The best-laid plans

It is a sound piece of advice – but one that is likely to receive a hostile reception in almost every department and at every level of an organisation. Not only do more employees need to get involved in the business planning process, but that process also needs to be performed more regularly.

“More people, more often – that’s how organisations need to approach business planning,” says Simon Tucker, director of product marketing at business performance management tools vendor Hyperion.

It is not hard to understand why budgeting, forecasting, and planning consistently fail to attract many enthusiasts. In most organisations, business planning is carried out on numerous, disconnected Excel spreadsheets scattered throughout the organisation. Finance managers must spend time ‘chasing’ line-of-business managers for completed spreadsheets. Meanwhile, line-of-business managers see the planning process as time taken away from ‘real’ work.

Employees in the finance department must then wade through these spreadsheets, identifying and amending errors and omissions, and finally, consolidate them.

Many organisations struggle with this process. Prudential, the UK’s second largest insurance company, has recently signed a deal with Cognos to buy Enterprise Planning, a product acquired by the business intelligence tools supplier in its January 2003 purchase of planning tools specialist Adaytum.

Matthew Croft, Prudential’s finance manager, hopes Prudential’s investment will ease the “annual nightmare” of budgeting. At present, he says, the budgeting process generates over 2,000 disconnected spreadsheets. For the most recent financial year, it took between three and four months of “solid effort” by the finance department to collate, check and prepare these spreadsheets for aggregation, he says.

However unpopular business planning may be, it is a simple fact that it is the cornerstone of business performance management: “Without a plan, an organisation has nothing against which it can measure its success or failure,” points out Michael Coveney, director of strategy management at planning tools vendor Comshare.

The ability to perform this kind of measurement has never been more important, adds John Hagerty, an analyst with market analysis company AMR Research: As a result of shorter product lifecycles, shrinking margins and the need for better visibility into overall operations, he says, planning and budgeting have become “the heart of a living and breathing blueprint for the business”.

Easing the burden

Standalone financial planning and budgeting tools from software suppliers such as Hyperion, Comshare and Adaytum, or those embedded in high-end enterprise application suites from companies such as SAP, PeopleSoft and Oracle have done much to ease the burden of enterprise planning for many organisations in recent years.

These tools provide employees with a standard (and in most cases, web-based) interface that can be personalised for each function or department, so that contributors need only key in data relevant to them. They typically provide modelling and analysis tools that enable finance employees to compare targets and actuals among teams and individuals, or along product, customer, territory or time period lines. Using planning and forecasting tools, organisations are able to eliminate much of the administrative burden traditionally associated with business planning and create a ‘unified view’ of their organisation’s strategic roadmap.

Best practice business planning

When it comes to best-practice adoption of business performance management strategies in European organisations, budgeting, forecasting and planning are leading the charge, according to Nigel Montgomery of IT market research company AMR Research. “This reflects the historical financial bias towards performance management and business planning,” he says.

His research, he says, indicates four levels of best-practice adoption in planning, budgeting and forecast management. In a recent survey of European organisations, Montgomery found that almost 20% of companies surveyed were already at Levels 3 and 4.

Level 1 Multiple separate and disconnected budget sets, based in spreadsheets.

Level 2 An integrated and linked budgeting system driven by an enterprise resource planning backbone that offers some version control functionality.

Level 3 A planning ‘workbench’ that offers simulation approaches, including multiple scenarios linked to overall business plans.

Level 4 Centralised and decentralised collaborative planning, budgeting and forecasting development, with involvement from supply chain partners.

American brewing specialist Boston Beer Company, for example, has reduced its planning cycle from five weeks to three since it implemented Hyperion’s Planning tool. Finance employees now spend less time on the administrative aspects of the planning process – gathering and consolidating data – and more time on analysing that data. According to the company, in its 2001 fiscal year, 70% of the finance department’s workload involved gathering and organising data, and only 30% analysing it. In 2002, following the implementation of Hyperion Planning, those numbers were reversed.

Companies that have achieved these efficiencies, argue the planning and forecasting software vendors, now need to take their business planning activities to the next level, involving more contributors and resetting goals on a more continuous basis. But what business benefits might companies expect to achieve from doing so?

First, say the business planning software companies, by putting budgeting more firmly in the hands of line-of-business managers, or ‘internal stakeholders’, and giving them a sense of ownership over their figures, an organisation is likely to get more accurate forecasts and thus set more realistic targets – which a centralised, finance department-driven planning process is unlikely to achieve. Second, by planning more frequently, that organisation will be more responsive to changing business conditions.

The politics of planning

“Planning and budgeting is all about making predictions. The people best placed to make predictions are those closest to the action,” says Mark Stimpson, director of product management at Cognos.

In many organisations, however, those ‘closest to the action’ are unlikely to have a finance background, adds Nazhin Zarghamee, chief marketing officer at Hyperion. “Operational managers shouldn’t have to be accountants to participate in the planning process, and shouldn’t have to go to finance to get an accurate picture of the financial health of their organisation. It should be self-service. And accountants shouldn’t have to translate business information into financial estimates.”

By making planning simpler for non-finance employees, the argument follows, they are able to get more involved in the process and are more likely to stick to the targets they are set.

This is an outcome Prudential hopes to achieve when it has completed its implementation of Cognos Enterprise Planning. “We expect that as the budgeting process becomes less onerous and complex, managers will feel more ownership over their departmental numbers and [the] finance [department] will be seen as more consultative and less demanding,” says Croft.

The introduction of web-based interfaces to business planning systems makes it easier to extend planning to employees regardless of where in the organisation they are located or how much time they spend in the office.

UK charity Mencap, for example, works on behalf of people with learning difficulties throughout England, Wales and Ireland. It runs around 700 residential care homes, around 60 education and employment schemes, and operates a very disparate fundraising network.

Because Mencap’s activities are so diverse, says Vivienne Fraser, the charity’s information systems manager, its budgeting requirements are complex: the annual budgeting process at Mencap, she says, encompasses more than 1,000 cost centres.

Last year, the company implemented Hyperion Planning. The tool’s web-based user interface enables Mencap employees throughout the organisation to input and analyse budget data and receive real-time updates using a standard web browser regardless of their location.

A further advantage to the web-based approach, says Simon Tucker, product marketing director at Hyperion, is that it enables finance employees to more accurately track the status of planning in different departments and locations. “Finance staff know when managers have opened the system, what input they have performed, whether their most recent changes have been approved or rejected, and can send business managers advice or guidance accordingly,” he says.

Planning cycles

More frequent planning is the key to a more responsive, flexible business, says John van Decker, an analyst at IT market research company, the Meta Group. “Doing a business plan once or twice a year is not frequent enough, because there are changes in competition and the economy.” In order to “realistically embrace business performance management”, he predicts, many organisations will be looking at updating business plans on a monthly basis within the next 36 months.

Other research seems to concur with this prediction. A recent survey of chief financial officers conducted in 2002 by systems integration company Cap Gemini Ernst &Young found that 84% of respondents plan to have budgeting and forecasting processes that are “partially or fully dynamic and will be based on operational drivers” within the next three years.

A more flexible and responsive planning process is certainly the goal for Ricoh UK Products, the UK-based manufacturing subsidiary of Japanese photocopier and fax machine giant Ricoh, according to the company’s finance manager, John Gittins.

Since implementing planning software from Adaytum (now Cognos Planning) in late October 2002, Ricoh UK Products has been able to cut its planning cycle – in this case, the period of time from sending out a planning schedule to line of business managers to the time the finished plan is submitted to the parent company in Japan – from three months to three weeks.

Moreover, says Gittins, the company is now able to reforecast every three months, and reports its actual results against those plans on a monthly basis – within seven working days of the end of the month. The overall cost of the implementation – £70,000 including hardware costs – was minimal compared to the benefits it has delivered, he says.

If more companies adopt a decentralised, continuous planning cycle, this will create the impetus for their competitors to follow their example, argues Coveney of Comshare. “The business environment continues to change, and so organisations must be ready, willing and able to adjust accordingly. After all, your competitors are not going to wait a year to change their plans in order to fit in with your annual planning process,” he says.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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