How much do you know about cloud computing? According to a 2010 Proformative white paper, revenue from cloud computing and software-as-a-service (SaaS) has increased more than 16% since 2009, so it’s probably a good idea to brush up. Choosing the solution that best fits your business needs, from both a finance and IT team perspective, is critical. Barry Wilderman, CEO of Wilderman Associates, outlines the key dimensions of time, cost and benefits, before moving on to the first step of a software selection approach in his new white paper “Selecting Enterprise Performance Management (EPM) Software.”

In a webinar presented by Host Analytics on August 1, we will first examine the best practices to make budgeting more effective and more efficient. This will lead naturally to the first step of a software selection approach.

Learning Objectives:

• How to integrate TCO, time to benefits and quantifiable benefits into the buying process
• How to improve the overall “business of budgeting”
• Based on an improved budgeting methodology, how to be a smart software buyer.
• How Cloud Technology can change the game for smart buying

Register now and join us for this free webinar! If you can’t join, follow the discussion on Twitter, #Wilderman

Most of us in today’s society go about our day plugged in to the Internet or connected through our phones. I know I do!  Sometimes, however, it is nice to take a break from email alerts, instant messages, and Skype alerts.

With Host Analytics Offline Planning, you can take a break from the “plugged-in” world and still get your work done.

Host Analytics Offline Planning Workbook (also referred to as Offline Planning) was created to allow you to perform budgeting tasks while not connected to the Internet.  It consists of an Excel Add-In created by Host Analytics, which allows you to open specific templates in Excel.

Offline Planning allows you to do more than just “open templates” in Excel, however.  With Offline Planning, you can check template data in and out, synchronize offline data with online data, and refresh offline data with new budget data input by co-workers who are online or plugged-in.

Offline Planning is fully secured and accessed via Host Analytics. In fact, you must login to Host Analytics to access or save templates from the Excel Add-In (depicted below).  However, before you can login, administrative users must provide you with access privileges to Offline Planning.

Once logged in to Offline Planning, you can open multiple templates for a Budget Entity in the same Excel Workbook. The following page displays a template opened for “budget input” in the Offline Planning Workbook.

Besides inputting budget data, Offline Planning enables you to apply spreads, apply global fields, apply forecast methods, and modify the spreadsheet grid. For those of you who are not familiar with these capabilities or terms, it means that you can do a whole lot of “stuff.”

I recently heard that there are more Offline Planning capabilities coming down the Host Analytics pipeline in the near future! So, if you can’t always be plugged-in or don’t always want to be plugged-in, check out Offline Planning. And, to those of you who are or have ever been Michael Jackson fans, “rock on” (as in Off the Wall)!

Want to learn more? Watch the demo.

Since late June I have been writing about integrated business planning. On July 25th I introduced the key components of an integrated business planning process and then in subsequent posts I walked through each of the components and also talked about best practices. In this final post around integrated business planning I will highlight situations/challenges we experience at Host Analytics when implementing an integrated business planning process.

1. Many companies have the key components of an integrated business plan, they just aren’t connected. The diagram below highlights a typical situation. A company will have all four processes: Strategic Planning; Project/Capital Planning; Operational Planning via S&OP; and Financial Planning; but they are managed by separate groups and the dots are never connected between the plans. At a minimum each plan is “siloed.” Chances are, each plan is fighting for the same resources and could be in conflict with the other plans. To mitigate this challenge companies should start by taking an inventory of all of their planning processes and work together to understand where one plan stops, the other starts, and integrate the plans.
   

   Siloed Planning

2.  For a multi-division corporation the challenge is multiplied because each division has their own Strategic Plan, Project/Capital Plan, Operational Plan and Financial Plan. These plans need to be consolidated at the divisional level. They also need to be consolidated and coordinated at the corporate level, i.e. combining all divisional Project/Capital Plans, Operational Plans, and Financial Plans. Strategic Plans should normally start at the top of the organization and driven down to the divisions and coordinated across divisions. To mitigate this challenge, divisions must have a well defined integrated business planning process, and then corporate planning will need to work through the plans and abstract and standardize the common planning elements throughout the plans. Too often, corporate mandates the planning process of what they require and divisions maintain two separate planning processes, one for corporate and one for internal management.
   

   Coordination becomes key when managing a corporate planning environment

3. The third challenge is to create a flexible plan at both the divisional and corporate levels. This requires plans to be predominantly driver based and where possible having plans across divisions use the same drivers. Traditionally when we think about budgeting we think about a bottoms up, detail line item budget with a lot of line item input. In order to allow the plans to be flexible at both the divisional and corporate levels they need to be driver based. To mitigate these challenges, divisions need to understand both the risk aspects of their plan (i.e. where could things go wrong) as well as the “fixed,” “semi-fixed” and “variable” nature of the plans and model them accordingly.

When I started this series in early May on “The Future of Planning” I focused initially on the data dilemma and external factors that drive a business, then I went into some detail on integrated business planning. In my next couple of posts I will finish up this series and tie in my prior post on Moneyball by focusing on a metrics approach to management, effectively bubbling up key information into leading and lagging indicators to drive the business and react to changes in business climate.

This week’s post is on Strategic Planning.  This is the last component of the four key components of integrated business planning.  Like project planning from the previous post, strategic planning focuses on the “grow” and “transform” business functions.

As a way of background, for the past 25 years I have worked within companies, as well as alongside them as a consultant to facilitate the creation of their strategic plans.  Early on this process was very loosely defined and resulted in a lot of good ideas. The executive team felt good about the plans, but unfortunately, in most cases those plans failed.  They typically failed for any number of reasons including:  it produced a nice fancy document no one wished to keep up to date and revise;  it was poorly communicated beyond the executive team so it had little support;  the vision was documented but the projects to accomplish were not planned, quickly forgotten or they were killed in the next budget revision and went unfunded; no one established the criteria to measure the progress of the plan and hold individuals accountable and departments for their part of the plan.

In the mid 90’s I was introduced to the Balanced Scorecard Methodology, developed by Drs. Kaplan and Norton.  At that time the Balanced Scorecard Methodology focused on strategic measurement.  Over time that method has transformed based on how companies use it to a strategic planning methodology.  When that happened, my world became clearer.  That ever evolving process suddenly became well defined process.  All the information I had tested and tried using other strategic planning methods became noise.

Just to give you an idea how it has evolved, the slide below shows a timeline of the books written by Drs. Kaplan and Norton and just viewing the titles alone, you can feel the transformation from strategic measurement to strategic management.

Timeline of Books written by Drs. Kaplan and Norton on the Balanced Scorecard Methodology

I don’t have the space in this post to dig in any detail to the process of the balanced scorecard methodology, but I would like to offer you a free book:  “The Execution Premium” by Drs. Kaplan and Norton. This will provide detail on both the process and case studies of organizations that have successful implementing the balanced scorecard methodology for strategic management.  Click on this link and it will take you to a page to register.

The book has some tremendously helpful takeaways for strategic planning, including:

• Clarity of vision – using strategy maps and theme reports help companies focus on what is important to their business
• Communication – it provides a methodology to get everyone in the company focusing on how their job contributes to the overall plan.
• Measurement – When you hold people accountable for realistic goals and objectives and their measurement is clearly defined, magic happens.  The model I use for sales reps is telling them what they need to do and how they are compensated and they achieve it.
• Converting “transform” and “grow” projects to action – by linking the action plans defined during the process to the financial plans.

I know there are those opposed to this methodology, claiming it doesn’t work or perhaps it failed for them but I think the key is it gives you a place to start and a process to follow, over time you will keep what works for you and tweak what doesn’t work within your organization’s culture.

My next post will focus on the challenge of integrating these four areas in a corporate environment.

Last week, we discussed financial planning and how it fits into the overall framework of integrated business planning.  This week’s post focuses on project planning.  Let’s first take a look at the three functions of managing a business: Running the day to day operations of the business; Transforming the business based on to the new demands of customers and changes in the economy; Growing the business; project planning focuses on the Transforming and Growing aspects of a business.  Project planning monetizes the cost and benefits of Capital Expenditures (CapEx), and Strategic Expenditures (Stratex).  Its objective is the efficient allocation of capital and resources to maximize shareholder/owner value consistent with the strategic plan.  To achieve this objective, project plans need to be considered as separate entities with separate Income Statement, Balance Sheet and Cash Flow.    

Project Planning

The diagram below shows the relationship between project planning and the financial and operational plans as well as scenario management using an Excel metaphor.

Project Planning Diagram

In the diagram above, project planning is shown in the center cylinder labeled “Capex and Stratex Projects.” Each spreadsheet in the center cylinder represents a separate project, with complete Income Statement, Balance Sheet and Cash Flow.  Collectively the cylinder represents the complete portfolio of projects across the entire organization and divides the projects up into three categories:

• Potential projects – these are projects that have never been started but are “on the drawing board.”  The level of detail in each of the plans may vary from a “back of the envelope” calculation to detailed timelines, resource requirements and financial statements.
• Approved projects – these are currently approved projects that are in implementation.  While operational and financial plans mentioned in prior posts may be updated monthly or quarterly, these projects are continually updated.
• Projects on hold – these are projects that have been started and for some reason have been placed on hold. 

The key thought being conveyed in the diagram is each project plan needs to be treated as an independent entity that impacts both operational and financial plans.  The system must have the flexibility to move these projects in and out of different forecasts and “what-if” scenarios to measure the impact on required funding, operations and financial results. 

Transparency and Flexibility

The combination of driver based planning, discussed in the previous two blog posts, along with project based planning and the ability to move projects in and out of a plan provide the “levers” integrated business planning requires creating a dynamic planning environment.

For a more detailed look at the templates and models behind project planning check out the white paper “Achieving superior financial flexibility through project budgeting and planning”.

The models above fit in the overall IBP framework of the post on July 25, 2011 (click here to review) as shown in the diagram below:

Project Planning within an Integrated Business Planning Framework

Project planning is typically an ongoing process.  Initial projects may start with a “back of envelope” calculation and are refined and “tightened” as their feasibility and probability of execution become more certain.  As mentioned above, project planning requires the ability manage a portfolio of potential projects and move them in and out of the plan depending on economic conditions, market conditions, competitor actions and the company’s strategic plan.  Next week’s blog will focus on the strategic planning process and how it drives both Stratex projects as well as the financial and operational plan.

Last week we discussed the operational planning process within an organization, and this week’s post picks up where it left off.  We’ll focus on monetizing the operational plan as well as adding other financial items to create a baseline financial plan.  These additional financial drivers and costs include things like facilities expense, selling and administrative expense, distribution expense, and human resource expense that are not related to the operations process.  However, the bulk of the risk in accuracy resides in monetizing the operational planning areas.  The remaining items at operating divisions tend to either be project oriented, or periodic expenses that are manageable to the original budget and require minimal effort to update.

Financial Planning

The diagram below highlights key components/models for a typical financial planning process.

Financial Planning Process Diagram

The boxes represent the models, drivers and assumptions used to forecast the key financial statements and supporting schedules.  The items in dark green indicate that the output stems from the Sales and Operational Plan.  Product drivers and Sales drivers typically represent production and sales unit volumes broken out at a level of detail needed to plan production operations (or service delivery).  These inputs are monetized by the “Gross Sales,” “Direct Labor” and “COGS” models to calculate sales and cost of sales dollars as well as machine time and labor hours.

 In addition, other drivers and assumptions provide inputs to calculate Selling and Administrative expense as well as account for timing differences in the business cycle that impact the balance sheet and cash flow.  The result is a projected set of financial statements of the future.

For a more detailed look at the templates and models behind this process check out the white paper “Achieving superior financial flexibility through driver-based budgeting and planning”.

Driver Based Planning

Transparency and flexibility are vital to the planning process.  This transparency and flexibility is achieved through driver-based plans for both operational and financial plans and the integration between the two.  As mentioned above, results from the operational plans (production and sales unit volumes) drive key aspects of the financial plans.  When defining driver based plans, it is important to identify the key business drivers of an operation and create the necessary business models that use these drivers to predict future results.  Organizations can become more agile and more effectively plan for different economic scenarios by building flexible plans based on key business drivers.  These key business drivers will also “bubble up” and help lay the framework for the key metrics in the strategic plan which I’ll discuss in an upcoming blog.

The models above fit in the overall IBP framework of the post on July 25, 2011 (click here to review) as shown in the diagram below:

Financial Planning within Integrated Business Planning

Once the financial planning iteration is complete from integrating in the most current operational plan, Finance will also need to update the plan for any changes in Strategic Expenditures (Stratex), Capital Expenditures (Capex) and key projects which will be covered in next week’s blog.

Prior posts have identified key characteristics of Integrated Business Planning which include a review of high level goals, definition, structure, implementation approach, and best practices.  However, the posts have danced around what is the heart and soul of integrated planning, the models that support:

• Bottom up, discrete operational plans that align the operational departments, financial plans that monetize the operational plans and capital plans that enhance operational efficiency.
• Top down, strategic plans that drive strategic projects and expenditures to enhance operational efficiency, market share, product introduction.

The next series of posts will drill into the discrete operational and financial plans as well as methodologies for the strategic and capital plans.  In both the discrete operational and financial plans, the key component that supports an iterative planning and replanning process is the models. (For a reference of modeling techniques and an example of a modeling workbench you can refer to previous blogs that ran from February 4, 2011 to April 8, 2011.  To start with the first post, click here.)

In this post we will analyze discrete operational plans.

Operational Planning

To discuss operational planning, let’s take a look at sales and operational planning (S&OP), which embodies the best set of concepts for this discussion. S&OP is typically applied to manufacturing organizations but all companies are involved in some method of S&OP planning:

• Manufacturing needs to optimize the production facility while harmonizing it with customer demand/sales, resource/raw material availability, production process, and inventory levels. 
• Retailers need to optimize shelf space utilization by merging/balancing sales with customer, market, promotional demand, and shipping/distribution capacities to the stores as well as related financial impact to gross margin.
• Services companies need to coordinate sales against available human resources to deliver the services.  Some services organizations hire first and sell to the resources they have, others sell first and hire resources to deliver the services to the desired level of utilization.

Sales and operational planning (S&OP) is a process for matching demand and supply within a consensus management framework.  It is typically defined in terms of operational units (hours, units, megawatts, etc) and is a common sense approach to ensure that organizations have a structured framework for matching demand exposure to supply capabilities through the harmonization of various functional areas.

The diagram below depicts a series of inputs/models/processes that drive the S&OP process.

Sales and Operational Planning Process Diagram

Sales Forecasting

The first step is to create a monthly rolling sales forecast that contains projections for the coming 18 to 24 months.  This process includes both a sales forecast from the field (typically optimistic), tempered with analysis from the Marketing department of previous year’s data, market trends and marketing programs.  The sales forecast is typically planned based on how the product/service is sold, i.e. customer/product/channel.

Demand Planning

Demand planning validates the sales forecast and tempers it with an understanding of the sources of sales as well as current inventory levels and customer service policies. The initial demand planning steps include converting the sales forecast into units, then separating by customer/product/channel and how the product is manufactured or delivered.  

Supply Planning

Supply planning is typically performed by an operations group on the production planning side who analyzes the ability to achieve the demand plan by reviewing availability of resources and production capacity (in the case of services this would be headcount).

S&OP Reconciliation of the Plans

This step merges/reconciles the demand and supply plans with constraints to create an optimal plan.   It is important this process has the ability to chase both demand and supply constraints and opportunities equally.  Many implementations only focus on the demand side of the plan which hides revenue opportunities created by excess supply capacities or key customer opportunities.    

Finalize S&OP and Move to Production

The final step in the monthly S&OP process is to finalize the plan and release it to production.  This is typically done in the monthly S&OP meeting and includes representatives from Marketing and Sales with the demand side plan, and Operations and Supply Chain management with the supply side plan, and Finance.  This meeting helps to foster a ‘single version of the truth’ for this month’s production cycle.

For a more detailed look at the templates and models behind this process check out the white paper “Finance’s role in Bridging the S&OP Gap with Corporate Performance Management”

This model fits in the overall framework of the post on July 25, 2011 (click here to review) as shown in the diagram below:

S&OP within the Integrated Business Planning Process

Once the S&OP process is completed and customer demand, and operational capacities and constraints are reconciled into a production plan, Finance can monetize the plan in the Financial Planning aspects of the Integrated Business Planning process (next week’s blog).

Organizations that want to be in top form need integrated business planning.  In my last post , I gave five key best practices to creating a company-wide integrated method for business planning.  This second part continues on the top 10 practices, starting with number six. Let me know what you think and how you’ve gone about integrated business planning.  

 6)      Plan initiatives/projects as separate “flexible cost centers” from the regular plan.

The aspects of managing a business include: running the business; transforming the business; growing the business.  Too often companies focus all planning efforts on running the business and maintaining the status quo rather than transforming and growing the business.   To focus on transformation and growth requires initiatives and projects to be separated from the baseline plan.  Initiatives and projects need to be able to float in and out of plans to help understand the financial implications of those projects on the overall plan.  Companies should maintain a modeled portfolio of potential projects (including both resource requirements and benefits) so they can implement the projects as market conditions change.

7)      Create driver based plans that allow for plan adjustment from the top down, bottom up or middle out perspective.

To achieve an agile organization where the financial implications of decisions are known before decisions are made, it is important to be able to change the plan at any level and have those changes ripple down through the organization and aggregate to a consolidated summary.   To create this flexibility, it is important that the plan is built on drivers rather than direct input of the results from “back of envelope” calculations.   This is a key evolution as organizations evolve from static budgets to an integrated business plan.

8)      Model your business at both a strategic and tactical level.

Modeling a business and supporting top down and middle out planning methods requires two levels of modeling:

a)      High level rule based modeling (calculations like adjust sales units in everywhere but the northwest region up by 10% based on capturing 2% increase in market share).

b)      Discrete formula based modeling (think about detailed cost calculations based on a raw material cost driver assuming a 3% reduction in residual scrap).

The reason for the levels of modeling is many calculations that can be cumbersome to construct in a modeling language can be expressed easily in a spreadsheet model.  Ideally you are using a system that has imbedded the spreadsheet logic in its product.

9)      Identify key metrics that drive your business and use them as macro level drivers to your plan.

Identification of metrics that drive your business is a key first step in becoming a metric driven, performance driven culture only when these metrics truly drive your business.  Initially, integrating key metrics as drivers to your plan is the only way to test their validity.  Once the metrics are validated, they become critical to the flexibility in your planning process.

10)      Align your business planning processes with your strategic plan.

If your strategic plan is not aligned with your planning processes you strategic plan will fail.  I’ve seen many good strategic plans have their key initiatives go unfunded and killed in the budget cycle.  If you are having problems with aligning the two plans I suggest using the Balanced Scorecard Methodology for strategic management and measurement.  For me, it added structure around strategic planning.  In past lives I’ve seen the strategic planning process very unorganized and disconnected.

As we dig deeper into Integrated Business Planning, it is important to focus on some key best practices common to organizations that have created a company-wide integrated method for business planning.  This two-part post will cover the top 10 practices that will help evolve an organization’s planning process independent of how holistic or siloed its process, which will translate to corporate agility

1)      Annual budgets are not enough, companies need to plan and replan often.

The competitive business battlefield is no different than a real battlefield when it comes to planning; the plan goes out the window when the first soldier steps off the helicopter.  Similarly for organizations, on the first day into a new plan it becomes obsolete because assumptions the plan is built on have already changed.  To handle this reality, organizations, just like military intelligence must continuously replan.

2)      Plan for contingencies through alternate scenarios.

Extending the battlefield metaphor, when the military plan an engagement, they create alternate contingency plans for anything the enemy might throw at them.  During a battle, they don’t have the time to create alternative scenarios and evaluate the choices; they need to understand the impact of their decisions in real time.  In a business environment, organizations need to create contingency plans so they can understand the impact on potential decisions they will need to make before they need to make them.  This is managed in business through alternative scenarios.

3)      Systemize the planning process (using Excel doesn’t count).

Companies typically have a very good understanding of their business model the challenge is a lack of systems that can create and manage the models and lack of system and model integration across the enterprise.

4)      Create rolling forecasts.

It is important for organizations to have clear and consistent visibility into the future (and alternate futures as identified in best practice 2).   Organizations need to create a constant time horizon of 12 to 18 months and add future quarters as time rolls forward.

5)      Focus on the big picture when planning; don’t get bogged down in too much detail.

It is easy for plans to get bloated with too much detail in “non-at-risk” areas.  To help focus on the right amount of detail, keep the 80/20 rule in plain sight. That is 80% of the “at risk” areas are in 20% of the items being planned.  To help implement the 80/20 rule, focus on reviewing the overall economics of the plan and not the line items.

I hope that you’ve found these tips for implementing an integrated business plan useful. Be sure to come check back in a few days for five more best practices.

A critical first step when implementing an integrated business planning process is to catalog and understand the current planning processes within your organization.  The results of this process include:

• A baseline of the tools and methods you have to work with to create an integrated process.
• A mental framework and understanding of how these different planning processes work together or duplicate efforts.

To help build a framework, this post identifies key components of business planning being performed in most organizations today.  A hopeful result of this identification is to break down the “siloed” planning applications within your organization and leverage the cumulative intelligence of the existing applications and resources.  The diagram below identifies a simplified framework of an integrated business plan.

Components of Integrated Business Planning

Strategic Plan

The strategic plan looks out typically 3 to 5 years.  Over the years, I’ve seen strategic plans take many different forms.  My personal recommendation is to use the balanced scorecard methodology for strategic planning and strategic measurement.  This method supports both “base case plus alternate scenarios” as well as an initiative based strategic plan (with strategic expenditures identified).  

Financial Plans

These plans measure the financial impact of both the strategic and operational plans.  It provides a picture of the financial position of a company in the future and typically includes the income statement, balance sheet and cash flow.  It should be built around rolling forecasts with more granularities in the near term and more summarized plans in the farther out months and years.  Financial plans are typically the most mature planning process within an organization because it has its roots in the annual budget process.  However, it is important that companies move beyond the typical short term (1 yr), revenue and expense control based budgets to a more dynamic financial plan driven by the operational domains, capital expenditures and strategic plans.

Stratex, Capex and Projects 

I believe this is the most important planning process within an organization.  Projects no matter if they are Capex, Stratex (strategic expenditures from the strategic plan), or just small special projects are the life blood of innovation and market adaptation within an organization.  They are the catalyst for change and when adequately planned provide for financial flexibility within an organization.  It is also not just a matter of putting together an initial project plan and linking it to the financial plan, it is also important to continually update the project plans for:

• Scope change in terms of time, resources, results (doing more or less than originally anticipated and the corresponding spending changes).
• Time change (extending or shortening the plan timeframes and deliverables).
• Overall project status (putting the project on hold, stopping all expenditures).

Project plans require input from the other three planning areas.

Operational Domains (S&OP, Sales, Marketing)

I always find it interesting that the operational domains are where true value creation occurs within an organization yet typically this area has the most siloed and scattered planning processes.  Part of the reason for this is it covers broad and diverse areas within the organization, other contributors include:

• The plans are operationally driven rather than finance driven and it is difficult to measure the financial impact of the operational plans.
• Time frames across plans vary.  A manufacturing plant may require a detailed rolling 6 week plan to keep utilization and absorption in line and a summary level six month plan.  A marketing plan may revolve around seasons rather than weeks or months.

This area will probably be the biggest challenge, the most critical and the most detailed.   It will require both operational and financial knowledge to create an integrated framework from existing processes through to financial impact, but when successful it is where corporate agility is created.

Of the four areas identified:

• The financial plan is the most linear to complete and most defined. 
• The challenge with the strategic planning process is not as much the plan itself, but its integration with the other plans.  I’ve seen many strategic initiatives, decided on in the strategic plan and killed in the budget.
• The key to breaking out the project planning processes separately so it doesn’t become a “how much does it cost and what can we afford” decision.  When we talk about flexibility and agility, this is one of the key knobs an organization has.
• The operational domains require driver based planning and rolling forecasts and are the key when linked to generate the operations portion of the financial plan to create a dynamic planning environment.

Does anyone have examples of where they have automated operational domains?  Do you feel like better planning and integration between operational domains can result in organization agility?  Please let us know your thoughts.