Understanding Profit Analyzer.

Last Tuesday I was in London visiting a client interested in implementing the Profit Analyzer module of Bank Analyzer.

During the discussion some concerns were raised about the overlapping of the Profit Analyzer module of Bank Analyzer and the Management Accounting modules of SAP-ECC.

For understanding that there’s no such overlapping we must understand first the difference between Facts and Opinions, and the importance of supporting our opinions with strong arguments.

Internal Profits and Costs of a Bank are just opinions; they’re the translation of business events (payments, revenues, obsolescence of assets, etc.) according to the mental model of the Controlling team.

The controlling modules of ECC provide sophisticated tools for calculating internal Costs & Profits of the Bank under different perspectives. There’s no overlapping on using all of them at the same time; on the contrary, the more coherent explanations, coming from different perspectives, we give to support our opinions, the stronger our opinions will be.

For instance, if we implement Cost Center and Profit Center Accounting in a Bank, we’ll get a P&L analysis of the Bank results by responsibility center. On the other hand, if we use Activity Based Costing we’ll be able of analyzing the value provided by cross processes. If we follow the first approach, the second approach or even a combination of both, we’ll get different results in terms of P&L. There will not be a correct or incorrect result, the three of them are both correct and incorrect (again, they’re just opinions).

This does not mean that they are all equally valid; on the contrary; the more detailed our model is (for instance by combining Cost-Center Accounting and Activity Based Costing) the stronger our explanations will be. On the other hand, the stronger our explanations are, the more valid our conclusions will be.

With Profit Analyzer we build an analytical system of internal Profits and Costs of the Financial Transaction (contract level), including Funding Costs, Process Costs, Risk Costs, Capital Costs, etc.

With that information, we will be able of building a Bottom-Up analytical system which offers the P&L of higher organizational structures (branch, strategic business unit, etc.).

Obviously, we also can follow a Top-Down approach on our P&L analytical system; and from the results of our ECC Management Accounting system, and by using Top-Down Distributions we can achieve the P&L of a Financial Transaction.

Again, there will be an overlapping if we use both approaches?

On the contrary, we’ll have stronger arguments to support our opinions; and in times of uncertainty and luck of trust in the Financial System that’s a very important asset.

Looking forward to read your opinions.

K. Regards,

Ferran.