Transforming and Increasing the Effectiveness of your Operational Transfer Pricing Process
My colleague, Andrew Laferla, posted a series of seven blogs on a solution that Alithya has built to standardize the Operational Transfer Pricing (OTP) process and practices. The solution has proven to reduce risk related to data input and calculated output errors, increase flexibility, and drive efficiencies. Ultimately, these benefits lead to reduced operating costs to manage and maintain the system and a proactive risk monitoring model. Let me provide you with a high-level overview of Andrew’s blog journey before we dive into the operational value of the solution.
- Operational Transfer Pricing in Oracle Enterprise Performance Management (EPM) – Introduction to Alithya’s OTP solution built in Oracle EPM Cloud.
- Operational Transfer Pricing in Oracle EPM: The OTP Journey Continues – PCMCS, OTP Methodologies and the Start of Building Our Solution – Introduction to the backbone of Alithya’s OTP solution using Oracle’s Profitability & Cost Management.
- Operational Transfer Pricing in Oracle EPM: Continuing the Journey with Dimensionality and Rules for the OTP Solution – Defining the dimensionality to support the calculations and reporting.
- Operational Transfer Pricing in Oracle EPM – The OTP Journey Continues – Defining Rule Sets and Rules – Defining rules and rules sets to calculate OTP charges.
- Operational Transfer Pricing in Oracle EPM: The OTP Journey Continues – OTP Reporting – Introduction to invoicing and reporting for various roles (analysts, managers, auditors, senior management).
- Operational Transfer Pricing in Oracle EPM: The OTP Journey Continues – Leveraging Oracle EPM Planning – Defining the end to end process from capturing data to execution, analysis, and invoicing.
- Operational Transfer Pricing in Oracle EPM: The OTP Journey Ends – Integrating Our OTP Solution – The solution’s automation of data and metadata routines.
Modernizing the Operational Transfer Pricing Process
OTP has various complexities, including the management of intercompany agreements, management of various pricing methodologies, ensuring pricing is not beneficial to any standalone entity of a consolidated organization, and ensuring the amounts invoiced are accurate and can be reconciled back to the intercompany agreement. In addition to the management and process challenges, organizations are facing increased oversight and scrutiny from auditors and tax authorities to validate the results of OTP and the impact it has on the jurisdictional and consolidated view of financial statements. The complexities and challenges above, along with many other organizational concerns, drive the need for a modern solution that transforms the overall OTP process and practices that support it.
If you are an accounting, tax, or finance professional, you have heard the term, “garbage in, garbage out.” Like with other financial models, quality data is integral to producing results that gain trust and reduce the risk of audit deficiencies. Given the intercompany agreements that exist, OTP models often incorporate several data types that come from various source systems, such as ERPs and transactional subledgers, as well as manual data sources, such as time studies.
Modern OTP solutions incorporate governance models that utilize controls over the data to assist in validating the reasonableness of the data being input into the systems and automate the data being sourced to the solution. These controls help to validate the integrity of the model and ensures that manual data touchpoints are eliminated, which reduces the risk for input errors.
With an evolving global economy and political climate, changing workforce, shifting consumer demands, and changing tax legislation, organizations are forced to adapt to meet these variables. These variables could mean an impact to their intercompany agreements and OTP model. Given the potential for change, organizations need to be able to interpret the potential impact and to flex the OTP model to understand and communicate the impact to the organization in order to support management’s decisions on approach. Additionally, being able to run the model more frequently and observe the results allows the company to be more proactive in the reporting and invoicing of OTP, which reduces the need for large year-end adjustments or true-ups.
In addition to these macroeconomic factors above, organizations change on their own. From new ERPs and transactional systems to organic growth, divestitures, mergers, and acquisitions, organizations need a solution that is able to integrate change and provide efficient results for impact analysis.
A governed and controlled technology solution drives opportunity for a more efficient process. From gaining efficiencies through data automation and simplified solution maintenance to standardizing calculations to automating validations, invoicing, and reports, a modern solution can drive efficiencies where the solution carries the weight of the process. This allows organizations to look forward and spend more time on value-added tasks, including analyzing outputs, analyzing the “as-is” model, and proactive scenario modeling.
Above, I have outlined key benefits to modernizing the OTP process and how these benefits can drive organizational change that gives credence to the process by creating reliability and repeatability through standardizing the process with controls, automation, reporting, and analysis.
Transforming Your Company’s Operational Transfer Pricing Process
OTP adds complexity to many organizations’ financial processes and with the complexity comes risk. Risk mitigation for OTP can be achieved through a systematic approach by automating processes to eliminate manual intervention, creating validations to ensure the integrity of the model output, and providing process efficiencies. These allow the owners of the model and analysts to proactively monitor and assess the potential impact of various scenarios, react to the impact of changes, and to strategize on methods to reduce the impact or, at least, be prepared for it.
Ask yourself these questions:
- Does your company have a systematic, repeatable process for managing OTP?
- Is your company able to incorporate OTP into the financial planning and forecasting processes to gain a holistic view of the company’s consolidated and segmented financial statements?
- Does your company have a comprehensive approach to reporting that provides auditors and tax authorities with a transparent view of the impact of OTP to both sender and receiver entities?
- Is your company able to efficiently monitor the impact of change to intercompany agreements or changes in tax code?
Alithya has a proven, comprehensive methodology to help our clients reap the benefits of their technology investments. Our technical and functional knowledge of OTP provides our clients with a solution that will drive an automated process that provides insight, follows leading practices, eliminates redundancies, and provides a technology solution that is scalable for future change.
For comments, questions, or suggestions for future topics, please reach out to us at email@example.com. Visit our blog regularly for new posts about Cloud updates and other Oracle Cloud Services such as Planning and Budgeting, Financial Consolidation, Account Reconciliation, and Enterprise Data Management. Follow Alithya on social media for the latest information about EPM, ERP, and Analytics solutions to meet your business needs.