Robert Kugel's Analyst Perspectives

Alight has announced that it is partnering with Scope Systems to provide the mining industry with planning and financial reporting systems tailored for extraction companies. Scope creates ERP solutions for companies engaged in mining, drilling and natural resource exploration.

The combination of ERP and planning and reporting has implications for any industry. It’s important to record transactions and manage business processes associated with recording transactions, which is what ERP systems do. It’s equally important that companies plan, budget, report and analyze results – functions often included under the heading of performance management. Since data created by ERP systems is a key component of data that drives performance management, the two are complementary. I think this is a reason why almost all of the once-independent performance management or business intelligence software vendors were acquired by ERP vendors over the past decade (and why it makes sense for Scope to offer its customers an integrated solution).

I think Alight’s approach to planning and budgeting is well suited to the needs of mining and other extraction companies. The company’s approach is consistent with what I call integrated business planning. Alight facilitates the creation of driver-based plans through its explicit unit-times-rate approach to modeling that I recently assessed (See: “Alight Does Agile Planning”). Users running the operating aspects can focus on the “things” they manage (numbers of people and volumes, for example) and automatically see the financial implications their actions. In mining and other extraction industries, physical volumes are the single most important determinant of business activity within the organization, while commodity prices drive revenues. Keeping these two separate and explicit supports more effective and more accurate planning and facilitates longer-range planning. In services businesses, a year or two or three may be a sufficient time horizon. Mining benefits from planning out along a much longer time horizon for both operational and investment decision-making. The unit-times-rate approach enables companies to do more longer-term contingency planning, manipulating commodity price assumptions, which in turn can drive production assumptions based on site-specific extraction costs. The Alight Planning software allows companies to create unified models that are detailed in near-in years and at a higher level for years farther out for which fine details may not be appropriate.

Mining companies have an inherent need for agile planning since their time horizons are long and commodity prices are volatile (more so today than ever). Commodity prices are not controllable, but Alight makes it easy for managers and executives to quickly identify other things they can control that will have the biggest impact on the bottom line, rather than having to do multiple iterations of a plan to get a rough sense of which items are most important. Driver-based models allow companies to almost instantly update detailed plans rather than having to use a lot of assumptions and examine higher-level summaries.

Many companies, especially midsize ones (by our definition, those with 100 to 1,000 employees) use spreadsheets for business and financial planning. In theory, spreadsheets can do any sort of planning, if you expend enough time and headcount in the process. In practice, however, desktop spreadsheets are inadequate for agile planning because they have limited dimensionality and lack referential integrity and therefore are difficult to “roll up” (combine) into a single view. Spreadsheet models are brittle, and once created they are difficult to change, especially if the models are complex.

Planning, especially thorough and intelligent contingency planning, is more important today in the mining business, given the volatility of prices and demand in today’s markets. It appears that this high level of business volatility will remain with the mining business for several more years at least. I recommend that senior executives and those responsible for company planning take a look at Alight Planning to see if its approach can help manage their business more effectively in today’s challenging environment.

Regards,

Robert Kugel – SVP Research