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Enabling the CFO as the Chief Profitability Officer Across the Company to Manage ROIC and EVA <br />Curtis Mahanay, C.P.A....
<ul><li>Goal of webinar
CFO’s Perspective and Need in New Normal
Success of Cost & Profitability: Defining and Mapping Key Metrics
Phase I – Driver-Based Contribution Margin for Profitability Management
Phase II - Integrating Driver Base Contribution Margin with ROIC
Phase III - Integrating Planning
Phase IV - Integrating Advanced Analytics
Architecture and Key Technology (OLAP)
Conclusion and Q&A</li></ul>2<br />Contents of Webinar<br />
3<br />Goal of Webinar<br />
Goal of Webinar: Provide CFO Information To Make Decision<br /><ul><li>Provide relevant information about Cost & Profitabi...
Summary – Webinar
Detail – Blog (link to follow)
Financial prototype (available upon request)
Develop business case for cost & profitability as part of EPM
Find profit dragons affecting
Contribution Margin
ROIC
Enhance Finance planning and close process
Validate use of Cost & Profitability and expertise…is it proven?
Provide Industry specific examples</li></ul>4<br />
5<br />“Virtually everything in business today is an undifferentiated commodity, except how a company manages its informat...
“By leveraging our reservoir knowledge, we created life-of-the-well solutions to drive down drilling and completion times ...
7<br />CFO’s Perspective and Need in New Normal<br />
CFOs Need To Understand Profitability in Real Time<br />Studies show that 50 to 80% of companies’ CUSTOMERS are “unprofita...
Questions CFOs Ask<br />Are We Using Analytics?<br />Do We Share the Same Data Across the Company?<br />Are We Measuring t...
Skill Set CFOs Looking for to Answer Questions!<br />10<br />
11<br />Success of Cost & Profitability in Managing ROIC : Defining and Mapping Key Metrics<br />
Answering CFO Questions – Process Flow<br />Mapping the drivers <br />Across the company is the first step.<br />12<br />
Financial Strategy, Planning and Close Should Start with Cost & Profitability<br />You can’t manage “strategy” if you don’...
Revenue Source and Key Driver<br />Transportation<br />Rail, Truck, Air Cargo<br />Healthcare<br />Oil & Gas Exploration<b...
Overview: Economic Profit Model (Trucking Example)<br />15<br />
16<br />Phase I – Driver-Based Contribution Margin for Profitability Management<br />
Contribution Margin: Manage by Family/Individual<br />Direct Cost<br />Indirect Cost<br />Auto<br />Tuitionl<br />Food<br ...
Contribution Margin:Manage by Department & Patient<br />Direct Cost<br />Indirect Cost<br />Admin and legal<br />Nursing C...
Gross Revenue<br />From <br />Sales Invoice,<br />Waybill<br />Expense<br />Calculated <br />Using Key<br />Drivers<br />S...
Change in Fuel Price * <br />Prior Volume<br />Change in Volume * <br />Prior Fuel Price<br />Change in Gallons per Key Dr...
Cost & Profitability:Contribution Margin View (Non-Driver Based)<br />CFOs WANT MORE DETAIL TO UNDERSTAND GAP….<br />IN RE...
Driver-Based Contribution Margin:Revenue/Expense Components<br />22<br />
Cost & Profitability:Contribution Margin View (Driver-Based)<br />CFOs QUESTIONS CAN BE ANSWERED FROM A REVENUE/EXPENSE CO...
24<br />Phase II - Integrating Driver Base Contribution Margin with ROIC<br />
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Enabling the CFO as the Chief Profitability Officer Across the Company to Manage ROIC and EVA

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A presentation for finance executives

CFOs want their company to be more predictive, insightful and adaptive to change in an ever-competitive and increasingly global business environment.


The problem is, while many finance executives are told what they need to do – to get better visibility into their finances – they often aren’t sure how to make that happen.


Because every dollar spent comes with a potential risk to negatively impact revenue, today’s finance executive needs instant and reliable visibility into what drives the business in order to best manage resources and financials.


So how do you get the most comprehensive view into your organization’s financials?


We discuss how a Driver-Based Cost & Profitability Model can answer a CFO’s most pressing questions:

• Are we using analytics?

• Do we share the same data across the company?

• Are we measuring the right things?

• Do we really have a handle on cost?

• Do we strategize from the top or rationalize from the bottom?

• Are we moving the corporation forward or watching from the sidelines?

• The market keeps changing, how well equipped is my EPM model to adapt to the changes and still reflect accurate data?


Presenter Curtis Mahanay is a Senior Functional Consultant in Perficient’s Enterprise Performance Management national practice and is an avid blogger on this subject.

Veröffentlicht in: Business, Technologie
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Enabling the CFO as the Chief Profitability Officer Across the Company to Manage ROIC and EVA

  1. 1. Enabling the CFO as the Chief Profitability Officer Across the Company to Manage ROIC and EVA <br />Curtis Mahanay, C.P.A., C.I.T.P.<br />Senior Functional Consultant<br />
  2. 2. <ul><li>Goal of webinar
  3. 3. CFO’s Perspective and Need in New Normal
  4. 4. Success of Cost & Profitability: Defining and Mapping Key Metrics
  5. 5. Phase I – Driver-Based Contribution Margin for Profitability Management
  6. 6. Phase II - Integrating Driver Base Contribution Margin with ROIC
  7. 7. Phase III - Integrating Planning
  8. 8. Phase IV - Integrating Advanced Analytics
  9. 9. Architecture and Key Technology (OLAP)
  10. 10. Conclusion and Q&A</li></ul>2<br />Contents of Webinar<br />
  11. 11. 3<br />Goal of Webinar<br />
  12. 12. Goal of Webinar: Provide CFO Information To Make Decision<br /><ul><li>Provide relevant information about Cost & Profitability
  13. 13. Summary – Webinar
  14. 14. Detail – Blog (link to follow)
  15. 15. Financial prototype (available upon request)
  16. 16. Develop business case for cost & profitability as part of EPM
  17. 17. Find profit dragons affecting
  18. 18. Contribution Margin
  19. 19. ROIC
  20. 20. Enhance Finance planning and close process
  21. 21. Validate use of Cost & Profitability and expertise…is it proven?
  22. 22. Provide Industry specific examples</li></ul>4<br />
  23. 23. 5<br />“Virtually everything in business today is an undifferentiated commodity, except how a company manages its information.<br />…how you manage informationdetermines whether you win or lose.“<br />Bill Gates<br />Microsoft<br />You can’t manage what you don’t first measure…..therefore, turning data<br />into information faster than your competitor should be goal #1….<br />
  24. 24. “By leveraging our reservoir knowledge, we created life-of-the-well solutions to drive down drilling and completion times and to increase operational efficiency.“<br />Halliburton ‘10 Annual Report (future strategy around managing decline curves)<br />“The incentive problem in higher education that inhibits cost control is the same incentive problem that leads to scandals and bankruptcies in the for-profit sector and that contributed to the current financial crisis.”<br />The Revenue to Cost Spiral in Higher Education – Robert E. Martin<br />“Hospitals need revenues to finance operating expenses, to invest in new capacity, and to provide charity care for the uninsured, yet they receive payments from public insurance plans that lag behind the growth in the costs of care. Positive contribution margins on orthopedic and cardiac procedures for privately insured patients can be used to subsidize less remunerative procedures and patient groups. The average total margin for US hospitals in 2008 was 2.8%, according to American Hospital Association data, indicating the extent to which the double-digit contribution margins documented here are used to support other services. The extent to which the margins documented here are too high, too low, or just right depends on the mandates placed on hospitals by public policy, private litigation, and cultural expectations.”<br />Hospital Market Concentration, Pricing, and Profitability in Orthopedic Surgery and Interventional Cardiology James C. Robinson, PhD<br />6<br />
  25. 25. 7<br />CFO’s Perspective and Need in New Normal<br />
  26. 26. CFOs Need To Understand Profitability in Real Time<br />Studies show that 50 to 80% of companies’ CUSTOMERS are “unprofitable”. They are subsidized by the profitable ones.<br />The key to profitability, growth, and competitive market advantage is understanding…<br />WHERE the profit dragons are<br />WHAT the trends are<br />WHY they are occurring<br />HAVING a strategy to deal with them<br />And managing the (customer, supplier, product) MIX.<br />80% of change in ROIC and EVA is due to <br />Change in Contribution Margin (Operating Ratio)….due to lack of managing customer profitability<br />8<br />
  27. 27. Questions CFOs Ask<br />Are We Using Analytics?<br />Do We Share the Same Data Across the Company?<br />Are We Measuring the Right Things?<br />What Are the Key KPI’s and Who should “act” to manage them?<br />Are We in the Forecasting Drones?<br />If We Are, How do we change?<br />Do we “really” have a handle on cost?<br />Do we strategize from the top or rationalize the bottom?<br />Are we moving the corporation forward or watching from the sidelines?<br />All Questions Lead to Operating Ratio, Contribution Margin and/or ROIC at a granular level where you manage your business<br />9<br />
  28. 28. Skill Set CFOs Looking for to Answer Questions!<br />10<br />
  29. 29. 11<br />Success of Cost & Profitability in Managing ROIC : Defining and Mapping Key Metrics<br />
  30. 30. Answering CFO Questions – Process Flow<br />Mapping the drivers <br />Across the company is the first step.<br />12<br />
  31. 31. Financial Strategy, Planning and Close Should Start with Cost & Profitability<br />You can’t manage “strategy” if you don’t first measure Op Ratio & ROICusing cost & profitability management<br />Managing Business Performance Starts with Understanding the Business Process<br />Manage<br />Lean Accounting<br />Driver Base Forecasting<br />Measure<br />13<br />Only the Diagrams are a Copyright @ 2008 Oracle and / or affiliates. All Rights Reserved. <br />
  32. 32. Revenue Source and Key Driver<br />Transportation<br />Rail, Truck, Air Cargo<br />Healthcare<br />Oil & Gas Exploration<br />Higher Education<br />Manufacturing<br />Industry<br />Revenue Source<br />Key Revenue Driver<br />GTMS<br />Primary – Train<br />Secondary - Waybill/Unit<br />Patient Days<br />Primary – Department<br />Secondary - Patient<br />Reserves (bbl.)<br />Primary – Reservoir Secondary - well<br />Primary – Department Secondary - Student<br />Student hours<br />Direct Material, Direct labor, Overhead<br />Primary – Customer Secondary - Sales Order<br />Start looking at Revenue Source as a Profit Center versus a Cost Center<br />14<br />
  33. 33. Overview: Economic Profit Model (Trucking Example)<br />15<br />
  34. 34. 16<br />Phase I – Driver-Based Contribution Margin for Profitability Management<br />
  35. 35. Contribution Margin: Manage by Family/Individual<br />Direct Cost<br />Indirect Cost<br />Auto<br />Tuitionl<br />Food<br />Primary – Family<br />Secondary - Individual<br />Entertainment<br />Home/Utilities<br />Medical<br />17<br />What is good in managing a family…..<br />
  36. 36. Contribution Margin:Manage by Department & Patient<br />Direct Cost<br />Indirect Cost<br />Admin and legal<br />Nursing Care<br />Ambulatory<br />Lab<br />Pharmacy<br />Primary – Department<br />Secondary - Patient<br />Cafeteria/Food<br />Facility &<br />Utilities<br />Surgery<br />Physician<br />18<br />…is good in managing business<br />
  37. 37. Gross Revenue<br />From <br />Sales Invoice,<br />Waybill<br />Expense<br />Calculated <br />Using Key<br />Drivers<br />Step 1: Driver-Based Contribution Margin<br />Driver Based Contribution Margin<br />Key : Since Contribution Margin is calculated using underlying drivers, you can answer the CFOs question of “why” something changed<br />19<br />
  38. 38. Change in Fuel Price * <br />Prior Volume<br />Change in Volume * <br />Prior Fuel Price<br />Change in Gallons per Key Driver<br />Example: Driver-Based Expense Calculation for Fuel <br />Calculated Fuel Expense due to Efficiency<br />Fuel Expense<br />Calculated Fuel Expense due to Price<br />Calculated Fuel Expense due to Volume<br />Key : All Revenue and Expenses have three main components – Volume, Price/Rate, Mix/Efficiency<br />20<br />
  39. 39. Cost & Profitability:Contribution Margin View (Non-Driver Based)<br />CFOs WANT MORE DETAIL TO UNDERSTAND GAP….<br />IN REAL TIME TO DETERMINE PROFIT “DRAGONS”<br />21<br />Source:<br />
  40. 40. Driver-Based Contribution Margin:Revenue/Expense Components<br />22<br />
  41. 41. Cost & Profitability:Contribution Margin View (Driver-Based)<br />CFOs QUESTIONS CAN BE ANSWERED FROM A REVENUE/EXPENSE COMPONENT<br />23<br />
  42. 42. 24<br />Phase II - Integrating Driver Base Contribution Margin with ROIC<br />
  43. 43. ROIC or EVA : Manage Capital by Department & Patient<br />Fixed Cost &<br />Tax (to arrive at<br />NOPAT)<br />Ambulances, etc<br />Building<br />Primary – Department<br />Secondary - Patient<br />X-ray & Computer<br />Equipment<br />Fixtures, Beds, Etc<br />ROIC per Hospital Bed = NOPAT / Allocated Capital<br />Hospital Bed Categories – Insurance Type, Age, Medical Purpose, etc<br />25<br />
  44. 44. Step 2: Linear-Based ROIC<br />Capital<br />From Systems * see key<br />ROIC and/or EVA<br />NOPAT<br />Driver-Based Contribution Margin<br />Fixed Cost / Tax<br />Key : By creating the link between contribution margin and Capital at a detail level, you can look for the unprofitable customers, lanes, geographical areas<br />26<br />
  45. 45. Cost & Profitability: ROIC View<br />CFOs QUESTIONS ANSWERED FASTER WITH CONTRIBUTION MARGIN LINKED TO ROIC SEAMLESSLY<br />27<br />
  46. 46. 28<br />Phase III - Integrating Planning and/or Rolling Forecast<br />
  47. 47. Marketing:<br />Units<br />Revenue<br />Moving Beyond Actuals: Calculating the Contribution “Plan”<br />Driver-Based Plan (Using Historical Actuals)<br />Create Trend Reports/Waterfall<br />Analysis : <br />Validate correlation of Key Driver to Expense<br />Driver Base <br />Contribution<br />Plan<br />Reconcile to <br />Finance <br />Plan<br />Expenses = <br />1 ) Rate per key driver (See next page)<br />Calculate ROIC<br />Plan (optional)<br />29<br />
  48. 48. 30<br />Phase IV - Integrating Advanced Analytics<br />
  49. 49. Cost & Profitability Model:Optimize Your Business Process<br />31<br />
  50. 50. Is Your Company Doing Advanced Analytics?<br /><ul><li>Is your data fragmented or centralized?
  51. 51. Are you trying to normalize the metrics of the company?
  52. 52. Are you capturing “unique” data and using it?
  53. 53. What focus is there among leaders on analytics?
  54. 54. Is the analytics captured in the EPM framework?
  55. 55. Is the analytics aligned with strategy?
  56. 56. Are you trying to keep analytical talent?
  57. 57. Are you doing any type of predictive analytics with what you have learned?</li></ul>32<br />
  58. 58. 33<br />Architecture and Key Technology (OLAP)<br />
  59. 59. Key Phases: An Iterative Build Approach<br /><ul><li>Phase I – Application to Report/Compare Actuals:
  60. 60. Waterfall Reports & Heat maps
  61. 61. Monthly Summary Profitability Letters
  62. 62. Customer Profitability
  63. 63. Phase II – Contribution Plan/Forecast
  64. 64. Phase III – ROIC reporting and forecasting
  65. 65. Phase Iv –
  66. 66. Predictive Analytics & Exception Reporting
  67. 67. What-if Modeling & Business Optimization
  68. 68. Phase V – Integrate Driver Based Forecast with Financial Plan</li></ul>34<br />
  69. 69. How it All Works<br />ERP<br />Cost & Profitability Model<br />Flat Files<br />Operational Data Stores<br />Hyperion DRM<br />Financial Level<br />Hyperion Planning or IBM Cognos TM1<br />(Driver Based<br />Forecast)<br />HSF<br />(Strategy : Real Time, Realistic what-ifs)<br />Hyperion Financial Management or IBM Cognos Controller (Lean Accounting)<br />
  70. 70. Key Component (OLAP): Oracle Essbase or IBM Cognos<br />Olap is a springboard for moving from <br />Reporting to Advance Analytics<br />Data Cube Importance – Slice and Dice helps with the following advanced analytics:<br />Descriptive Modeling and then<br />Predictive Modeling which leads to<br />Optimization of Business Process Management <br />36<br />
  71. 71. Key Component (OLAP): Oracle Essbase or IBM Cognos<br />Point of view for Deep Analytics<br /><ul><li>Time (Mth, year, Week, Date)
  72. 72. Customer
  73. 73. Region
  74. 74. Segment
  75. 75. Route/Lane
  76. 76. Car Type
  77. 77. Alternative View
  78. 78. Attributes (Optional)</li></ul>Data Cube Importance – Slice and Dice helps with the following advanced analytics:<br />Descriptive Modeling and then<br />Predictive Modeling which leads to<br />Optimization of Business Process Management <br />37<br />
  79. 79. Key Reports<br />Heat Maps<br />Monthly letters, books and web views<br />Waterfalls<br />Mobile (real time)<br />38<br />
  80. 80. 39<br />Conclusion and Q&A<br />
  81. 81. BI Vision for a Cost & Profitability Driver-Based Model<br />Improving your company by providing business insights to all your decision makers which leads to better, faster, more relevant decisions<br />Powerful, fully integrated, fully extensible BI platform<br />Foundation for company wide BPM Frame work <br />Collaborative, familiar, user-centric tools<br />Cost effective, comprehensive solutions<br />Operating margins are linked to ROIC at a level you can manage<br />40<br />
  82. 82. Our Speaker<br />Curtis Mahanay<br />Senior Functional Consultant<br />Perficient<br />20+ years in the Hyperion BI and EPM space and application development expertise<br />Deep expertise in the process analysis, design and implementation of enterprise-scale Hyperion applications around finance, operations including cost & profitability<br />Deep understanding for the need to link the enterprise to enable performance management to become a reality<br />Certifications<br />CPA (State of Texas)<br />AICPA Certified Information Technology Professional<br />41<br />Contact: Curtis.Mahanay@perficient.com <br />
  83. 83. Follow us Online!<br />Perficient.com/SocialMedia<br />Daily unique content about content management, user experience, portals and other enterprise information technology solutions across a variety of industries.<br />Facebook.com/Perficient<br />Twitter.com/Perficient<br />

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