IMA Chapter San Antonio webinar may 2021 PACE presentation

1. Why is Causality such a big thing ?
IMA San Antonio Chapter

2. 2
Presentation objectives
Summarize a long story in 45 minutes presentation that will hopefully set interest
of what is costs and revenue management framework may be of use by
management accountants

3. 3
Some of our clients
We´re a leading provider of driver-based planning, profitability
and cost management solutions, helping companies to improve
shareholder value.
• Pricing &Profitability Analytics
• Predictive Planning
• Activity Analysis
• Cost / Value Management
• Enterprise Data Management
Cloud and On Premise Automated solutions
World-class implementation partners
Our primary mission is to deliver 100%customer success
MyABCM USA
25+ years of experience in EPM
50+ country presence
45% clients powered by Oracle
42% clients powered by SAP
98% customer satisfaction
13
Global offices
We served
1,350+Clients
Cost and
Profitability
Analytics
Risk /
Performance
Management
Cost /
Profitability
Planning /
Forecasting
Business
Modelling
Relevant
Data
Preparation

4. 4
The panelists
Executive Director, Resource Consumption
Accounting Institute
PACE Director
President, D.T. Hicks & Co.
PACE Director
Director MyABCM US
Member of IMA since 2014
IMA San Antonio chapter
More than 20 years working in cost and
profitability management

5. 5
What is PACE
PACE refers to the Profitability Analytics Center of Excellence. This is a group of finance
professionals who are creating new models to effectively track cost and revenue drivers and
performance measures that impact business profitability and value.
PACE is a non-profit collaboration of professionals and academics working together to help
management accountants and the broader business community recognize the need to improve
information for internal support to decisions. For this we develop resources and references to
operate World Class Profitability and Cost Management and investment models.
The PACE directors have written several SMA’s for IMA.
https://www.profitability-analytics.org/

6. 6
Changing the mind set
- The overall PACE Model is described in several IMA SMA:
- Profitability Analytics Framework.
- Conceptual Framework for Managerial Costing
- Revenue Management Fundamentals,
- and an SMA is being written to address the Investment element of the Profitability Analytics
Framework.
- Important note: This framework, can be used by us, IMA’s management accountants.
(1) In Profitability Analytics “the truth” does not mean precise
measurements, but a fair reflection of the economic realities that impact a
decision.
Profitability Analytics Center of Excellence’s model is a strategic management framework
encompassing revenue, cost and investment management that reflects “the truth.” (1)

7. 7
Human mind vs Causality
Is part of the human nature to translate Reality
in a more digestible version (models).
In a more sophisticated way:
• By identifying what we believe are the key
elements of that reality, and
• By determining how those key elements
relate to one another
These pre-digested version guide our actions and
reactions.
At the end we end up following models, not
reality itself.
The models need to be challenged in the
way they re-present the reality:
 is the model accurate enough ?
 how far can the model be stressed ?
 does the model present a fair enough
causality relationships ?
“Causality” is the driving force to
understand those relationships between a
model’s key elements.
“Correlation” is not causality and has no
place in decision models
The human mind The Causality approach

8. 8
The “causality principle” is mentioned 41 times in these SMA’s
• Dictionary definition: “Causality is the
influence by which one event, process, state
or object (a cause) contributes to the
production of another event, process, state or
object (an effect) where the cause is partly
responsible for the effect and the effect is
partly dependent on the cause.”
• IMA Conceptual Framework definition:
“The relation between a managerial
objective’s quantitative output and the input
quantities that must be, or must have been,
consumed if the output is to be achieved.”

9. 9
What role does causality play in your organization’s financial modeling?
Polling question 1
a) None.
b) None, we only use financial reporting standards.
c) We inject causal modeling in our special studies and analyses.
d) We build in causality where it does not conflict with financial standards.
e) We try to ensure our allocations reflect causal factors.
f) Other or confused by causality.

10. 10
In building revenue, cost and investment models, cause-and-effect relationships must be used to
describe and quantify the relationships that exist between the key elements of the model.
Profitability Analytics Center of Excellence (PACE™) Model
Investment Strategy
New Resources
and the
Investment Strategy
Inputs
Strategy Formulation
Market Strategy
Market Conditions
and the
Market Strategy
Operational Strategy
Internal Capability,
Capacity, and the
Operational Strategy
Analytics Results
Strategy Validation
(Causal Models)
Revenue Model
Pricing, Capacity,
Marketing, Channels,
and Regulation
Cost Model
Based on the
IMA’s Managerial
Costing Concepts
Strategy Execution
(Forecasting & Decision Making)
Revenue Mgt
Products, Services,
Customers,
Channels, or SBUs
Cost Management
Processes and
Costs
Investment Model
Sustain, Expand,
Innovate, Secure,
and Comply
Investment Mgt
Tangible and
Intangible Assets

11. 11
Strategy formulation
Profitability Analytics Center of Excellence (PACE™) Model
Investment Strategy
New Resources
and the
Investment Strategy
Inputs
Strategy Formulation
Market Strategy
Market Conditions
and the
Market Strategy
Operational Strategy
Internal Capability,
Capacity, and the
Operational Strategy
Internal
and
External
Data
Forecasted,
planned,
or
actual
• Internal and external Data are used to guide the formulation of
market, operational, and investment strategies; and the results of the
market strategy provide input for the operational strategy.
• A Market Strategy describes the current and expected conditions and
opportunities in the market and the organization’s plan to exploit
those opportunities and capture value.
• An Operational Strategy describes the resources and capabilities
available to the organization and how they are aligned in order to
execute the market strategy.
• An Investment Strategy for long term value creation may be the most
important part of strategy and will likely define how far into the
future the market and operational strategies must look. Investments
include both tangible and intangible investments…not just traditional
capital investments.

12. 12
Causality: Monetary Models must Reflect Quantitative Planning
Profitability Analytics Center of Excellence (PACE™) Model
Analytics
Monetize
Processes
and
Resources
Forecasted,
planned,
or
actual
Market Model
Quantitative Model of
Market Opportunities to
be addressed
Operational Model
Quantitative Model of
Operational Capabilities
to be Deployed
Investment Model
New Capacities and
Capabilities Expected
Nonmonetary
Strategy Validation
(Causal Models)
Revenue Model
Pricing, Capacity,
Marketing, Channels,
and Regulation
Cost Model
Based on the
IMA’s Managerial
Costing Concepts
Investment, Capital
Preservation &
Cost of Capital
Model
Monetary
1 2
• The Revenue Model incorporates the pricing and volume
assumptions.
• The Cost Model monetizes the cost of the resources and processes
for decision making and operational optimization. Both operational
and cost models reflect the functioning of the entire organization;
they do not fixate on product and service costs.
• Investment at this stage becomes 3 distinct components:
• Acquisition – How to acquire or create new capability with
financial or internal resources?
• Capital Preservation: How to ensure the capability being
consumed can be maintained into the future?
• Cost of Capital: How to ensure long term investments are
yielding a return that factors in the capital outlay?
• Monetization of Processes and Resources should reflect forward-
looking economic costs and not be limited to costs and expenses as
defined and measured by financial accounting principles.

13. 13
Causality should be embedded in forecasting, planning, and decision-making throughout the organization; since economic reality
is essential to effectively manage the organization towards strategic success.
Profitability Analytics Center of Excellence (PACE™) Model
Outputs
Strategy Execution
(Forecasting, Planning, & Decision
Making)
Revenue Mgt
Products, Services,
Customers,
Channels, or SBUs
Operations Mgt
Processes and
Costs
Pricing
Product Mix
Promotion
Capital Investment
HR Development
Cost Reduction
Quality Improvement
Timely Delivery
Harvest
Value
Measures,
Targets,
and
Initiatives
Resource &
Investment Mgt
Tangible and
Intangible Assets
• Revenue management involves decisions about product or
service configuration, pricing, resource and capacity
assignment, and demand management for customers and
channels.
• Operations Management involves process management and
adaptation for actual demand as well as cost, quality, and
timeliness of production/service.
• Resource and Investment management involves capital
assets, human resources, intellectual property, R&D, and
other essential tangible and intangible assets in or being
acquired by the organization.

14. 14
As decisions are made and results are realized, it is critical that management accountants assist management at all levels
of the organization understand what worked as expected, better than expected, and worse than planned.
Profitability Analytics Center of Excellence (PACE™) Model
Investment Strategy
New Resources
and
Investment Strategy
Plans
Market Strategy
Market Conditions
and the
Market Strategy
Operational Strategy
Internal Capability,
Capacity, and
Operational Strategy
Data
Internal
and
External
Analytics
Monetize
Processes
and
Resources
Forecasted,
planned,
or
actual
Strategy Formulation
Market Model
Quantitative Model of
Market Opportunities to
be addressed
Operational Model
Quantitative Model of
Operational Capabilities
to be Deployed
Investment Model
New Capacities and
Capabilities Expected
Nonmonetary Results
Strategy Execution
(Forecasting & Decision Making)
Revenue Mgt
Products, Services,
Customers,
Channels, or SBUs
Operations Mgt
Processes and
Cost
Resource &
Investment Mgt
Tangible and
Intangible Assets
Strategy Validation
(Causal Models)
Revenue Model
Pricing, Capacity,
Marketing, Channels,
and Regulation
Cost Model
Based on the
IMA’s Managerial
Costing Concepts
Investment,
Capital
Preservation &
Cost of Capital
Monetary
Strategy Evaluation

15. 15
What role do nonfinancial, operational and / or commercial systems play for
finance and accounting in your organization?
Polling question 2
a) None.
b) We only use those connected to financial reporting and the audit of financial statements.
c) They are usually managed by other areas of the business and are looked on with skepticism.
d) Finance and accounting partners with other organizations to understand and use their operational models
to better understand the business.
e) Finance and accounting uses operational systems as the basis for creating financial internal decision
support information.

16. 16
Causality Principle into CANVAS business modeling tool
Resources Processes Services Channels Customers
Canales
Cost Elements Revenue types
Key Resources
Required to deliver the value
proposition to the client and
generate profitability. These
resources include:
Financial: Treasury, Funds Transfer
Pricing, Capital Requirement.
Direct: Clearing, Reserve, Credit
Bureau, External Collection, External
ATM, custody of promissory notes,
etc.
Indirect: Personnel, Infrastructure,
Technology and Communications,
Security, Equipment, Hardware,
Software, etc.
Key Processes
Business rules, metrics and norms that
make a profitable delivery of the value
proposition to the customer in a
frequent and scalable way. Those
processes include:
Business processes: Acquire, serve,
maintain, retain the customer.
Instrumentation and delivery of the
service, accompaniment.
Technological processes: Data Analytics,
Artificial Intelligence, Machine Learning,
Integration with Ecosystems, KyC.
Support processes: Finance, Human
Resources, Administration,
Infrastructure.
Profitability
Income Model How much money can be made: Price x Volume. Volume is
inferred in terms of market size, frequency of purchases, sales aids, etc.
Cost Structure How costs are assigned: Including the cost of relevant assets,
direct costs, indirect costs, economies of scale.
Margin Model How many transactions must be carried out to generate the
desired levels of profitability.
Resource speed How fast do you need to use resources to support the
established volumes in asset use, inventories, etc.

17. 17
Steps to create management accounting models
Pasos de construction Key activities
Model
construction
Model
update
Step 1 Strategy
formulation
(context
understanding)
The following definitions come from the strategic objectives and
the business model to be achieved:
• resources
• processes and activities
• products and services
• relationship with customers and channels
• resource and activity consumption triggers
• activity attributes
X
Step 2 Strategy
validation (causal
model)
Develop the profitability model
• Define periods and scenarios
• Define the Resources module
• Define the Activities module
• Define the Cost Object module
Update the profitability model
• Define periods and scenarios
• Assign resources
• Assign Activities
• Assign cost objects
X
Step 3 X X
Step 4 Strategy
execution
(Forecast and
adjustments to
the strategy and
its execution)
Profitability
• Calculate the model
• Set up views (costs and profitability by cost objects)
• Validate figures
• Develop ad-hoc reports
Budgets and incorporation of forecasts
• Create metric-based scenarios (as many as needed)
X X
Resources
Entries used for
carry out the work
Processes
Job to be done
Cost objects:
products,
customers, channels
Consumption drivers
/Attribute
Allocations
Consumption drivers
/Attribute
Allocations
Reports
Risk
Risk Management

18. 18
Conclusions
There is a great need to improve decision-making related to profitability and cost analysis. The best
organizations are those that have “a Data-Driven culture permeated” in their decision-making processes.
The process begins with the appropriate power of influence to facilitate collaboration throughout the
organization, through an integrated process of profitability and cost management; strengthened by various
competencies of the participating personnel.
At PACE, as a working group, we are focused on aligning the principles and standards of analytical
accounting for their practical application in profitability analytics.
Consider the design principles of the IMA Profitability Analytics Model to ensure that the principles of
causality are met.
The characteristics of the profitability model are based on the maturity of the business model and its ability
to be transformed by its stakeholders. Not all decision-makers need the same sophistication.
1
2
3
4
5

19. 19
What percentage of the time is Finance called upon to provide support while
executives are facing important business decisions and not just to justify them
afterwards?
Polling question 3
a) 100% of the time
b) 75% of the time
c) 50% of the time
d) 25% of the time
e) Never
f) Don’t know

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