Oracle announced the development of Profitability and Cost Management Cloud Service (PCMCS) during Oracle OpenWorld in September 2016 as the software-as-a-service (SaaS) replacement for its on-premises Oracle Hyperion Profitability and Cost Management (HPCM) solution. Since then, PCMCS has become a great tool to analyze costs, revenue and profitability.
PCMCS is part of the family of Oracle EPM cloud solutions, which also includes Enterprise Planning Cloud Service (EPBCS), Financial Consolidation and Close Cloud Service (FCCS), etc. PCMCS identifies business profit drivers to maximize profitability and to manage cost and revenue allocations. The beauty of PCMCS is that it leverages an Oracle Essbase aggregate storage option (ASO) cube for fast and powerful multidimensional analysis. On top of that, using the point and click allocation user interface, embedded analytics, and reporting make PCMCS very user-friendly.
The Purpose of PCMCS
Have you ever asked yourself, “Will my business achieve profitability this year?”, “What is my most profitable product or customer?” or “Can I make my profit better next year?”
To answer these questions from a business perspective, you need to accurately allocate and measure costs and revenue by multiple business segments, such as cost center, responsibility center, location, line of business, product, etc.
As we know, Gross Profit = Revenue – Cost of Goods Sold.
Does this formula give us enough information that we need? Does it really show all the hidden semi-direct costs and indirect costs? The answer is no.
Many planning and budgeting, general ledger and sub-ledger systems fail to align revenues and expenses because revenue and expenses are often reported at aggregated levels, which do not match day-to-day or tax reporting needs. For example, general ledger accounting entries for Information Technology or Public Safety departments are often reported by cost center but not by headcount, space usage, responsibility centers, etc.
To gain a better understanding of an organization’s profitability, digging into each direct, semi-direct and indirect cost is necessary. PCMCS provides us an excellent solution to perform this analysis.
Some of the business challenges PCMCS addresses include:
Provides visibility into detailed allocations for location, product, store, customer, etc.
Permits review of results more frequently than month-end
Standardizes allocation drivers
Determines “true” profitability to capture revenue and cost for products through all cost centers
Develops meaningful, traceable allocations to make the best business decisions to maximize profitability
Offers driver-based, user-friendly, “what-if” analysis
As we mentioned earlier, general ledger and sub ledger systems are often reported at an aggregated level. If we process allocations in an enterprise resource planning (ERP) system, the chart of accounts will grow to include more dimensions (segments) and more journal entries, which will make the ERP system slower and costlier. For other allocation systems, we need to code and create queries, which is not efficient.
By using PCMCS, we can pull data from the ERP or planning system and prepare allocations in PCMCS, and push data back to the ERP or planning systems. PCMCS is also a good audit tool to trace these allocations, especially for an international company for the tax transfer pricing process.
PCMCS Technical Overview
PCMCS contains many of the same components as the other Oracle EPM (Hyperion) Cloud suite of products, including:
An Essbase ASO cube
Financial Reporting Studio Web Client
This architecture allows PCMCS to provide a very user-friendly allocation process, with key features including:
Model by Point of View (POV)
Point-and-click allocation management
Four-step processes to build rules
No coding required
Serial, parallel or iterative processing
The PCMCS architecture also permits possible outcomes modeling based on different drivers and assumptions using “what-if” scenario analysis to determine best-case or worst-case scenarios.