achieve performance goals against the associated cost. Improved visibility and understanding of costs of different programs/services means that organizations can demonstrably monitor performance and the associated resource costs improve the chances of having their funding requests granted.
Profitability and Cost Management is one of the fastest-growing solution areas in Oracle's Enterprise Performance Management product line and we are seeing a growing number of customer successes across geographies and industries. Listed below are just a few examples.
Here's a link to the replay from a recent webcast on this topic which featured Schroders Plc, a UK-based Financial Services company: http://www.oracle.com/go/?&Src=7011668&Act=168&pcode=WWMK10037859MPP043
Here's a link to a case study on Shenhua Guohua Power in China:
http://www.oracle.com/us/corporate/customers/shenhua-snapshot-159574.pdf
Here's a link to information on Oracle's web site about our profitability and cost management solutions:
http://www.oracle.com/us/solutions/ent-performance-bi/performance-management/profitability-cost-mgmt/index.html
