Why a fine-grained approach to profit and cost is the backbone of success
Nigel Youell, EPM Specialist at Oracle
Businesses have never been under greater pressure to improve performance and remain profitable, and are increasingly relying upon the CFO to help them achieve this. According to Oracle’s own research, 53 per cent of finance leaders say their organisation demands more of them than ever.
The problem for CFOs is that they often have to optimise value based on a troublingly incomplete view of profit and costs. Fragmented systems and a siloed approach to data continue to stand in the way, and in this day and age what you do not know about where your business is making and losing money can destroy it.
Companies admit they have work to do. 78 per cent say that accurate cost information is one of their top targets for improvement, and 93 per cent are taking (or planning to take) action to make improvements in this regard.
Gaining a close-up view
When it comes to effectively maximising profit, the devil is in the detail. organisations must be able to determine where best to spend limited investments and scarce resources to achieve the biggest gains. They also need to be able to quickly change the assumptions upon which they are working so they can quickly adapt to shifting conditions and opportunities.
Co-pilot of the business: Finance is the new guidance system
As if this wasn’t complex enough finance teams increasingly need to change the assumptions upon which they are working so they can quickly adapt to shifting conditions and opportunities.
Tackling these challenges requires an in-depth view of the organisation’s finances, as well as the ability to collect, collate and manipulate the most granular data from each line of business. It requires the ability to break down the financial details to a single product, a single office, or even a single customer so that the organisation can run analyses at the most granular level. Organisations must be able to determine where best to spend limited investments and scarce resources to achieve the biggest gains.
Building a culture of accountability
A finely contoured map of profit and loss is essential, but information alone will only take the company so far. Promoting a culture of profitability and accountability comes down to putting power in the hands of those that can lead change –finance leaders.
CFOs have long had insight into the company’s profit and loss, and as they become more involved in business strategy they must take a more hands-on role in helping each line of business maximise profits while keeping costs in check.
Promoting a culture of profitability and accountability comes down to putting power in the hands of those that can lead change –finance leaders.
Understanding the ‘why and the how’ of funds allocation helps lines of business see where they fit in the bigger picture and work together towards common improvement. For example, if a company sees that one of its customers generates a disproportionate amount of support cost product documentation, its support and training teams could come together and help that customer reduce its costs. The result for the business is of course improved customer profitability in the long term.
New possibilities in the cloud
Cloud technology lends itself extremely well to this end. Modern cloud based profit and cost management systems are easier to justify than their on-premises predecessors and are built with transparency and accessibility in mind. They make vital information available to both finance teams and lines of business so better decisions are made across the organisation.
Modern cloud based profit and cost management systems are easier to justify than their on-premises predecessors and are built with transparency and accessibility in mind.
Finance and LOB teams can therefore see how individual products, customers, channels etc. are performing and simulate resource changes to gauge their effect on profitability. In the telecommunications space, for instance, a company can allocate all appropriate costs to a single product or customer who consumes bandwidth on their network (such as gigabytes of data or minutes of call-time) to validate its pricing.
Crucially, cloud-based systems deliver dashboards and reports on specific cost areas quickly and can be configured for a company’s requirements without deep technical knowledge. It shouldn’t take a degree in coding to gain an understanding of how profit and loss are distributed across the business. That is the enemy of efficiency.
At a time when speed and efficiency have never been more important, and attention to detail equally so, it’s no wonder finance teams want systems that are up to the task.