Levelling Up your Oracle Cloud Deployment – Allocations

Levelling Up your Oracle Cloud Deployment – Allocations

Author: Titilia Fisher, ERP (R2R) Associate Consultant at Namos Solutions

Levelling Up Blog Series Overview

It is inevitable that amidst the heat and noise of an Oracle Cloud implementation certain nice to haves can end up falling out of scope. Whether through time, budget, or simply capacity for your team to adopt substantial changes, anyone has gone live will be familiar with those difficult considerations of which modules to take, and which to leave on the table.

Alas, the rub – those optional modules, those nice to haves, can often provide some of the most transformational changes and drive the greatest improvements or efficiencies.

At Namos we have worked on multiple engagements where we have seen the Allocation Functionality in Fusion being leveraged to provide tangible business benefits. We have seen both businesses that do not utilise this functionality or businesses that utilise functionality but can be improved/enhanced to drive automation and to reduce manual journalling.

Mastering Oracle Cloud General Ledger Allocation is essential for optimising financial processes and achieving accurate financial reporting. This is through a powerful tool `The Calculation Manager’, that leverages Oracle Essbase, a technology adopted from the EPM toolset, which provides flexibility, automation, intelligence, and control in distributing costs and revenues across the enterprise.

In Oracle ERP Cloud, the Calculation Manager provides an allocation wizard that is easy to understand, and formula components that can be used to define recurring journal formulas with the advantages of Oracle Essbase.

Business Use Cases

These are the typical business use cases that Allocations can be used for.

  • Allocation of central overheads that can be distributed across cost centres or companies. For example, back office overheads such as Finance costs that can be reallocated based on:
    • Simple percentage allocation predefined in the allocation rules
    • Non-financial distributions. I.e. based on headcount in a Cost Center or utilisation %
    • Financial distributions. I.e. based on the amount of revenue received in a Cost Center /Legal Entity
  • One procurement team buys on behalf of the entire group and therefore costs need to be reallocated across the group based on headcount or any other financial or non-financial metric.
  • Allocation capital projects paid for in one Legal Entity/Cost Center but needs to be allocated to another.
  • Recurring provisions that need to be calculated monthly. I.e. Bad debt provision based on 5% of the total Accounts Receivable balance.

Account Hierarchies for Allocation

To support a robust allocation process and to avoid manual journalling, it is important to ensure that the Chart of Accounts and its corresponding hierarchies support this process. This is because hierarchies can be used when deriving the allocation rules to group accounts or Cost Centers i.e. so one rule can be set up at parent level, rather than multiple rules at child level. This reduces the upkeep and maintenance of allocation rules. Hierarchies should be used for:

  • A way of structuring a complex organisation into parent-child relationship within Chart of Account segments, referenced as Trees. It is generally used to break down locations, departments, or any other function of the company.
  • Support organisational changes and reporting without upheavals to your detailed operational entities (departments, offices, etc.).

Allocation Calculation Manager

The tool in which you create Allocation Rules is called the Calculation Manager in Fusion.The Calculation Manager creates, validates, deploys, and administers sophisticated allocation rules.

The Calculation Manager is used to allocate existing balance from an account (source) to other accounts (target) using certain existing balances in some other account (basis). The offset amount to create a balanced journal can either be the same as the source or a different account.

  • Types of calculations for Allocation:
    • Base formulas on multiple criteria, such as account balances or statistical amounts, to allocate shared revenue or costs across multiple organisational units.
    • Use complex computations based on different variables to automatically calculate allocated amounts.
    • Group journal formulas together and run sequentially to update account balances step by step.

Detailed Functionality of Allocations in Fusion

Allocations are defined and generated on top of the pre-aggregated balances in the Balances cubes that sit in the General Ledger and provide the following benefits:

  • Immediate real-time access to financial balances for allocations
  • Accelerated performance with highly scalable allocations for large volumes of data

Allocation components include run-time variables, rules, formulas, and rule sets. These components are stored in Oracle Essbase. The Calculation Manager provides the following features:

  • Distributes revenues or costs with recursive allocation rules
  • Creates complex formula rules using formula component
  • Contains an Allocation Wizard to define allocation and formula rules
  • Uses real-time check of rule definitions to validate correctness of rules
  • Minimises setup and maintenance with reusable components
  • Simplifies allocation generation process by integrating with enterprise scheduler
  • Groups rules together in rule sets to cascade allocations for processing efficiencies
  • Creates primary, statistical, or foreign currency allocation and formula rules

Note: The following are limitations in Oracle General Ledger.

  • Allocation rules can’t be shared across rule sets in Calculation Manager.
  • Within a rule or rule set, multiple rule components can’t write to the same target or offset.
  • When generating allocation rules with runtime prompts other than the User Point of View in an allocation rule component, an error occurs.
  • Rule sets can contain only rules, not other rule sets.

Namos Solutions have extensive experience of implementing Fusion Allocations, both during an initial implementation and after go-live to level up an existing solution, so we are happy to help you work through all these considerations no matter where you are on your Oracle journey.