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Leveraging modern technology to configure your Allocations and Profitability Analysis in CPM

Jul. 2 2020 by Sadek Fahmy, Senior Solutions Specialist - CCH Tagetik NA

Performance Management Profitability Analysis

In my past life working in consulting for CPM products, I watched countless hours, days and even weeks get wasted away on coding and scripting allocation rules. From the most basic to more complex allocation methodologies, it was always an exhausting process. From Manufacturing to Private Equity to Professional Services firms, the allocation rules may have differed, but the complexity of getting it done was always high.

So why go through this process?

It’s simple. Shared services (or maybe even earnings) within an organization need to be allocated to departments in order to see the departmental profitability. So we scripted this. It sounds simple, but in order to make everything transparent, it required sophisticated coding. Otherwise, we would allocate expenses and those receiving departments would have no idea about any of the details behind those new costs hitting their P&L. They just know corporate passed them some expenses and have to account for it.

What’s the problem with this? 

Initial effort. Maintenance. Changing requirements. It was all too painful and too costly to manage. Consultants or IT will build and manage it. Then, it’s likely a small group of people who understand how it’s been coded, or even worse, one person. What happens if your requirements change? Call those same folks in IT or those consultants who set it up, explain to them the change, and wait for them to make the update to the code.

If it’s that worst case scenario, one person understands how it’s been set up, what happens if they win the lottery? Unlikely right, but what if they retire? What if they go on leave? What if they get an offer that they can’t refuse from another company? We end up in a situation where our allocations are being handcuffed by that one person. It has just historically been a risky and difficult process to manage.

Until I was introduced to CCH Tagetik. I was in the CPM space, working with several competitive products, but had no idea that this concept existed without the need to code and script – and only the need to configure.

So how can a modern, financially intelligent software help?

CCH Tagetik is truly a Finance Transformation Platform with a ton of built-in financial intelligence, and the Allocations engine is a perfect example of this. What once took days to script takes hours to configure. If it took weeks to script, you’ll configure it in a few days. What was once a daunting task in maintaining the code of the allocation rules is now a simple, finance owned, configuration-based task.

With CCH Tagetik’s built-in allocation engine, companies now have the ability to manage all of their allocation rules with simple configuration. A few dropdown selections and checkboxes setup by the finance teams accomplishes what was once only viable with an IT wizard and code. You would think that this would come at a cost – reduced flexibility. But that’s not at all the case. The engine is so robust that you can tailor both the simplest and most complex requirements to meet any allocation needs. Partial allocations, waterfall structure allocations, circular allocations, cross entity allocations with integrated currency translation, fund transfer pricing, scenario target matching, all accomplished without the need to script or code.

We’ll define the sender(s), the receivers and the allocation driver(s). We can cascade the steps of the allocation rule. We can use a waterfall approach where the result of one step is used as the source of the next step. There are no limitations to the number of rules or steps per rule. It’s an extremely flexible engine specifically designed to ease the pain in managing allocation rules.

So what can CCH Tagetik’s allocation engine accomplish?

Today, in CCH Tagetik, I’m able to set up a basic allocation rule of one account from the shared services cost center, for example Rent, allocated to all other cost centers in a matter of minutes. Similarly, we easily set up an allocation of earnings and expenses, for example in Private Equity, where not only can we allocate those earnings and expenses, but we can also perform what-if analysis on the results. These what-if analyses can be as simple as changing a driver value, for example from 10 to 12, or changing the allocation logic altogether to see how differing drivers can affect profitability by department, all the way down to portfolio. Moreover, these allocation drivers can be absolutely anything desired, whatever makes the most sense for your business. They can be statistical or financial, so units, revenue, stock price, FTE, really anything.

We’re also able to configure more complex allocation methodologies such as waterfall allocations, where the result of the first allocation is used to feed the second allocation. This can go on for as many waterfall steps as we’d like. Furthermore, within CCH Tagetik we’ll get full traceability along each step of the rule with the use of our data labelling. When looking at a report at an aggregated level, you’ll always be able to drill into a value to see the contribution of each step of the allocation. CCH Tagetik never touches original data – we layer on top of it using these labels.

So with CCH Tagetik’s built in allocation engine, we can allocate as needed within our organization to achieve profitability at the most granular level desired. No longer pass/accept allocated costs from corporate without complete transparency into what the expense is made up of. The level of granularity produced by the allocation engine allows for this complete traceability. Moreover, we’ll be working with a lot of data here. A simple allocation across hundreds of departments can create thousands of rows, and for this, we need a robust engine and powerful architecture. CCH Tagetik’s platform can scale and maintain high performance while ensuring complete transparency for your Allocations & Profitability analysis needs.

CCH Tagetik’s allocation engine is so powerful that there are customers who’ve purchased the product specifically for the strength of this engine. We handle those complex needs and enormous amounts of data being calculated and distributed from sender to receivers.

So what are some of these examples from the field?

A large Manufacturing organization reduced the number of allocations they had to manage from over 300 prior to CCH Tagetik to 125 now leveraging our built-in engine. Their allocations now run 10 times faster, and it’s now significantly easier and more time efficient to manage than their previous allocations. They can look at profitability down to the SKU level and can spend their time analyzing the results of the allocations as opposed to managing them. And of course, they moved from a coded home grown allocations, to a set of configured allocations within CCH Tagetik.

Another large Private Equity firm purchased CCH Tagetik strictly for its Allocations and Profitability built-in intelligence. Their allocations included over 100 allocation rules with multilevel waterfall logic and very high complexity. Within CCH Tagetik, they now achieved complete transparency all of the way through to the original sender of the expenses. And finally, they were able to more accurately calculate their profitability by portfolio.

Now, how do you manage your allocations and profitability analysis?

In your office of finance, is the creation and management of your allocations and profitability easily done by the office of finance itself? Do you find yourself needing to lean heavily on IT for support? Do you have the transparency necessary to be able to identify each piece of data being allocated?

Take a look at CCH Tagetik’s 2 minute video on Allocations and Profitability Analysis to see more about CCH Tagetik’s built-in Allocations engine.cch tagetik solutions

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