This is the third blog in a series entitled “Accountants are From Mars, Operations are from Venus.”  The objective of the blogs is to highlight both the problem and potential solutions of a key issue impacting agile planning and forecasting.  That is:

-          Accounting/finance typically requires most budgets and forecasts to be prepared using the chart of accounts.

-          Operations think in terms of operational metrics which are not directly related to the chart of accounts.

The prior blog discussed adopting a metric approach to measuring results and specifically choreograph each leg of the key metrics that drive the business, from summary level result metrics to detail level driver metrics.  Once the metric approach is defined, the next step would be to:

1)      Allow budget preparers to drive their plans from these detail drivers rather than the accounting chart of accounts.

2)      Adopt routine rolling forecasts to project out a set number of months.

Step 1 requires the plans to be modeled and driven by detail level drivers.  Step 2 requires a system that supports rolling forecasts.  Collectively these steps as well as developing the metric approach result in cultural changes within the organization that focuses not only on profitability, but the correct profitability that balances conflicting goals and risks.

The best example I have seen of adopting this operational approach to planning is the Sales and Operations Planning (S&OP) process used by manufacturers.

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Recently I was speaking with a prospect and he mentioned that they will likely go with Oracle for their Budgeting and Planning solution since they were already negotiating a large ERP and database purchase with Oracle they had offered to put into that purchase which meant that they were getting the Budgeting and Planning software licenses for free.  While I understand the appeal of something being free, I reminded him that he would indeed be spending 22% per year on that software and asked him  if they had gotten a cost for implementing the budgeting and planning software, which he had not yet.

Having sold literally millions of dollars of Planning software licenses I know from experience that a good rule of thumb for the cost of implementation is about $1 of services for every dollar of license (and I don’t mean the “thrown in”  cost).  This means that if, even with a sizable discount, that a company were to get $300K of licenses (no matter what they actually paid) they should expect about $300K of services to get it implemented (and those dollars don’t get thrown in) and that would be for a small implementation.

We actually have clients who technically “own” on-premise solutions but found that our subscription fees and our activation costs were less than the initial cost of implementing the on-prem solution and when you factor in the 22% a year in maintenance it made no sense to go with the on-premise.

This is the second blog in a series entitled “Accountants are From Mars, Operations are from Venus”.  The objective of the blogs is to highlight both the problem and potential solutions of a key issue impacting agile planning and forecasting.  That is:

-          Accounting/finance typically requires most budgets and forecasts to be prepared using the chart of accounts.

-          Operations think in terms of operational metrics which are not directly related to the chart of accounts.

A potential solution to help educate each group on both the merits of the other group’s approach as well as understand the perspective of the other group, is to work through a metrics approach to measuring results.  This would help by creating a line of sight from summary result metrics (mostly financial) with the detail drivers (mostly operational) and educate both groups on the relationship between operations and finance.  It would also serve to organize the key organizational metrics in causal relationship to their results.

If I was chartered with the project to implement this metric approach I would also build it one leg at a time.  That is, I would start with an intermediate metric like “production cycle times”; production cycle times measures the time from taking an order to shipment.  I consider this an intermediate metric because it is between the line of sight between result metrics like cash flow, customer satisfaction and inventory and driver metrics like the number of days within each stage of the “order to shipment” cycle.  I would build out the complete line of sight chain (causal relationships) and train operations on the financial impact of the drivers and train finance on the operational drivers.  Once that leg is built I would begin working on another leg of the metric approach.

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