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How best to model profitability for financial institutions? (Part-3)

Guest post by
Vandana Vasudev Nayak, Consultant, Infosys


Financial institutions, today, look for enterprise "tool" that captures cost study results, manages cost drivers and analysis without manual intervention that can be leveraged for advanced analytics and Portfolio Management and Strategic Planning.

In the previous part, a comparative analysis of two applications in the space of profitability management from Oracle - Hyperion Profitability Cost Management (HPCM) and Oracle Financial Services Profitability Management (OFSPM) were evaluated on business criteria. In this part, the focus is to evaluate the products for key usage criteria.


Hyperion Profitability Cost Management

Oracle Financial Services  Profitability Management


HPCM is a right solution to meet the needs of tracing costs back to products, departments or activities using dimension management features of Hyperion Planning

Business needs of profitability analysis at financial and management level across products, customers, organization units, channels can be easily fulfilled using OFSPM application.

Transaction volume

When business need is restricted to profitability calculations for lesser volumes like segment analysis HPCM fits well.

Financial institutions which choose to calculate profitability at instrument level for multiple products need solutions with processing capability to handle millions of transactions. OFSPM is the answer to their problem, also extendable with Exadata to improve performance.

Ease of Use

HPCM is suggested solution where dynamic allocations need to be designed in a modeling environment. It has Out-of-box functionality for Multi-stage, Multi-step allocation, including reciprocal allocations. Calculation scripts are automatically generated. It has certain constraints in terms of model building.

OFSPM is suggested solution in terms of flexibility as most of the allocations are driven by rules easily configurable from user friendly user interface. OFSPM is driven by strong allocation engine, which can be run using the allocation rules. Also, provides the flexibility to easily extend profitability analysis based on transfer pricing results.

Out of box reporting

HPCM is has limited out of the box reporting , it is more of plug and play tool with features of ad hoc analysis and scenario modelling.

Internal and external reporting for management, efficiency, profit and cost analysis can be easily met using the out of the box capability of OFSPM Analytics. For example, Balance Sheet reports, FTP Reports, Income Statement, Key Trends and Performance Measures


Nevertheless, "What's best to model?" in terms of technology is best answered based on the type of analysis that the financial institution is looking at - cost revenue, net interest margin or scenario analysis, with due consideration to processing time requirements and revenue for money invested on technology. Profitability model which are closely knit and have additional data needs from other applications, create the functional dependency of the data flow which acts a driving factor for decision making. If the business needs encompass both cost and profitability analysis on a risk adjusted basis, financial institutions can look at getting best of both the worlds from these two applications.

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