Finance users require powerful and agile tools to analyze the effects of fast-changing business circumstances and uncertainties inherent in long-range financial forecasts. Many finance departments rely on customized spreadsheets to do financial modeling and impact analysis for these forecasts. Such customized spreadsheet solutions are challenging to manage, lack data transparency and integrity, do not integrate with operational plans, and are not efficient at handling treasury and financial modeling activities.
Scenario Modeling is built-in financial modeling functionality within Planning in Oracle Fusion Cloud EPM that addresses this problem. It enables users to quickly create long-range forecast models for fast-changing business dynamics using built-in sophisticated scenario modeling capabilities and debt and capital structure management features.
Scenario modeling is built within the Oracle Fusion Cloud EPM platform, and users can work within familiar Oracle Smart View for Office and web interface features.
However, combining financial and operational data is often the biggest challenge of profitability analysis. It’s typically not prudent to overload the general ledger (making it “fat”) with operational data such as customer, channel, and more that are not needed for statutory reporting. Keeping the general ledger “thin” ensures a streamlined statutory close process. Likewise, manipulating operational and financial data in spreadsheet-based solutions can be very time consuming and error prone. Therefore, these are not ideal ways to address profitability.
Profitability and Cost Management includes robust data management capabilities that enable business users to easily map financial and operational data together. It provides a central hub for automating all allocation-based business processes. The solution is purpose-built for the multitiered allocations typically required by today’s complex business environments and provides a best practice framework to make model-building easy and consistent, with excellent performance.
In a fast-changing business climate, Scenario Modeling is an ideal solution for what-if modeling of business risks. Users spend time simulating long-term alternative strategies, developing contingent scenarios, and stress testing financial models, rather than building or auditing those models in spreadsheets or other nondedicated systems. Using the built-in scenario modeling capabilities within Oracle Fusion Cloud EPM, users proactively and effectively respond to changing industry and economic dynamics. Scenario Modeling allows users to create numerous distinct scenarios for each business unit. Users can also evaluate sensitivity to key performance drivers and run periodic “goal-seek” checks to determine the performance level needed to achieve specific financial objectives.
Financial models reveal the impacts of strategic decisions on an organization’s bottom line, balance sheet, cash flow, and shareholder value. With Scenario Modeling, financial modelers can use built-in financial intelligence to assess the impact of their what-if strategic scenario models on financial statements. Modelers consolidate various what-if models for different lines of business, legal entities, or planned projects to give an enterprise view of the long-range financial plan. These plans form the basis for setting targets for the bottom-up operational plans. Similarly, operational changes in the approved bottom-up forecast feed into the long-range models, thus ensuring the integrity of the closed-loop planning cycle. Scenario Modeling aligns strategy with the operational plan by setting meaningful targets, performing quick financial impact analysis, and presenting focused financial information for informed decision-making.
Cash flow and balance sheet forecasting are critical elements in any planning environment. Scenario Modeling delivers financial intelligence that links all aspects of financial performance—from earnings potential through working capital management to capital expenditures, taxes, and the capital structure—to support the organization. With Scenario Modeling, users can address the complex iterative nature of funding, the impact of strategies on credit ratings, and capital structure optimization. Scenario Modeling offers special features such as treasury planning, allowing value creation and reducing an organization’s cost of capital.
Unlike spreadsheets, Scenario Modeling delivers easy-to-use, built-in financial modeling tools. Users do not need to spend time writing sophisticated financial logic from scratch. Instead, using the packaged capabilities in Scenario Modeling, finance managers can effortlessly add sophisticated what-if modeling to their financial planning process.
Inherent within these value propositions are features that act as powerful enablers:
The analyze trail feature provides an understanding of the logic of a model. By presenting the most complex relationships in numbers and words, the information in the model becomes transparent to all participants in the strategic planning process. Instead of following countless different “auditing arrows,” users have an elegant and intuitive way to view the assumptions and calculations in the model.
Funding options is a sophisticated but easy-to-use feature that helps optimize capital structure and treasury strategies, thereby lowering financing costs. It provides a variety of methods for specifying the way cash surpluses and deficits are treated in the model, such as debt borrowing and repayments, dividend payments, and share issues or repurchases.
Debt scheduler is an innovative feature that allows users to create—in just a few seconds—fixed or variable-rate debt instruments, such as bonds and term loans, and update all financial statements accordingly. Whether monthly, quarterly, or any other time frequency of interest and principal payments, users can automatically obtain accurate calculations of the current debt and accrued interest, as well as the amortization of bond premiums, discounts, and issuance expenses.
The deal period feature simulates the effects that mergers, acquisitions, or divestitures will have on the organization based on the timing of the transactions.
The consolidation feature consolidates entities following the rules for financial consolidation, including minority interest, equity, and cost methods of accounting. For example, a scenario from one entity can be combined with a scenario from a second entity to give the “most likely” scenario in the parent entity. Using extended analytics, Scenario Modeling allows users to move this data, the consolidation roll-up, and percentages for each scenario to an external data store for corporate reporting needs.
With its user-friendly reporting environment, Scenario Modeling lets users create professional-quality reports and graphs. In addition, because the reports are self-contained in the financial models themselves, users are able to work on full models offline.
In today’s rapidly changing environment, relying on customized spreadsheets for financial modeling and impact analysis is less than optimal and puts unnecessary burdens on the finance team. Solutions such as Scenario Modeling in Oracle Fusion Cloud EPM enable finance organizations to stay agile and remain one step ahead.