DISTINCTIVES: VDDW & Traditional Profitability App - Side-By-Side

  • What the Traditional Profitability App Entails

    It would be grossly over-reaching to state that all home-grown profitability systems are equal, or that they all exhibit identical strengths and weaknesses. This would wrongly assume that all companies’ business and data models and IT / application development capabilities were the same. This certainly is not the case. Nevertheless, there are traits of home-grown profitability systems that are very common, even if not universal, and it is against this collection of commonly observed characteristics that we compare the VDDW.

    A home-grown profitability system is one in which the business has recognized the need to understand Net Operating Profit (NOP) for its partners and products, and has therefore built its own allocation system to apportion corporate overhead to individual customers, suppliers, or products, or combinations thereof. Home-grown profitability apps often do not allocate expenses all the way down to individual transactions (more than likely they are built to allocate down to the customer-product combination), and they are commonly not activity-based; rather, they tend to rely more on rate tables blessed by the accounting or finance group, or make heavy use of simple drivers like Sales dollars or quantities as the primary basis for apportionments.

    The home-grown profitability app is commonly a separate system from the data warehouse, with its own set of ETL integration.


  • How the Traditional Profitability App and VDDW compare

    The home-grown profitability app is similar to the ABC point solution in terms of its strengths and weaknesses. Certainly a traditional profitability system does often yield some valuable business insights. It also however, typically comes with some downside issues in terms of accuracy. Like the ABC point solution, it is not commonly built at the transaction level. Additionally, it often exhibits a reliance on overly simplistic allocation drivers and arcane rate tables that don’t capture the true variability in efficiency from one transaction to the next. Because of these factors, the traditional profitability system tends to come with big question marks in terms of accuracy that hamper organizational buy-in.

    Like the ABC point solution, the traditional profitability system also represents an additional, cluttering node in the information supply chain.


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