You are currently browsing the tag archive for the ‘Integrated Business Planning’ tag.

Adaptive Insights held its annual user group meeting recently. A theme sounded in several keynote sessions was the importance of finance departments playing a more strategic role in their companies. Some participating customers described how they have evolved their planning process from being designed mainly to meet the needs of the finance department into a useful tool for managing the entire business. Their path took them from doing basic financial budgeting to planning focused on improving the company’s performance. This is one of the more important ways in which finance organizations can play a more strategic role in corporate management, an objective that more finance organizations are pursuing. Half of the companies participating in our Office of Finance benchmark research said that their finance organization has undertaken initiatives to enhance its strategic value to the company within the last 18 months.

We believe that presenting its software as an aid to make the planning process more strategically valuable is a product strategy that is essential for the long-term success of planning software vendors. It was a theme in Adaptive Insights’ recent release of its Adaptive Suite and revenue planning software.

vr_ibp_planning_software_provides_faster_answers_updatedCompanies do many kinds of planning, not just budgeting. They plan sales, they determine what and how they will produce products or deliver services. They plan the head count they’ll need and how to organize distribution and the supply chain. They also produce a budget, which itself is a financial plan. The planning process involves discussions about objectives and the resources and tactics that people need to achieve them. Our benchmark research finds that dedicated applications are more effective tools for planning than are desktop spreadsheets (which nevertheless are still the most widely used technology for planning). For example, dedicated planning software is more able to get to underlying causes behind variances immediately during a performance review meeting. Users can apply the information that’s in the application when reviewing results and adjusting goals and objectives to reflect changes that have taken place in the business. The research shows that organizations that use dedicated software more often can get to the underlying details of the difference between plans and actual results and therefore are more able to make fast decisions about what to do next. Spreadsheets are inherently less capable of drilling down into underlying details.

Adaptive Insights has a suite of planning, analysis, reporting and consolidation applications that mirror the evolution of the business planning category. I coined the term “integrated business planning” more than a decade ago to describe an approach to planning that brings together financially focused budgeting and forecasting activities with various stand-alone functional planning efforts. The objectives of this approach are to provide senior executives with a comprehensive view of future expectations for their business; to set a baseline for performance measurement; to assess performance relative to these baseline objectives; and to periodically adjust objectives and resources in a coordinated, strategic fashion as conditions evolve. Integrating the business planning activities of the various functional groups within a company is best accomplished by providing a single planning environment in which each group can plan its part of the business the way it prefers, compare its actuals to plan using preferred analytical methods and easily report and communicate results within the group. Each planning process can be loosely coupled in that the cadence, items, measures, dimensions and other planning elements fit the needs of that specific part of the business. At the same time, because all planning takes place in a single environment, it’s easy to bring together the necessary information from each of the individual business unit plans to create a consolidated, forward-looking view of the company. It’s also easy to provide control and consistency across planning units by ensuring, for example, that all plans use the same projected benefits costs, commodity prices, exchange rates and other elements that will affect all parts of the organization. Our benchmark research on next-generation business planning finds that companies that integrate their planning by directly linking plans get better results: Two-thirds that have direct links said they have a planning process that works well or very well compared to 40 percent that copy and paste information and just one-fourth that have little or no connection between plans. Well-executed planning is the best way to get everyone onto the same page to ensure that the company is organized in executing the plan. Setting and to a greater degree changing the company’s course require coordination. It enables understanding of thevr_NGBP_02_integrated_planning_works_better impact of the policies and actions in one part of the company on the rest of the company. Information technology has the potential to make business planning more useful, and to help improve a company’s performance and increase its competitiveness.

From a financial management standpoint, it’s essential to be able to project pro-forma balance sheets and cash flows. When all operational planning is feeding the core business model, the future state of a company’s balance sheet and cash flow can be more realistic than when it is only loosely connected. Moreover, it’s possible to quickly and accurately compare the impacts of various operating scenarios on the company’s finances, assess the impacts of various financing alternatives and project how different capital market conditions will affect the company’s overall financing costs across multiple operating scenarios. All of this is possible using spreadsheets, but doing so is far more time-consuming (and therefore impractical) and potentially much less accurate.

Another reason why a dedicated planning application a better planning environment than desktop spreadsheets is that it facilitates the separation of planning into things and the financial aspect of those things: a unit-times-rate structure. While financial planning focuses on money, the rest of the business plans mainly in terms of things: units produced, head count at various pay grades, tons of raw materials and production yields, to name just a few. Having the ability to model units and currency amounts separately makes it far easier to measure performance in ways that are meaningful to each part of the business. In its most simplistic form, it helps planners determine immediately and unambiguously whether variance between the plan and actual results was driven by units, a price or cost variance or both.

Our research on enterprise use of spreadsheets shows that companies that use spreadsheets for forecasting, planning and budgeting usually spend much more time in analyzing and reporting results than users of more appropriate tools do. Dedicated software automates this process, enabling finance departments and other functional units to spend less time on repetitive tasks while providing accurate and consistent information to executives and managers. Adaptive Insights recently added to its suite Office Connect, which facilitates creating and updating reports in Microsoft’s Excel, Word and PowerPoint vr_NGBP_09_spreadsheets_dominant_in_planning_softwareapplications, enabling departments to operate more efficiently and speed the availability of performance reports. For example, using the software, standard monthly tables and charts can be instantly updated each month to speed the production of spreadsheets, narrative reports or presentation decks for monthly board meetings.

I have long advocated the use of dedicated planning applications rather than desktop spreadsheets for handling planning processes. The inherent technology limitations of spreadsheets make them a poor choice because they consume time needlessly and prevent organizations from being able to forecast, plan, analyze and replan effectively. Yet spreadsheets remain the leading technology used for planning. Our recent planning research finds that, across 11 different types of business planning, on average seven out of 10 companies use spreadsheets. I recommend that all midsize and large companies consider replacing spreadsheets with a dedicated planning application that provides a unified environment for planning across the entire enterprise. Midsize companies and midsize divisions of large enterprises should consider Adaptive Insights for this role.

Regards,

Robert Kugel – SVP Research

Ventana Research recently released the results of our Next-Generation Business Planning benchmark research. Business planning encompasses all of the forward-looking activities in which companies routinely engage. The research examined 11 of the most common types of enterprise planning: capital, demand, marketing, project, sales and operations, strategic, supply chain and workforce planning, as well as sales forecasting and corporate and IT budgeting. We also aggregated the results to draw general conclusions.

Planning is the process of creating a detailed formulation of a program of action designed to achieve objectives. People and businesses plan to determine how to succeed in achieving those objectives. Planning also serves to structure the discussion about those objectives and the resources and tactics needed to achieve them. A well-managed planning process should be structured in that it sets measurable objectives and quantifies resources required to achieve them. Budgeting is a type of planning but somewhat different in that is financially focused and is done to impose controls that prevent a company from overspending and therefore failing financially. So while planning and budgeting are similar (and budgeting involves planning), they have different aims. Unlike budgeting, planning emphasizes the things that the various parts of the business focus on, such as units sold, sales calls made, the number and types of employees required or customers served.

Integrating the various business planning activities across a company benefits the senior leadership team, as I have written by enabling them to understand both the operational vr_NGBP_02_integrated_planning_works_betterand the financial consequences of their actions. There are multiple planning efforts under way at any time in a company. These plans typically are stand-alone efforts only indirectly linked to others. To be most effective, however, an individual business unit plan requires direct inputs from other planning efforts. A decade ago I coined the term “integrated business planning” to emphasize the need to use technology to better coordinate the multiple planning efforts of the individual parts of the company. There are good reasons to do this, one of which is accuracy. Our new research reveals that to be accurate, most (77%) planning processes depend to some degree on having access to accurate and timely data from other parts of the organization. For this reason, integrating the various planning processes produces business benefits: In our research two-thirds of companies in which plans are directly linked said that their planning process works well or very well. This compares favorably to 40 percent in those that copy planning data from individual plans to an integrated plan (such as the company budget) and just 25 percent of those that have little or no connection between plans.

Technology has been a major barrier preventing companies from integrating their planning efforts. Until relatively recently, joining the individual detailed plans of various departments and functions into an overall view was difficult because the available software, data and network capabilities were not sufficient to make it feasible and attractive to take this approach. To be sure, over the past decades there has been steady progress in making enterprise systems more accessible to ordinary users. But while dedicated planning software has become easier to use, evidently it’s still not easy enough. The research reveals that across the spectrum of corporate planning activities, three-fourths of organizations use spreadsheets to manage the process. We expect this to change over the next several years as the evolution in information technologies makes dedicated planning software a more compelling choice. One factor will be enhanced ease of use, which will be evident in at least two respects. Software vendors are recognizing that a better user experience can differentiate their product in a market where features and functions are a commodity. Ease of use also will extend to analytics and reporting, making it easier for business users to harness the power of advanced analytics and providing self-service reporting, including support for mobile devices. The other factor will be the ability to make the planning process far more interactive by utilizing in-memory processing to speed calculations. When even complex planning models with large data sets can be run in seconds or less, senior executives and managers will be able to quickly assess the impact of alternative courses of action in terms of their impact on key operating metrics, not just revenue and income. Having the means to engage in a structured conversation with direct reports will help executives be more effective in implementing strategy and managing their organization.

Technology is not the only barrier to better planning. The research demonstrates the importance of management in the process, correlating how well a planning process is managed with its accuracy. The large majority (80%) of companies that manage a planning process well or very well wind up with a plan that is accurate or very accurate. By contrast, just one-fourth of companies that do an adequate job achieve that degree of accuracy and almost none (5%) of those that do it poorly have accurate or very accurate results. Additionally, managing a planning process well requires clear communications. More than three-fourths (76%) of companies in which strategy and objectives related to plans are communicated very well have a process that works very well, while more than half (53%) with poor executive communication wind up with a planning process that performs poorly. And collaboration is essential to a well-functioning planning process. Most (85%) companies that collaborate effectively or very effectively said that their planning process is managed well, while just 11 percent of companies that collaborate only somewhat effectively expressed that opinion.

vr_ngbp_03_collaboration_is_important_for_planningCollaboration is essential because the process of planning in corporations ought to get everyone onto the same page to ensure that activities are coordinated. Companies have multiple objectives for their planning processes. Chief among these is accuracy. But since things don’t always go to plan, companies need to have agility in responding to changes in a timely and coordinated fashion. In a small business, planning can be informal because of the ease of communications between all members and the ease with which plans can be modified in response to changing conditions In larger organizations the planning process becomes increasingly difficult because communications become compartmentalized locally and diffused across the entire enterprise. Setting and to a greater degree changing the company’s course requires coordination to ensure that the actions of one part of the organization complement (or at least don’t impede) the actions of others. Coordination enables understanding of the impact of policies and actions in one part of the company on the rest. Yet only 14 percent of companies are able to accurately measure that impact, and fewer than half (47%) have even a general idea. Integrated business planning address that issue.

In most organizations budgeting and operational planning efforts are only loosely connected. In contrast, next-generation business planning closely integrates unit-level operational plans with financial planning. At the corporate level, it shifts the emphasis from financial budgeting to planning and to performance reviews that integrate operational and financial measures. It uses available information technology to help companies plan faster with less effort while achieving greater accuracy and agility.

For companies to improve competitiveness, their business planning must acquire four characteristics. First, planning must focus on performance, measuring results against both business and financial objectives. Second, it must help executives and managers quickly and intelligently assess all relevant contingencies and trade-offs to support their decisions. Third, it must enable each individual business planning group to work in one central system; this simplifies the integration of their plans into a single view of the company and makes it easy for planners in one part of the business to see what others are projecting. Fourth, it must be efficient in its use of people’s time. Success in business stems more from doing than planning. Efficient use of time enables agility, especially in larger organizations.

Today’s business planning doesn’t completely lack these features, but in practice it falls short – often considerably. Senior executives ought to demand more from the considerable amount of time their organization devotes to creating, reviewing and revising plans. They should have easy access to the full range of plans in their company. They must be able to engage in a structured dialog with direct reports about business plans, contingency plans and business unit performance. Information technology alone will not improve the effectiveness of business planning, but it can facilitate their efforts to realize more value from their planning.

Regards,

Robert Kugel – SVP Research

Twitter Updates

Stats

  • 97,129 hits
Follow

Get every new post delivered to your Inbox.

Join 75 other followers

%d bloggers like this: