Robert Kugel's Analyst Perspectives

Host Analytics recently announced it will now go by the name Planful. The change formally signifies a new chapter in an evolution that began with the company’s acquisition by Vector Capital a year ago and the accession of a new CEO, Grant Halloran. Planful executives say the new name better represents its focus, which is on what Ventana Research calls continuous planning, as well as its focus on the associated processes of forecasting, analysis, consolidation and reporting. 

Continuous planning is a term we use for a high participation, collaborative and action-oriented approach to planning built on frequent, short planning sprints. This enables organizations to enhance the accuracy of their plans because refinements are made at shorter intervals. Short planning cycles enable companies to achieve greater agility in responding to market or competitive changes. Continuous also means continuous across the entire organization — having an ongoing collaborative dialogue that brings together finance, line-of-business managers and executives. And because it’s high-participation planning and not silo-based, companies can plan with greater accountability and coordination in their operations.

The name change is especially timely since I expect that adoption of dedicated applications for planning and budgeting will accelerate over the next five years. Mark Twain once quipped that people complain about the weather but no one seems to do anything about it. The same has been true about planning and budgeting: People have been complaining about this annual ritual seemingly forever. Yet despite broad agreement that the process is flawed, companies keep doing the same thing year after year. Our Next-Generation Business Planning benchmark research finds that fewer than half of participants said their company performs its budgeting and planning processes well.

On the surface this is puzzling because technology has made the mechanics of planning and budgeting more efficient. Yet one of the consistent complaints from budget owners is that the process provides little value to them. In their eyes there’s a long list of things that are wrong. Almost two-thirds of those participating in our research said that it takes too long. Almost half said it’s not adaptable or flexible enough, that it’s too political and in the end, it’s senior management’s budget or the finance department’s budget.

One important reason for dissatisfaction with planning and budgeting is companies’ use of desktop spreadsheets to manage the process. Our recent benchmark research on the Office of Finance research finds that 58 percent of companies use spreadsheets for planning and budgeting. However, the research also finds that dedicated applications work better: 66 percent of companies that use a dedicated application say that their planning processes work well compared to 36 percent that do not use a dedicated application.

Today, technology such as Planful’s application can transform planning and budgeting by making these processes easier for executives and budget owners to perform so they derive greater business value from them. How? One important way is to make budgeting more of a valuable business tool. To do this, though, companies (specifically, the FP&A organization within the finance department) must move away from a purely financial approach. They must enable budget owners to model and measure the resources — the “things” — that budget owners use to achieve their business objectives, not just their monetary value.

When budget owners plan and budget, they usually think in terms of the things they need to run their part of the business, such as headcount, advertising campaigns, facilities, laptops and other items. A dedicated planning and budgeting system can translate this list of resources into accounting line items so the system can aggregate the financial data into a company-wide budget and financial forecast.

Rather than requiring budget owners to tediously construct a fiscal budget, it’s more productive to have them focus on their business objectives and then the things required to achieve them. Focusing first on the resources budget owners need simplifies the process for them. It’s a user-friendly approach to budgeting because it lets budget owners think about needs the way they do about their business while enabling them to quickly and accurately translate that list of things into a budget for the finance department. It’s a simple idea, but it takes technology — the right technology — to make it feasible. Planful’s software does that.

Creating budgets and plans expressed as things and money means that as the year progresses, the FP&A group will be able to analyze whether variances were the result of needing different things or the price or costs associated with the things needed. For instance, reports from the FP&A group will be able to inform executives and budget owners whether a negative headcount expense variance is the result of higher-than-expected benefits expenses or because the number or mix of employees is different than was anticipated.

Planning and reviewing things alongside their monetary consequences has multiple benefits. It can speed up the budget process and shorten planning cycles.

Separating things and financial impacts broadens the discussion in budget meetings and reviews to also focus on business objectives and how well they were met, not just the financial plan. Rather than speculating on whether the cause of a negative variance was a price increase beyond the control of the budget owner or internal inefficiencies, executives and managers have available the data to assess the causes objectively.

Enabling individuals to plan things and their monetary consequences simultaneously is something a dedicated application can do that would be substantially more difficult to accomplish using desktop spreadsheets. These have inherent technological flaws that make them a poor choice for budgeting and planning: They are error-prone, difficult to consolidate and have limited dimensionality.

More than a decade ago I coined the term “integrated business planning” to describe a technology-enabled approach to managing the forward-looking activities of a corporation such as forecasting, planning and budgeting. Integrated business planning based on a software platform enables every business unit to plan its business in a way that makes sense but also makes the numbers in each plan available for company-wide planning, budgeting analysis and reporting. Sales teams plan sales, marketing teams plan marketing, manufacturing units plan manufacturing, each in a way that makes sense to them. Integrated business planning makes it easy to take the necessary planning information from each of the plans and immediately consolidate the collective information into an enterprise-wide view. Integrated business planning also is designed to make it easy for organizations to plan the things that they need to achieve their objectives such as headcount, third party business services, materials and so on.

Planful’s software is such a company-wide planning platform. It supports a faster, easier and more useful process. It enables each business unit to plan its business in a way that makes most sense and yet make the results of that plan available immediately to others in the organization. The platform eliminates the need for FP&A organizations to spend time consolidating spreadsheets. Consequently, consolidating plans and budgets into a company-wide view is simple enough to support high-participation planning, which promotes accountability. Near-instantaneous consolidation also enables organizations to compress planning and review cycles. Updating plans and budgets can be done quickly so that the current version is more relevant. Planners can save and compare multiple individual plan scenarios to enable executives and managers to understand the potential impact of different economic and market environments or moves by competitors.

Today’s technology enables companies to transform their planning and budgeting processes to make them more efficient and significantly increase their business value. For this reason, I expect dedicated planning and budgeting software will increase its penetration over the coming decade. I recommend that companies that are using desktop spreadsheets for planning and budgeting adopt dedicated software for this purpose. And I recommend they evaluate Planful.

Regards,
Robert Kugel