Dedicated functionality that performs profitability and cost analysis

Description

Profitability and cost analysis functionality in Corporate Performance Management (CPM) software allows businesses to track and measure their operational efficiency and financial performance. It involves monitoring revenue streams, costs incurred, and net profit margins to support strategic decision-making and profit optimization.

Example Use Case

Scenario: A manufacturing company uses CPM software to monitor its financial health. One of the main challenges is efficiently tracking costs related to production, distribution, and other business activities to enhance their profitability. There is a need for a dedicated feature facilitating a detailed profitability and cost analysis.

Solution: Implementation of a CPM solution with dedicated profitability and cost analysis functionalities enables the company to track production costs in real-time, assess cost-efficiency of different distribution channels, calculate net profit margins for individual products, and perform a range of other crucial analytical operations. This information helps the company to optimize costs and boost profitability.

Considerations

Most systems on the market can be configured to do this with implementation support. That would not be considered a “dedicated function” as specified in this requirement. Systems with this as a dedicated function have pre-built models that include sophisticated allocation tools that can distribute organizational costs to the products in a more direct way. For example, true costs on a product must factor in expenses from all across the business - not just Cost of Sales. IT, Accounting, Finance, and so on should be allocated as a part of this analysis. Doing so it not as easy as it sounds, as some of these costs can be allocated to multiple products, making the determination of a specific product margin challenging. This is where purpose-built solutions shine.

Questions to Ask a Vendor

• Allocation Tools: How can we allocate various organizational costs proportionally to the products that we sell?
• Financial Statements: Can we produce alternative financial statements for specific products with these cost allocations in mind?
• Hierarchies: Are we able to look at product groupings as well as individual products? What kind of flexibility do we have?