Profitability and Cost Analysis

14 Pages·2016·9.68 MB·English

Proftability and Cost Analysis
An Eye on Value

A KPMG and ACCA Thought Leadership Report
CONTENTS
About the research 4
Introduction 6
Executive summary 7

Strengthen the quality and depth of
1 insights 8

Design and build a model
2 for effciency 14
Optimise the organisation model
3 18

About the authors 24
AN EYE ON VALUE 3
ABOUT THE RESEARCH
This global report is the third of three pieces of research that have been jointly
commissioned by ACCA and KPMG to evaluate how the Enterprise Performance
Management (EPM)* capability within Finance functions is providing the business with
insightful Proftability and Cost Analysis through appropriate people, processes and
technology.
The data used in the report is from a survey which was conducted between 13th
January 2016 and 26th January 2016, and represents the view of over 1,100 Finance
professionals from more than 90 countries. Whilst employees from organisations of all
sizes participated in the survey, 60 percent were from organisations with over 1,000 THIS REPORT REPRESENTS THE VIEW OF
employees with annual turnover of at least $100m.
In addition, 31 percent of the respondents identifed themselves as a Senior Finance OVER 1,100 FINANCE PROFESSIONALS
Manager/Manager, 18 percent as newly qualifed/experienced Accountants, 13 percent
as Financial Controlers, 8 percent as Directors/Partners, 8 percent as CFOs and the FROM MORE THAN 90 COUNTRIES
remaining 22 percent spread between a range of roles that included CEO, Internal
Audit and Consultants.
*E PM consists of Planning, Budgeting & Forecasting, Performance Reporting and Proftability and Cost
Analysis.
4 5
EXECUTIVE SUMMARY
Effective Proftability and Cost Analysis is at the Finance has understood the power of this insight,
heart of great business decision making, whereby and risen to this business challenge, however this
organisations use cost allocation to analyse study suggests that there are various opportunities
performance (cost, income and proft) across to improve, ranging from the maturity, dynamicity
different business atttributes, also referred to as and depth of the Proftability and Cost Analysis
dimensions. This analysis provides insight into the performed, to ensuring this can be delivered
INTRODUCTION true value drivers of the business and provides effciently and sustainably over time including
Our view is that Proftability and Cost Analysis should be developed within a performance management framework management with the right information at the right technology enablement and delivery model
consisting of three core components (the other two being Planning, Budgeting & Forecasting and Performance time to make informed business decisions such effectiveness.Without these next steps, value is
Reporting) where organisations can effciently and effectively analyse business costs, income and proftability at multiple as whether to discontinue an existing product, being left on the table, decisions may be fawed if
levels to make informed business decisions. invest in a new asset, operate in a new channel the insight is not robust, or business opportunities
or market. As a consequence of this insight, may be missed.
organisations can improve forecast accuracy, with
This study suggests there are three critical areas to
increased data available to validate the expected
Customers
VHailguhe VLaolwue NeVgaalutieve proftability impact resulting from a change in fAoncaulsy soisn. to improve current Proftability and Cost
its operations such as loss of a key customer or
change in sales channel mix.
Prod. Prod. Prod. Prod.
Products
1 2 3 4 Key business decisions around cost and proftability are essentially
& Services focused on WHAT products and services are offered, WHO they
are provided to and HOW and WHERE these are sold and serviced
effciently.
Channels
Transparency and action on customer and channel proftability
O
Fuplefirlamteionnts &, Operations and Supply Chain 1. STHTRE EQNUGATLHITEYN perersfoernmtsa an cre.al opportunity for strengthening fnancial
Other Shared Technology and Infrastructure AINNSDIG DHETPSTH OF
AThnea lmysoiss ta ereff efoctciuvsee md,e cthleoadr,s a anndd e mndo-dtoel-se nfodr. Proftability and Cost
Services
Central Functions It is important not to overlook the stakeholder engagement, cross-
functional collaboration and governance that will play a major role
in achieving the desired outcomes.
Most major organisations sell and service a broad range of products and services to a diverse mix of customers via
multiple channels managed and facilitated by many internal departments. Understanding the real cost and proftability
over these multiple dimensions is essential to make informed decisions and effectively steer the performance of the The data model needs to align to both business and Finance needs
organisation. aenffdec btiovteh dpaatrat imeso hdaevl.e a role to play in defning and delivering an
Without Proftability and Cost Analysis management is in the dark. A client we worked with recently completed such To remain relevant to business needs, review of the model should
analysis which showed 20% of its branches were delivering 60% of its proft and 20% of customers did not even be part of the annual strategic planning cycle or triggered by a
generate a proft. 2. DBEUSILIDG NA AMNODD EL particular event, such as regulatory change.
The majority of organisations have understood this business challenge and have implemented an enhanced level of FOR EFFICIENCY bSeu satiadienda bblye iamnpdl efmfceinetnint ga naa slypseicsi alcisrot sso fdtwimaeren stoioonl,s pwroilvl iudseuda ltlhya t
Proftability and Cost Analysis aligned to the key business dimensions, moving beyond traditional cost and proft centre data is structured appropriately.
reporting. This is used to support these organisations in both strategic investment/rationalisation decisions as well as Over-frequent refresh of data is often not a good investment of
ongoing cost and income optimisation. However, many organisations are too simplistic in the level of their approach and effort – focus on turning outputs to insight to answer key business
questions and drive decisions.
analysis, impacting the decision support that Finance is able to provide to the business.
Finance is currently bearing the weight of responsibility to deliver more business-focused insight to drive decision-making.
Perhaps now is the appropriate checkpoint to ensure organisations have the foundations in place to support this.
A Centre of Excellence (CoE) for Proftability and Cost Analysis can
provide the organisational capability for a step increase in output
quality and operating effciency, helping to overcome people,
process and tooling barriers.
An effective delivery structure can only be successful when the
3. OPTIMISE THE CoE, retained Finance and the business work together.
ORGANISATION
MODEL An effective approach is business owned and Finance governed
- business areas own the data, dimensions and insight, Finance
ensure integrity and consistency across the organisation.
6 | AN EYE ON VALUE AN EYE ON VALUE 7
1. STRENGTHEN 2. DESIGN AND 3. OPTIMISE THE
THE QUALITY BUILD A MODEL ORGANISATION
AND DEPTH OF FOR EFFICIENCY MODEL
INSIGHTS
STRENGHTEN THE QUALITY AND DEPTH OF
1 INSIGHTS
The aim of Proftability and Cost Analysis is to inform Dimensions are interconnected so the link between them mature view of proftability. Almost 85% of respondents
business decision making with a view to systematically must also be considered – products and services are indicated that their organisations carry out analysis on
TYPICAL MODEL DIMENSIONS AND FLOW
optimising proftability and ultimately shareholder value. fulflled and managed through processes, delivered through cost and proftability, and that this is considered across
Key business decisions around cost and proftability are channels and consumed by customers in different locations. multiple dimensions (product / service 72%, company 66%,
essentially focused on WHAT products and services are Getting the right dimensions in the right order, to fow cost geography 52%). Furthermore, this survey indicates that a
offered, WHO they are provided to and HOW and WHERE through the dimensions, allows a multidimensional view of signifcant proportion of the cost and income base, direct
these are sold and serviced effciently. Understanding Business costs and drill down ability on the outputs (such as channel costs as well as an allocation of many shared service costs,
and making the right decisions against each of these cost by customer type or product). is included in the analysis. There is, however, evidence
questions is key. Business operating models are becoming that approaches could be improved to better support
This survey indicates that most organisations have invested
increasingly complex and fragmented and there are many commercial decision making.
in Proftability and Cost Analysis and many have a relatively
components to the WHAT, WHO, HOW and WHERE. We Process
call these dimensions and we align Proftability and Cost
Analysis to these dimensions in order to support decision
making against the organisation’s key fnancial goals. SOLVING THE CUSTOMER VALUE EQUATION; THE DATA CHALLENGE
Product
Many dimensions are common across organisations Maurice Lips | Director, KPMG Financial Management
however prioritisation and focus is unique to an organisation
We are living in the age of the customer and the currency of our age We believe success belongs to those companies who master the
depending on their key business objectives. Choosing the right
is customer experience (CX). At no prior time has the customer had economics of customer experience which allows them to fnd the
dimensions to support key business decisions without creating Customer
such an infuence on how the company does business. Customers’ optimal balance between customer satisfaction and organisational
too much complexity supports an optimised approach.
desire consistent and high-value experiences, transparent pricing, performance.
customized offerings and may go elsewhere if they don’t receive it.
Shifts in customer behaviour (switching, buying patterns and channel
85% OF RESPONDENTS INDICATED THAT So, will future success belong to those companies who can provide preferences) will be a signifcant driver of disruption in the industry,
Channel
the best customer experience? desired service models and related operating models (see below).
THEIR ORGANISATIONS CARRY OUT
ANALYSIS ON COST AND PROFITABILITY.
External Internal
Connected
customer organisation
Q1. Idne ycoisuior no rmgankisnagt:ion, proftability analysis is available for which of the following dimension(s) to support
1 view 2 view 3 view 4
CUSTOMER CUSTOMER SERVICE OPERATING
EXPERIENCE BEHAVIOUR MODEL MODEL
52% 66% 32% 45%
• H ow satisfed is • Are they switching less? • W hat is the right service • H ow do we need to organize
the customer • Buying more products? model for our customers? ourselves to support the
• What drives this? • A re they using • What works for us? service model?
channels differently?
Geography Company Channel Customer
Understanding the impact these 4 steps have on one another is To solve the equation, organizations will have to move away from
therefore crucial in solving the customer value equation; how does snapshot fnancials and move towards trending and prediction on
the ‘ripple effect’ of positive CX infuence the metrics that impact a more frequent or event driven basis. Putting data and metrics in
the bottom line? With CX truly moving beyond the traditional context and correlation with one another will put them in a position
organisational boundaries, it challenges the traditional ways of to fnd the winning formula that works for them and their customers.
29% 13% 72% working in terms of data requirements and ownership; who owns
In summary, driving insight through customer reporting and
E2E customer value and what data is required to truly understand
understanding the correlation between CX and changing customer
what drives this. Our work with clients suggests that current insights
behaviours which infuence the cost to serve and share of wallet is
are based on incorrect estimations of the beneft potential and do not
the Holy Grail that will deliver real competitive advantage.
include comprehensive cost data, making the picture incomplete and
inaccurate.
Contract Suppliers Product or Service
8 AN EYE ON VALUE AN EYE ON VALUE 9
1. STRENGTHEN 2. DESIGN AND 3. OPTIMISE THE
THE QUALITY BUILD A MODEL ORGANISATION
AND DEPTH OF FOR EFFICIENCY MODEL
INSIGHTS
TRANSPARENCY AND ACTION ON CUSTOMER AND CHANNEL Individual businesses in your organisation have visibility of the organisation’s shared costs incurred on
Q2 their behalf for:
PROFITABILITY PRESENTS A REAL OPPORTUNITY FOR
STRENGTHENING FINANCIAL PERFORMANCE.
Only 32% of respondents indicated that Proftability and The survey suggests that traditional P&L reporting aligned
Cost Analysis is available for distribution channels. This to the organisation structure is the primary basis (83%)
51% 48% 46% 40% 71% 8%
is concerning given the ever increasing focus on channel of Proftability and Cost Analysis. However the majority of
optimisation. Organisations need insight to make decisions organisation structures separate product management, shared
around whether or not to invest in digital platforms, virtual services such as operations, supply chain and technology and
operating models and how to optimise supply chains and central functions such as Finance and HR. As such, in almost
multi-channel strategy. The channel that a product or all cases, organisational structures will not provide an effective
service is delivered through can have a signifcant impact on basis for Proftability and Cost Analysis, as granularity over the Technology Property and Facilities Operations Service and Sales Other Central There are
Functions no Central
proftability – quantifying and managing this can infuence key decision making dimensions does not exist. Functions
channel usage, support digital investment decisions and
Although most respondents indicated that fnancial reporting
enable informed channel based pricing.
is based on an allocation of some or all of the organisation’s
Similarly, identifying and analysing proftable vs non- shared service costs, the prevalence for an organisational view THE MOST EFFECTIVE METHODS AND MODELS FOR PROFITABILITY
proftable customers delivers insights on the key customer and the basis for allocation used to derive this may explain
levers, such as pricing, customer experience and product the limited transparency of such shared costs, as suggested AND COST ANALLYSIS ARE FOCUSED, CLEAR, AND END-TO-END
and channel preferences. This is key to attracting, retaining by the survey. Most respondents (66%) indicated that
and driving more value from customers. This contrasts with apportionment was used as the basis for allocation of shared Half of the respondents indicated that individual businesses This focus can be achieved through analysis of the key value
the survey results, where only 46% of respondents indicated costs instead of a driver based approach. A driver based do not have transparency around technology costs and drivers for the organisation, involving the primary constituent
that Proftability and Cost Analysis is available for customers. approach would provide a more accurate and informed picture, less than half have transparency around the cost of their parts that underpin strategic objectives. The value drivers will
linking activity performed with cost consumed and income operations, channels and facilities which support their identify the key areas for decision making and performance
Transparency and action on customer and channel
generated as a result of undertaking such activities. This in turn operating models. Such resources constitute a large opaque management. It is also crucial that the business (the
proftability presents a real opportunity for strengthening
helps to rapidly provide insight around cost effciency, revenue element of the cost base in many sectors. Organisations that primary end user) is involved from the start and committed
fnancial performance.
optimisation and focus on non-value adding activities. possess the ability to understand and infuence these costs to contributing their requirements during the design and
have a signifcant competitive advantage. Again, the survey providing data, assumptions and sign off during the build
reinforces this point with 39% of respondents indicating phase.
KNOW YOUR CUSTOMERS, UNDERSTAND THEIR VALUE TO YOUR BUSINESS that recipients of allocated costs did not understand how to CLEAR cost and proftability outputs can be driven through
infuence them.
AND HOW THEY INTERACT WITH YOU a focus on the key outcomes, a logical model structure and
Oliver Haywood | Senior Manager, KPMG Customer & Growth While the scope of dimensions and costs and the accuracy of selection of the most appropriate allocation drivers. Many
cost allocation drivers within a model are important factors, organisations fail in this area, either with models that are
In the era of customer, I fnd it concerning we start to see how fnancial analysis may wants to win in its market. Proftability developing complex models with many dimensions and very detailed which users do not understand or by using
that product-centricity remains the dominant be misaligned to the needs of a customer- and Cost Analysis by interaction channel detailed cost and driver information is not the answer. The generic allocation drivers that do not represent real cost
and evidently hard-to-shift mind set in centric business. can signifcantly help a business to more most effective methods and models for Proftability and Cost and income drivers. Focus on the few allocation drivers that
many organisations. Analysing performance
Furthermore with the rapid adoption of effectively engage and interact with specifc Analysis are focused, clear, and end-to-end. relate to 80% of the cost or income rather than the many
t
i
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ability to analyse how customers interact model is still of little use if the business does not buy into
adequately informed to make decisions Fundamentally insight on cost to sell and improve the likelihood of successful outcomes. This starts
and transact with you. Millenials continue it. Shared ownership between Finance and business areas
about product rationalisation or investment serve by channel needs to be adapted as a with being clear on the purpose of the insights and the
to adopt and use ecommerce and social around the approach, data and outputs is therefore key to
for growth? Having the ability to interrogate core element in overall fnancial reporting. objective of the proftability and cost model. Having clear
media as default channels by which to ensuring that the model is sustainable and insights are used
fnancial performance through the lens of articulation of the purpose, stakeholders and frequency of
your customers is critical – and yet our
sreesgemaercnht,s ctohme pinatriem, asceyle ocft iann-sdt obruey .o Fr oprh otnhee r Achnadn tghee? bTehset bpulascinee tsos s –ta artc rtos ms amkaer kae ting, usage are key foundation components to ensure the right for decision making by the business.
survey reveals that a mere 38% actually
interaction retains an important role in their sales and service operations - needs to focus. Being critical when defning dimensions, allocation END-TO-END Proftability and Cost Analysis insight, linked
do (for cost) and 45% (for proft). Compare
brand experience and loyalty. Deploying articulate the right questions for Finance to drivers and granularity will support a more usable model to the organisational value chain provides one of the key
that to the 71% of respondents who stated
and maintaining a responsive Omni-channel help answer. which in turn will be easier to implement, operate and advantages over a traditional cost and proft centre view
they are able to analyse by product and
strategy is mandatory for any business that understand. based on the organisational structure. End-to-end means
10 AN EYE ON VALUE AN EYE ON VALUE 11
KEY ACTIONS
39% OF RESPONDENTS INDICATED THAT RECIPIENTS OF ALLOCATED
COSTS DID NOT UNDERSTAND HOW TO INFLUENCE THEM.
that all aspects of the value chain are included so that opportunities for optimisation not previously visible. An end-
decisions are fully informed. For example, the end to end to-end view also provides the insight to support collaboration PRIORITISE DIMENSIONS
cost to sell a tin of beans would include raw materials for the on cost reduction and income growth between departments, WHICH SUPPORT KEY
product and packaging, operations/supply chain, distribution which may not be apparent when transparency and infuence
and channel, supporting technology as well as promotion is limited within functional silos. BUSINESS DECISIONS AND
and management overheads. Product design/set-up costs
Ultimately, an effective approach for Proftability and Cost VALUE DRIVERS
could also be included so that the full product lifecycle cost is
Analysis is one which infuences the right behaviours. Clear
considered. Assessing the sale price against this end-to-end
and insightful outputs are essential but it is important not
cost will show if this product is truly contributing fnancial
to overlook the stakeholder engagement, cross-functional
value to the organisation. Looking at the end-to-end revenue
collaboration and governance that will play a major role in
and costs for the key dimensions shows how value is
achieving the desired outputs: optimised costs and increased
created and destroyed across the organisation and exposes
proftability.
STRENGTHEN ANALYSIS
BY INCORPORATING THE
THE ACCOUNTABILITY GAP
CHANNEL AND CUSTOMER
Nathan Doran | Senior Manager, KPMG Financial Management
DIMENSIONS
Driving cost and proftability performance departments to drive fnancial performance for products, services, processes and
is as much (or more) about behaviours is key. Financial accountabilities should customers – with the authority to drive this
as it is about insight. We need insight to refect decision makers’ ability to infuence – can eliminate organisational boundaries
illuminate the right path but unless we are across the organisation and support and focus fnancial performance. Internal
X incentivised to make the journey then we collaboration – but there is a gap. recharging and cost allocation also has
might never reach the right destination. an important role in aligning fnancial
The accountability gap is evidenced
Financial accountabilities provide the accountability with infuence, and driving
by the survey responses: 44% of
incentive but often these have not kept up an accurate view of net margin. Also,
respondents indicated that employees
with the way organisations now operate moving beyond total cost targets and
and the cost and proftability decision are not accountable for areas of the P&L considering KPI and unit cost targets can IMPLEMENT DRIVER BASED
that they cannot infuence and 39% of £
support that is now available.
respondents indicated that employees address the trade off between demand ALLOCATION MODELS
creators and internal service providers.
Organisations are now orientated much have accountability for areas of the P&L
more around customers, products and that they cannot infuence. This shows that Changes to accountabilities can be
services with an end-to-end view but accountabilities can be better aligned. emotive and it is important these are
fnancial accountabilities are often still well considered and measures are
Although not yet obsolete, cost centres
frmly planted against cost centres or established, understood and trusted, to
and proft centres are now less relevant
proft centres, departments or sales lines. avoid unintended or counter-productive
for performance management and there
Activities and costs are driven down behaviours. The key aim is to instil
are a range of options to better align
the value chain and across departments commercial decision making and cross- ELIMINATE COMPLEXITY AND
accountabilities. Following the lead of
based on demand, decisions and design business collaboration at all levels. The
operational management and implementing ENSURE THE MODELS ARE
rather than being fully contained within rewards in getting this right, and bridging
end-to-end fnancial accountabilities
organisational silos. Collaboration between the accountability gap, can be signifcant. £ CLEAR, FOCUSED AND END-
TO-END
IT IS IMPORTANT NOT TO OVERLOOK THE STAKEHOLDER
ENGAGEMENT, CROSS-FUNCTIONAL COLLABORATION AND
GOVERNANCE THAT WILL PLAY A MAJOR ROLE IN ACHIEVING
THE DESIRED OUTCOMES.
12 AN EYE ON VALUE AN EYEA NO NEY TEH EO NFA VCATLSU E | 13
1. STRENGTHEN 2. DESIGN AND 3. OPTIMISE THE
THE QUALITY BUILD A MODEL ORGANISATION
AND DEPTH OF FOR EFFICIENCY MODEL
INSIGHTS
DESIGN AND BUILD A MODEL FOR EFFICIENCY
2
The data model is the foundation of Proftability and Cost Defning the data model requirements is a joint initiative
Analysis. It is critical to get this right and yet it is an area between the business and Finance. The business’ Q3. In your organisation, how are cost allocations recorded in the general ledger?
where most organisations struggle. The challenge presents objectives and goals should be used as the basis for driving
itself on multiple fronts including: the required level of detail and complexity. A consistent
approach to allocating revenue and costs to dimensions
• I dentifying, sourcing and combining the relevant data in a
based on the appropriate value drivers should be agreed.
data model, combining fnancial and non-fnancial data.
For the approach to be accepted, business stakeholders
• I
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dependency on manual interventions. allocations are based.
• Governance and oversight of the integrity of the data
Once agreed, to maintain value, integrity and relevance,
model and sources.
we recommend a periodic review of the allocation model
• M aintaining relevance of the data model and allocation as part of the annual strategic planning cycle. But in order Through ad-hoc Standardised and Not at all Don’t know
models in a dynamic business environment. to stay relevant, organisations should also adopt an “event- manual journals automated
Without these foundations in place an organisation can be based” review following, for example, a regulatory change
faced with an ineffective data model which does not deliver or organisational restructure. Q4. Has your organisation invested in a specifc Proftability and Cost Analysis application? (Not spreadsheets)
the business insight required and/or an expensive data
model which is not sustainable on a long-term basis.
18% 20% 4% 45% 14%
ENTERPRISE PERFORMANCE MANAGEMENT
John O’Mahony | Head of Enterprise Performance Management, KPMG UK
The immediate question I pose with most most appropriate driver to provide the basis allocating costs / revenue in order to drive Yes, and application Yes, but application Yes, but application No Don’t know
clients is what better decisions will you of allocation – i.e. it needs to be equitable, value for the organisation: has delivered benefts has not delivered has not delivered
as expected all benefts any benefts and we
make as a result of an allocation of cost appropriate, pragmatic and logical in a way
• What better decisions will the allocation expected reverted to Excel
or revenue? Many organisations develop where stakeholders across the organisation
drive?
arithmetically correct models involving accept the allocation basis and in turn
primary and secondary allocations only to it incentivises them to drive behaviours • Will it drive the rights behaviours?
The quality and granularity of fnancial and non-fnancial is the key enabler for eliminating the need for manual
fnd that instead of providing transparency, which focus on adding value. We have
• Is there a mandatory need to perform data is key to the level of insight presented by Proftability intervention. During the initial set-up it is critical to establish
they have in fact created opaqueness. all seen examples of where the wrong
the allocation (e.g. statutory or and Cost Analysis. In most cases, an organisation’s fnancial the foundations such as master data and general ledger
Secondly, allocations are made under the decisions have been made around the cost
false assumption that it somehow provides of provisioning products, services etc., regulatory)? ledgers and reporting infrastructure support the fnancial granularity, and then to utilise systems to their full extent to
for a basis of greater accountability. where the expected impact on bottom line • Has the baseline cost been managed element of the data model, however the level of granularity allow integration of multiple data sources.
Don’t get me wrong, I’m not saying don’t performance as a result of a decision based effectively at source / can I rely on the in the fnancial ledgers largely determines the level of Robust governance is critical to maintaining integrity while
bother with allocations, but do so in the on parameters involving allocations differs accuracy of the revenue number at the detail that can be incorporated into a Proftability and Cost integrating disparate fnancial and non-fnancial data in one
knowledge that it aligns consumption what results in practice. point of record? Analysis tool. Non-fnancial data such as operational data data model. In most organisations Finance is best placed to
of resources or aligns revenue against a
It is also important that areas receiving an • Is the basis of allocation linked in some typically presents a bigger challenge for organisations due determine the criteria for data quality, determine where best
function or area that can not infuence or
allocation believe that the associated cost way to the basis of consumption of cost to the fragmentation across multiple systems and owners. to manage master data and implement a standard process
control indirectly such costs / revenue.
or revenue basis has been managed well or earning of revenue? Non-fnancial data can range from business volumes held for changes to the data model. The survey suggests that this
A
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drive value, focus accountability or revenue is involved that it’s optimised. The ability of the Finance function to effciently deliver Proftability and Cost Analysis.
i
as
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Excel spreadsheets to integrate and analyse data. Nearly
respect of organisations who have invested in a software
half (45%) of respondents stated that their organisation
application experiencing some benefts.
had not invested in a software application suggesting
that spreadsheets are still widely used. Technology
14 AN EYE ON VALUE AN EYE ON VALUE 15
However, as discussed earlier, benefts can only be realised is often suffcient. However, as evidenced by the survey
if the right data is available at the right time, structured in the results, almost 40% of organisations run detailed analysis KEY ACTIONS
right way, with suffcient granularity needed for transparent on a monthly basis. Over-refresh of the model can destroy
dimensional analysis. value as resources are diverted from analysing insight
and supporting decisions to churning data and analysis
Once the appropriate set-up and tooling have been defned,
is focused more on month-to-month variances than key
a key question is how often to run the analysis. Proftability
strategic headlines. While cost allocation tools can reduce
and Cost Analysis is primarily carried out to provide
the burden of performing analysis, the motive for frequent
strategic insight, informing key decisions such as pricing
refresh should be understood and challenged.
thresholds, which products to promote or retire, how to
strengthen and segment customer relationships and where Performance to drive strategic improvement must be driven
to invest to reduce process/channel costs and improve the and measured frequently. Rather than a full refresh of
customer experience. These key decisions require insight, Proftability and Cost Analysis, a more appropriate approach
consideration, time to implement and they should be is often to identify the key drivers/metrics that underpin the
AGREE DEPTH OF
supported with a clear baseline against which to measure desired performance improvement (identifed, for example,
performance improvements. through value driver analysis) and to track performance INFORMATION REQUIRED
against these KPIs on a monthly basis. This provides a more
Running full analysis on an annual/quarterly basis, in line
effcient approach to driving cost and proftability performance. FOR EACH DIMENSION
with the planning cycle, and on a major event-driven basis
AND VALUE DRIVER
Q5. In your organisation, how frequently are internal cost allocations reviewed and discussed?
22% 22% 40% 10% 2% 4% ENSURE DATA IS
CONSISTENT AND
ACCURATE
Annually Quarterly Monthly Ad-hoc Never Don’t Know
WHAT’S A CUSTOMER? WHAT’S A PRODUCT? NOT SUCH STUPID QUESTIONS!
Gerard Harris | Director, KPMG Financial Management
EMPLOY APPROPRIATE
It’s amazing the power of good quality data. hugely important these days especially in terms of well….parts, at least in terms
It’s even more amazing the detrimental where we have Omni-channel and we look of manufacturing, but also understanding SYSTEMS AND TOOLS TO
effect of lost opportunity, poor negotiating to cross-sell against our current client base, the overheads associated with selling and
DRIVE AUTOMATION
ability and bad decisions made on poor working out who it’s proftable for us to sell marketing the product. That’s likely to be
quality data. From not understanding the to, and also looking after our most valuable more diffcult if there’s no consistency over
true value of a ‘customer’ who has both assets! what products (and parts) are called.
business and personal accounts at a bank
Product comes in two different packets So what’s the solution – surely this can’t
or utility, through to not understanding
– what we sell to our customers (now be that diffcult can it? Can’t I just get some
and being able to quantify the true
we know who they are), and also what software to sort it out for me? Well you ALIGN REFRESH OF
buying power as a retailer, being clear
products do we buy (to use or sell on). can buy MDM (Master Data Management)
and consistent with master data is more THE MODEL WITH THE
Take retail for example – if I understood tools which will help to maintain the lists or
important than ever. Take customer – if as
a business you can’t understand that Mr that globally certain soft drinks are called hierarchies, but a lot of the work is around PLANNING CYCLE. AVOID
different things in different markets, and the governance you need to wrap around
Harris, Mr G Harris, and Mr Gerald Harris
that I buy them from different distributers the tool and how it interacts with the OVER REFRESH OF THE
(!), who all live at the same address are the
in different countries then when I added myriad of systems we have in place.
same person, but have multiple accounts,
them all up I may well work out that I A tool can help but it’s not the solution MODEL.
then you are unlikely to see me as a highly
buy a lot more from said brand than I frst alone – process and governance is key.
valuable customer and put me in an ‘I
thought, thus enabling me to negotiate
don’t care if he stays or goes’ segment. On So it’s not such a stupid question after
a reduction in price point and increase
the inverse – I may be a seen as a highly all – as it’s awfully diffcult to understand
proftability. In terms of what we sell again
proftable customer should I get incorrectly customer or product proftability without
we need to understand what our products
tagged as also being Mr Steven Gerrard! frst understanding what a customer and a
are and what are the constituent parts of it
Getting a single view of your customer is product is…
16 AN EYE ON VALUE AN EYE ON VALUE 17
1. STRENGTHEN 2. DESIGN AND 3. OPTIMISE THE
THE QUALITY BUILD A MODEL ORGANISATION
AND DEPTH OF FOR EFFICIENCY MODEL
INSIGHTS
OPTIMISE THE ORGANISATION MODEL
3
Establishing the right organisational model for Proftability and Cost Analysis insight is crucial to ensuring that the right The Finance function tends to be seen However the study suggests that less effective cost allocations so clearly
information can be effciently produced to inform decision making. An effective delivery model combines strong business as the custodians of performance than a quarter of organisations actually something is not working - this was
ownership with effcient operations and focused fnance decision support. reporting and the provider of Proftability employ such a model with almost half second only to people and culture.
and Cost Analysis insight, however fulflling activities within the retained Addressing the process challenge with a
Traditionally organisations, with much success, have focussed their efforts on the creation of economies of scale through the
when we assess the basis of many of organisations. dedicated capability, which standardises
development of shared services centres for transactional activities, however signifcant value has been “left on the table” around
the activities they complete e.g. cost and strengthens the approach across
economies of skill for high value repeatable tasks in areas such as reporting. Moving the core operational activities
allocations; a signifcant proportion of the organisation, can improve the
of Proftability and Cost Analysis to a
these are repetitive. In many cases chances of success.
Centre of Excellence provides three key
highly trained Finance professionals
opportunities: Housing the key tools and data
are spending their time organising
repositories, such as an enterprise
data rather than producing meaningful 1. Process optimisation
information model, and consolidating
actionable information. 2. Increased business ownership
data and processing in a CoE can
This, in conjunction with other 3. More effective Finance Business support one version of the truth across
indicators such as the presence of Partnering the business and thus better insight to
shadow reporting in other parts of the enable informed decision making.
organisation (16.3% of respondents) With a CoE, common processes can
suggests value in the development of be optimised, controls strengthened A dedicated CoE can provide an
a different type of competency centre, and expertise and technology effective bridge between Finance and
an analytical and reporting Centre of investment can be leveraged across the the business, supporting business
Excellence (CoE) that would provide organisation. ownership in a way that is diffcult to
achieve when activities are performed in
an arena for standardising, simplifying Over 50% of survey respondents
a Finance Shared Service Centre.
and automating Proftability and Cost highlighted process as a barrier to
Analysis.
AN EFFECTIVE DELIVERY MODEL COMBINES STRONG BUSINESS OWNERSHIP
WITH EFFICIENT OPERATIONS AND FOCUSED FINANCE DECISION SUPPORT
In your organisation, Proftability and Cost Analysis analysis is primarily prepared by which of the following
VALUE HAS BEEN “LEFT Q6. groups?
ON THE TABLE” AROUND
ECONOMIES OF SKILL
50% 10% 15% 1% 16% 9%
BUSINESS AREAS OWN THE DATA AND THE INSIGHT AND FINANCE
ENSURE INTEGRITY AND CONSISTENCY. Non Local Centre of Shared service Outsource Operations Other
BU/Group excellence centre provider
18 AN EYE ON VALUE AN EYE ON VALUE 19