using mobility to expand planning and performance management best practices

By Steve Player,Program Director,

Beyond Budgeting Round Table, North America

Copyright 2013. Beyond Budgeting Round

Table, North America.

All rights reserved.

Current Challenges

Businesses around the world face tremendous challenges as global competition accelerates. Since 2009 organizations have been trying to regain their footing and return to robust growth. There is a great sense of urgency for business to transform. To help achieve these objectives, finance organizations are looking for ways to become better partners with their operating lines of business.

While finance continues to provide essential transaction processing capabilities, most CFOs are also looking for ways to become more strategic and better support decision making. They strive to provide business analysis that will help them better understand operations. They seek new ways to support operational executives in growing the business profitably. They also seek to provide the tools that can help finance executives work together with operations to reach strategic goals. However, the challenge most organizations face is that their finance function is trapped by legacy tools that consume their time yet fail to deliver on these expanded objectives. How can finance organizations break free?

Perhaps the leading example of this dilemma is faced by the financial planning and analysis (FP&A) function which is often called the brain of an organization. It tells the other functions what needs to be done by when. Typically this involves at least three levels of planning:

1 Strategic planning which defines the three to five year goals and objectives of the organization.

2 Business planning which covers the one year plan typically detailed in an annual budget.

3 Sales and operational planning (S&OP) which covers the next 30 to 90 days of execution activity.

Finance departments are heavily involved with the annual budgets and may also have some involvement with strategic planning and S&OP. Some advanced organizations are moving to integrated business planning which brings together strategic, financial, and operational planning. Finance can play a key role as the facilitator of this approach by translating operating activities into financial results.

Using Mobility to Expand Planning and Performance Management Best Practices

How Financial Planners and Analysts Spend Their Time

Providing value-added analysis

23%

Administering the process

30%

Collecting and validating the data

47%

SOURCE: APQC / BBRT Research Exhibit 1






Moves to integrated business planning (IBP) focus on leveraging the fact that all of these process-es are working with the same information. For instance, the sales and operational plans look at capacity to identify where specific orders should be produced. The annual financial plan or budget takes that same capacity and uses it to calculate unit costs and financial results. The strategic plans also look at capacity to evaluate long-term capital needs. While understanding similarities, it is also important to understand the differences in these three types of planning. (See Exhibit 2.)

In recent years, finance organizations have supplemented annual budgeting with more frequent forecasting. Some forecasting efforts only focus on the current year-end targets (which is called “forecasting to the wall”) while others roll forecasts across a consistent time horizon. From a planning focus, organizations could also engage in capital expenditure planning, capacity planning, workforce planning, product development planning, sales planning, and many other supporting components of the overall business planning functions.

Organizations often face numerous challenges when trying to execute the planning function. Access to critical information is often trapped in legacy information systems spread across many functional silos in dispersed geographical areas making information difficult to find. Even if it can be found, the data is difficult to use as it often resides outside transactional systems that finance typically utilizes. This data is difficult to convert into usable forms. Even when this can be achieved, the timeliness of the data is often an issue. Operational systems are built to support operations. Financial accounting conventions such as financial cut-offs, monthly or quarterly time periods, and historical cost views (vs. economic views) are often meaningless to operational managers. Tapping into operational systems seems economical, but you must remember that they were built to support operations and not financial accounting.

As a result, research has shown that 77% of FP&A time is spent gathering information and administer-ing the process. (See Exhibit 1 on previous page.) This only leaves 23% for doing any value added plan-ning work. So a key challenge for FP&A is how to change their processes to become more effective.

In recent years, finance organizations have supplemented annual budgeting

with more frequent forecasting.

Three Types of Planning

How do we service demand efficiently?

● Focus: responding and executing

● Timeline: typically the next 90 days

● Highly constrained short term capability

● Detailed forecasts with high degree of predictability

How do we deploy our resources to best effect?

● Focus: navigating and shaping

● Timeline: typically the next 12 to 18 months

● Choice of response limited ● Best estimate of what will happen (based on current assumptions)

● Forecasts detailed ‘enough’ with ranges

How do we structure the business to compete most effectively?

● Focus: adapting and creating options

● Timeline: typically the next 3 to 5 years or longer

● Freedom to look at alternative scenarios of the future environment

● Difficult to forecast beyond broad brush estimates

Sales and Operational Planning Business Forecasting Strategic Planning

Increasingly unpredictableIncreasing choiceNOW FUTURE

Exhibit 2SOURCE: Future Ready: How to Master Business Forecasting by Steve Morlidge and Steve Player, (Wiley, 2010)






Another problem faced by FP&A is that their results are often quickly out of date. This is certainly true of the most time-consuming single activity, which is the annual budget process. It represents a huge spike in workload. The typical planning process takes four to five months as the organization prepares multiple iterations of the plan.1 The output of this labored effort is even more suspect as many organizations find it out-of-date shortly after printing. Roughly two-thirds (64% in a typical year) found their targets were out-of-date four-to-six months into the year. (See Exhibit 3.)

As a result many finance organizations have felt trapped working feverishly to make the plan-ning process more effective and more efficient. In the past, FP&A teams are fully engaged in a process that consumes most of their time just gathering the required data and trying to hold it together to complete the processing. Hackett Group co-founder and author David Axson has described the emotion felt by many FP&A lead-ers: “At the end of the process, morale is poor and commitment is variable at best. Most adopt the attitude of ‘Thank god that’s over for anoth-er year, now I can get back to my real job’ – not exactly a glowing recommendation for one of the most critical management processes.”2

As finance has struggled with this process, many business users have opted for minimal engage-ment. They will respond to finance’s request but the real planning is often done elsewhere. This result is not only wasteful; it almost always creates misalignment of objectives particularly when different parts of the operations engage in their own separate planning.

Past attempts to solve these issues have been made, including some notable successes. These have been documented by the Beyond Budgeting Round Table which is a consortium of companies who have joined together to identify and share the best practices in planning and controlling organiza-tions. Recent successes with use of rolling forecasts and with the full 12 Beyond Budgeting princi-ples have been chronicled in several publications including two CFO magazine cover stories.3

New Developments

Budget Target Life Span

At what point do you expect your annual budget targets to become obsolete?

0%

10%

20%

30%

40%

50%

60%

70%

80%

8%

28%32%

48%

64%67%

71% 73% 74% 75%

Before the year begins/ already have

1-3 months into the

fiscal year

4-6 months into the

fiscal year

7-9 months into the

fiscal year

10-12 months into the

fiscal year

Typical Year

2009

SOURCE: 2009 Business Finance Research Study in May/June 2009 issue Exhibit 3

While these changes have begun to occur, many organizations continue to suffer through annual budgeting. They have faced a slow and gradually evolving technology landscape with operational users who would rather defer than jump in. But that has begun to change over the last three years with the introduction and widespread adoption of tablets led by the Apple iPad. Beginning with swiftly growing consumer demand, these devices have quickly moved into widespread business use. Their use is becoming pervasive throughout operational lines of business. In many cases they are replacing laptop computers as the preferred device.

From a functionality point of view, mobility enables input from virtually anywhere there is an internet connection. This provides both input capabilities as well as reporting capabilities. It can be instantly






on. While tablets get most of the press and are certainly needed in areas like planning, mobility en-compasses multiple devices such as smart phones and remote sensors. The explosion being experi-enced in the use of Big Data is driven by in-memory computing, but it is being fed by mobile devices greatly expanding the volume, velocity, and variety of information being captured digitally.

Tablets have completely redefined the usability paradigm as the lines blur between mobile consum-er and business applications. Downloadable applications can be tailored to specific job roles. The user experience is highly interactive. It is drawing more early adopters and expanding the functions they can now support. Visualization further expands tablets to serve many different roles. This greater functionality and ease of use have led to rapid adoption by not only consumers and finance functions, but also deeply with operations. These factors are also pulling finance deeper into op-erational areas. This has created an unprecedented opportunity for FP&A teams to redefine both planning and reporting.

Tablet proliferation is fueling expectations of immediate response times for business applications (as users have been conditioned for instant response satisfaction found in consumer applications). As financial planning teams expand their reach into the organization, they are leveraging these tools with highly interactive, no delay responses that keep business users involved and moving forward. Business users are willing to input, but they want immediate benefit from doing so.

Tablets have completely redefined

the usability paradigm as the

lines blur between mobile consumer and business applications.

Mobility Best Practices

While the ways that mobility improves planning and performance management processes are still evolving, five key benefits have already emerged as best practices. They are as follows:

1 Mobility makes organizations faster. It does so by providing far greater input points to sense what is happening. These stations can double as reporting outposts.

● It enables planning and control functions to operate continuously rather than the old monthly/ quarterly/ annual batch mode.

● Planning can be anywhere, anytime. ● Planning can operate in an iterative fashion and is more rapid than a static batch mode.

2 Mobility provides the freedom for planners to move to the front lines, which enable better support for lines of business.

● Mobility frees the organization to become more agile as units are like vehicles that can move in both autonomous and coordinated cycles. Direct visibility often provides a clearer understanding of customer needs and how the organization is trying to respond.

● First hand observation can provide clearer understanding of potential risks and opportunities.

● As an example, Beyond Budgeting member StatOil uses this approach in managing its operational units: each unit is directed by the strategic plan that they call “ambition to action”. The goals of that plan are translated into each unit’s individual plans. This creates independent units with the freedom to act. Planners can now support these efforts as they can freely move them to the front lines.4

3 Mobility helps planners improve innovation and growth. ● Mobility enables more rapid testing of possible new approaches. Autonomous field

units can rapidly plan and test in an iterative approach.






● An example of this is when planners join the product development team by using mobility to enable rapid target cost evaluations. By co-locating with the design team, finance can rapidly model the initial designs and see how objectives can be met by designing better cost structures.

● Finance can shift the focus of their work from recording of history into working directly with the organizations they support.

4 Mobility provides many more information collection points as each manager can become both an input source as well as an output reporter. This can help avoid risk blindness.

● Field units add diversity to the planning function, which helps break up tunnel vision. ● Remote sensors can also provide low-cost additional listening posts. ● Competitors’ actions can be identified and reported more rapidly.

5 Mobility can provide continuous monitoring of performance. ● Planning is real time; no waiting for monthly reports. ● Planning can follow the natural business cycle used by operations, which makes it easi-

er to support them. ● Planners can automatically adjust their driver-based scenario plans to understand how

actual conditions will impact future results.

Benefits of Mobility

While these five benefit areas have quickly emerged, most organizations are still trying to find the time to understand how mobility is impacting their capabilities. Its impact opens up many ways to rethink and transform finance.

Planning departments that have begun to leverage mobile devices are already accumulating benefits. The mobility infrastructure gets information into the hands of the people who need it. The information can flow back and forth. Driving out time lags also leads to better accountability.

Mobility allows managers to engage in the planning pro-cess from anywhere. Quick inputs can be requested to cover basic planning updates, provide input for regular forecasts, or ask for unusual items. This two-way flow can provide business users with the information they need at their fingertips.

From an executive leadership perspective, mobility provides senior executives with faster access to key performance indicators. These indicators and the related trend lines can be tracked continuous-ly and displayed virtually.

When extending mobility, executives can also combine new technologies for greater reach. Cloud computing makes it easier and quicker to deploy new planning applications to cover any remote operations not in current operations. It also allows the FP&A team to reach beyond finance and get operational planners involved.

The 80/20 Rule

Focus on key drivers for quick data gathering and more time for analysis

20% data

gathering

5 to 20 drivers

80% analysis

80% data gathering

100+ drivers

20% analysis

Exhibit 4






These approaches can also be used to provide access to analytics providing all stakeholders with a strong analysis tool. Coupling a strong analytics tool with easy access to plan and actual data cre-ates the foundation for a powerful what-if analysis function that can be used in scenario planning.

Summary

1 Axson, David A.J., Best Practices in Planning and Performance Management: Radically Rethinking Management for a Volatile World, 3rd edition, Hoboken, NJ: John Wiley & Sons, 2010, page 111.

2 Ibid.3 See Banham, Russ “Let It Roll: Why more companies should abandon budgets in favor of rolling forecasts” which is the CFO magazine cover story for May 2011. See the story at http://www.cfo.com/article.cfm/14570220/1/c_14570395. Also see Banham, Russ “Freed from the Budget” which is the CFO magazine cover story for Sept. 2012. See the story at http://www.cfo.com/article.cfm/14658946.4 For more information on StatOil see Implementing Beyond Budgeting by Bjarte Bogsnes (Wiley, 2009).

Mobility allows the organization

to shift from batch mode to real-time

management.

Mobility is a key enabler that aids finance and helps businesses transform. While finance has a challenging role of managing the past, present, and future, these roles can be enhanced by utilizing mobility. The past can be tracked and reported as it happens. Predictive logic diagrams can help examine what is happening now, as well as what will come. Mobility allows the organization to shift from batch mode to real-time management. FP&A becomes more strategic as it moves to the front line and works directly with line of business managers to help support planning and delivery of their missions. Even though this support role could be embedded deep in field operations, finance still has access to all the tools they need to successfully plan and report on performance management.