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Business AnalyticsIBM Software Financial Per ormance Management

Planning, budgeting andforecasting: Softwareselection guide

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Planning, budgeting and orecasting: So tware selection guide

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Contents2 Abstract

2 Overview

3 Business Problems

4 Origins o planning challenges

4 Business drivers8 The Solution

10 Planning So tware Selection Matrix

12 Conclusion

Abstract This paper addresses the challenges o planning, budgetingand orecasting in a spreadsheet environment and highlightsthe advantages o using a so tware solution designed

speci cally or dynamic planning. The business challenges anddrivers are discussed, including organizational andtechnological best practices to ollow. A Planning So twareSelection Matrix is included to assist decision makers inselecting the most appropriate planning so tware or theirspeci c business processes and needs.

Overview The enterprise planning process planning, budgeting,

orecasting and reporting presents a ormidable challenge tomany companies, regardless o size or industry. Enterpriseplanning is a crucial component o per ormance management that contributes greatly to a companys overall success or

ailure, especially in these mercurial economic times. Despiteits importance, planning and especially the annual budget process is o ten seen as burdensome and time-consuming. This attitude is so widespread that 60 percent o CFOssurveyed in the 2010 IBM Global CFO Study plan to make

major changes to their critical nance practices and processes. Yet orward-thinking organizations see that when planning isdynamic and enterprise-wide, it o ers enormous opportunities.

Leading companies address planning obstacles directly andtake steps to improve their processes. They take advantage o new technologies and employ well-established planning and

orecasting best practices. When they do so, they are quickly

rewarded with more accurate plans, more timely re- orecastsand more e ective decision-making. Overall, these tools andpractices save time, reduce errors, promote enterprise-widecollaboration and oster a disciplined nancial management culture that delivers true competitive advantage, o tenaccompanied by a leading or stable market position.

Speci cally, such companies are able to:

Consistently deliver timely, reliable plans and orecasts, along with contingency plans.

Analyze situations where per ormance begins to deviate rom

plans and promptly take corrective action. Strengthen the link between strategic objectives and

operational and nancial plans. Improve communication and collaboration among all

contributors. Enhance strategic decision-making, enabling leaders to

quickly identi y, analyze and orecast the impact o changes athey occur.

The goal o this guide is to help organizations take the rst step toward improved budgeting, planning and orecasting.

The guide outlines a systematic approach to so twareevaluation and selection that aligns best practices and leading-edge technology with planning activities. Readers will be askedto review their own planning process, identi y challenges,de ne stakeholder requirements and match emerging criteria

with so tware eatures and unctions.

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Business problemsPlanning challenges and process problemsCorporate decision-makers o ten voice similar complaintsabout traditional planning, budgeting and orecasting.

Low-value activities take up the greatest portion o time. Plans are quickly out o date. Forecasts and reports are too in requent. Insight into causes is insu cient and leads to shadow

systems. Planning participation is too limited. Existing applications and spreadsheets are infexible and do

not support a dynamic environment.

For managers outside o Finance, planning can appear to belittle more than a periodic invasion o their time whichproduces minimal bene t. Managers can eel besieged by demands or detailed in ormation and develop their ownmethods or solutions to analytics and plans. They can also eelconstant pressure to do more with less, while still beingexpected to deliver results.

But these inconveniences are minor when compared with themissed opportunities that can result rom infexible andinadequate planning and orecasting, particularly in times o economic volatility. A well-connected, dynamic planning and

orecasting nervous system should be aligned with operationsand should support high participation throughout theorganization. Such a system enables management to engage inaggressive, creative activity, to develop intelligent contingency plans, and to signi cantly improve resource reallocation tomeet changing business conditions.

Comprehensive scenario planning deliversat least three advantages: It enables an organization to avoid potential

catastrophes altogether. It sensitizes management to what might occur and, as

a result, can help management identify both problemsand opportunities earlier than it might have, had it notconducted scenario planning.

It spurs organizations to think through what we woulddo if and to create plans that can be rapidlyimplemented if a scenario actually comes to fruition.

Steve Player and Steve Morlidge, Five Advanced Practices for More Robust Forecasting , The BeyondBudgeting Roundtable, 2010.

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Origins of planning challengesOver the last teen years or so, companies have devotedconsiderable resources to implementing enterprise resourceplanning (ERP) systems. Yet most planning is still per ormedusing spreadsheets, electronic mail and countless sta hours an inexpensive approach in so tware terms, but ever so costly in the long run because spreadsheets are not designed toe ectively support enterprise-scale planning and orecastingprocesses. Some planning systems themselves can impedebusiness responsiveness. Inhibitors are numerous:

Business rules ( ormulas) are mixed with data and prone tocorruption.

Files must be exchanged requently among users, but cross-company teams cannot work together easily.

Presenting or analyzing data rom di erent perspectives isdi cult.

Data aggregation is complicated and time-consuming. The business model is not represented well, i at all. Complex calculations, multidimensional analysis and

reporting are impossible.

Business driversSupporting best practicesIt is vital that planning so tware supports accepted best practices in order to enhance timeliness, in ormation reliability and participation by key people throughout the organization. A best-practice approach requires that planners employ severalkey strategies and tactics.

Align strategic and operating plans Within the excellent nancial management equals excellent business management culture, the ongoing alignment o strategic and operating plans is vital. Because o theirresponsibility to engage department managers in the planningprocess, nance pro essionals must clearly communicate

corporate strategic plans to those who run the business romday to day. The importance o this type o alignment isdemonstrated by the act that 70 percent o CFOs are now taking a more prominent role in enterprise decision making,beyond the traditional role o nance.

Finance can help translate strategic goals into nancial targetsand in turn into speci c departmental plans and related

revenue and expense drivers, such as headcount andequipment. By translating strategic goals into operationalplans, and by tracking and measuring per ormance against plan, leading companies are better able to meet or exceed theirobjectives.

70 percent o CFOs are now taking a more prominent role in enterprise decision makin

beyond the traditional role o nance.

Start at the topand at the bottom An important ingredient o success ul budgeting and

orecasting is the ability to align top-down nancial targets with bottom-up plans. Some companies establish top-downtargets and then turn the annual budgeting process over toFinance along with a mandate to meet those numbers. Othercompanies require detailed bottom-up plans, and then plug inthe total company numbers at the top so that the plan meets

strategic targets. Neither o these approaches refects a realisticcommitment to planning excellence.

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Leading companies provide initial guidance rom seniormanagements top-down perspective on strategic goals,objectives and expectations. Then, employees and line-o -business managers build a plan rom the bottom up, indicatinghow they intend to meet the established goals. This processrequires requent iterations or the top-down and bottom-upactivities to meet and reconcile.

The result is a plan that is supported by:

Line o business managers because they helped create it and will be rewarded or meeting it.

Senior management, because operational goals are aligned with strategic goals.

Finance, because they added value to a productive,collaborative e ort, rather than demanding participation in abudget process that some see as a mere exercise.

Model business drivers A rst-rate plan or orecast is based on a model with ormulas

that are tied to undamental business drivers. Simply importingand manipulating past actuals does not refect underlyingoperational causes and nancial e ects in a business. Buildingdriver-based models into plans ensures consistency across

unctions and promotes planning coordination amongunctions. For example, by understanding the sales trends and

pro tability related to particular household products that may fy o the shelves during an otherwise slow period, a retailercan balance product mix, marketing, inventory and salesexpenses to optimize pro ts. Finance can provide theoperations managers with a use ul model that includesin ormation about past actuals and current inventory levels andmarketing promotions as well as ormulas driven by assumptions.

Support rom Finance does not in ringe on department managers responsibility or creating their own plans. Instead,it saves them time by providing a solid, actual baseline astarting point that contains important in ormation about theirdepartments relationships with other unctions. Managers canthen make adjustments to this baseline to refect the latest business conditions. This approach also encouragescollaboration across unctions.

Support rom Finance does not in ringe ondepartment managers responsibility or creating their own plans. Instead, it saves them time by providing a solid, actual baseline a starting point that contains important in ormation about their

departments relationships to other unctions

Drive collaboration between functionsNot only should strategic and operating plans be aligned, but plans that a ect multiple unctional areas should becoordinated. Best practices include the direct involvement o line-o -business managers along with a collaborative approachto planning and orecasting.

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In addition to understanding broad strategic goals, department managers must also know what other departments areplanning. For example, in a company that is planning a majornew product rollout, manu acturing needs to ramp upproduction, marketing needs to increase advertising and thesales organization may need to add new headcount. But themarketing plan should also include training programs to

amiliarize the sales representatives with the new product. The

acilities department may need to plan or new headcount,equipment, warehouse space or product inventory and so on.Such collaborative planning can be accomplished through aniterative process that lets managers orecast and sharealternative scenarios and contingency plans, which areessential, given todays economic uncertainties. Finance alsoplays a key role in acilitating the coordination o plans acrossthe company and helps ensure that operational tactics arealigned with nancial targets throughout the organization.

Frequent re-forecastingIn this challenging global economic environment, with

multiple market pressures, orecasting may be needed monthly or even bi-weekly. Continuous re- orecasting helps managersanswer critical questions such as, What did we expect? How are we doing against our plan? and, even more important,How should we adapt our plans going orward? For example,i revenue orecasts are below targets, a bank or nancialservices company may need to recalibrate products or servicesto attract new customers or keep current customers romleaving. With a model-based approach to orecasting,marketing can per orm what-i analysis to test new product orservice initiatives, examining impact by customer and customersegment. In turn, these scenarios can be evaluated by bank sales team members to adjust their sales strategy, such asmaximizing time spent with the most pro table customers.Updates to plans eed directly to Finance, which then turns themarketing and sales projections into net revenue projectionsall in a matter o hours or days rather than in weeks or months, when remedial action may be too late.

Rolling forecasts A company that runs rolling orecasts is always looking orwarto the immediate or near-term uture. For such companies,business does not end on December 31 and restart on January 1. The orecast time rame should extend out two to eight quarters, depending on business volatility. Additionally, the

orecast should refect the input o all business units, not just Finance. The process goal is coordination o the di erent

parts o the organization using the latest available estimates o what may likely occur, according to Steve Player, ProgramDirector o The Beyond Budgeting Roundtable. Action plansto correct negative trends or to exploit positive developmentscan be included with discussion o their likelihood o success.

These plans can be made dynamic, based on the movement o leading indicators. 4

Moving rom the behavior o annual fnancial activitiesinto a more dynamic environment, companies areincreasingly adopting the rolling orecast, such as afve-quarter orecast. In many cases, rolling orecasts areupdated quarterly or monthly, acilitating reduced cycletime with more rapid reaction, realignment and readinessthroughout the organization.

Steve Player and Steve Morlidge, Business Forecasting: Six Design Principlesfor Healthier Forecasts , The Beyond Budgeting Roundtable, 2010.

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Planning should be an ongoing process with requent opportunities or managers to view the companys latest internal and external per ormance data. Contributors shouldbe able to test new plans or alter existing plans based on new in ormation coming rom various sources, including othermanagers, monthly actuals, top-down target revisions, andleading market indicators such as customer inquiries, salespipeline in ormation and external market data. Finance should

be able to quickly consolidate plan data rom all areas o thecompany and distribute new in ormation immediately. Such aprocess will acilitate more in ormed decision-making in suchareas as pricing, product amily, channel mix, capital allocationsand organizational changes.

Action plans to correct negative trends or toexploit positive developments can be included

with discussion o their likelihood o success.These plans can be made dynamic based on themovement o leading indicators.

Steve Player, Program Director, The Beyond Budgeting Roundtable

Manage content that is actionablereduce what isnt

A ocus on actionable content in planning rees managers romunnecessary detail, enabling them to produce better plans.

While supporting detail can provide an audit trail and insight into managers thinking, more detail does not necessarily makea better plan. Managing material content requires attention toin ormation that has real and signi cant impact on expenses,

revenues, capital or cash fow. Content management helps acompany:

Avoid alse precision. A complex model might not be any moreprecise than a simpler model. More detail and intricatecalculations can lure managers into the trap o thinking theirplan is more accurate.

Monitor volatile not stable accounts . E orts are best spent onfuid expenses such as headcount and compensation.

Aggregate accounts . A orecast does not need to refect the samelevel o detail as that in the general ledger. Even i the generalledger has 15 di erent travel accounts, managers can o ten

plan adequately using just one account.

Timeliness and reliability Many companies have an ine cient and infexible planningprocess at the center o which is the annual budget. Time-consuming distribution and consolidation processes practically guarantee that plan data will be out o date and irrelevant be ore it is even publishedand plans based on stale data andassumptions are o little or no value. World-class organizationsshorten their planning cycles by implementing the best

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practices described here. They also use technology tosuccess ully manage budget consolidation and aggregations ondemand. Technology is particularly e ective in improvingtimeliness and reliability in plan consolidations. In particular,plan consolidation on demand eliminates the necessity o processing results manually and enables a smoother, moreconsistent, more accurate planning process. Variance reportsdelivered within two to our days a ter the period close allow

managers to immediately evaluate their per ormance against plan and e ectively adjust their business activities.

At an operational level, this type o planning is less costly andproduces more accurate results than the processes ollowed by most companies today. At a strategic level, timely and reliable

nancial plans provide more credible guidance to stakeholdersand enable aster, better-in ormed business decisions.

Best-practices templates The use o pre-built, best-practice templates or planningmodels can help organizations reduce implementation risk and

accelerate time to business value. Best-practice templates oractivities such as expense management, resource planning,capital planning, pro tability analysis and integrated nancialreporting are available rom so tware vendors or a wide rangeo unctional areas and industries. With best-practicetemplates, companies can build models aster and establishdynamic connections that keep strategic objectives, operationalplans, people and initiatives in sync as business conditionschange. Executives can quickly see the impact o changes inoperational plans on corporate nancials. Functional andbusiness-unit managers can quickly adjust resource allocationsto support corporate objectives. And corporate guidelines andpolicies are more consistently communicated and appliedthroughout the business.

The solutionTechnology supports best practicesLeading companies have recognized that spreadsheet-basedplanning impedes implementation o planning and orecastingbest practices. They have moved to solutions that address the

ull cycle o planning processes analytics, modeling,contributing and reporting -- on a common planning plat orm

with lean in rastructure requirements, which enables them to

plan and re-plan quickly, using the same or ewer resources.Streamlining the planning process demands technological toolscapable o supporting a aster, more fexible and adaptiveapproach. By using an on-demand, dedicated planning,budgeting and orecasting solution that is delivered over the

web, organizations can readily implement best practices.

Leading companies ormulate top-level requirements orevaluating and selecting planning, budgeting and orecastingso tware. World-class solutions must be:

Adaptive.The ability to rapidly change models based on input

and prototypes rom business units and to requently re-orecast enables companies to respond to business changes as

o ten as necessary. Timely. In ormation is always current because departmental

users contribute directly to a central planning database.Consolidations and rollups are done automatically, sodeadlines are met more easily.

Integrated. Planning, analysis, workfow, and reporting resideon one common plat orm. Managers do not need to maintainshadow planning systems.

Collaborative.Web-based, distributed planning enablesparticipation anytime, anywhere with a secure connection.

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Led by Finance.Because the Finance o ce is responsible orplanning process development, deployment, reporting andanalysis, nance pro essionals have the best understanding o

what is required in terms o so tware fexibility and ease-o -use, both in modeling and day-to-day activities.

Efcient. Finance managers and department managers spendless time managing data and more time managing thebusiness.

Relevant.Customized views or users increase adoption andownership. Formula capabilities enable modeling o allrelevant business drivers.

Accurate.Plans contain ewer errors because broken links, staledata, improper rollups and missing components areeliminated.

The evaluation o a vendors product eatures and support is acomplex task. It requires evaluation o the so tware

unctionality, its value to the planning process and its ability tosupport planning best practices. There are also intangible

actors such as vendor support, user community connectionsand commitment to customer success once the sale iscomplete.

The key is not just evaluating product eatures, but alsoevaluating how these eatures are implemented and by whom.It is important to test any planning solution that will be usedby a large number o stakeholders and will play a critical role inorganizational per ormance.

Workshop evaluation There ore, it is highly recommended that a workshopapproach be used to evaluate not only solution eatures, but also the way a plan is constructed, distributed and reported on.

A business process should be de ned (such as capital,headcount or expense) as a context or the evaluation o product eatures and intangible actors such as ease o development, roles, re erences and customer support.

The ollowing matrix aids the evaluation process by relatingbest practices to product eatures. It also helps prioritize

eatures and assess how well they relate to vendor o erings.

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Planning Software Selection Matrix

Feature Category Score Importance/ Weight(1=leastimportant,

to 5=mostimportant)

Vendor X(Weight *Score)

Vendor Y (Weight *Score)

Vendor Z(Weight *Score)

Dynamic Planning Blended with Analytics

On-demand (in-memory) what-if analysis

Individualized analysis and plan prototypesshared with other planners

Profitability analytics linked to planmodel to optimize business performance

On-demand reporting

Personalized workspace with customizedviews

Integrated analysis through charting

Align Strategy & Operational Plans

Module application development

Operational planning aligned with financialplanning to improve decision-making viaapplication linking.

Supports comprehensive planning life cycle,from individual to group to enterprise andback

Model Business Drivers/Planningapplications

Guided modeling w/graphical interface

Driver-based calculations

Dimension separate from models

Multi-cube development environment

Ease of development by finance/businessanalysts

Manage Content

Real-time workflow

Defined user views

Role-based security

Web client

Personal desktop client

Microsoft Excel client Annotations support

Supports Timely and Reliable Planning

On-demand plan consolidation

Automated data loads between transactionalsystems

Certified connector to ERP

Standard reporting

Multi-dimensional analysis

Dashboarding and scorecarding

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Feature Category Score Importance/ Weight(1=leastimportant,

to 5=mostimportant)

Vendor X(Weight *Score)

Vendor Y (Weight *Score)

Vendor Z(Weight *Score)

Distributed and connected planning modes

Planning types for corporate input,hierarchical, and continuous

Best Practices Templates (pre-built models)

Capital expenditure planning

Expense planning

Integrated income statement, balance sheet,and cash flow

Profitability analysis

Workforce planning

Company Profile

Quality of references

Revenue

Number of employees

Number of customers

Number of industry references

Independent industry analyst ratings

Implementation and support

Implementation methodology

Training options

Support hours

User communities

Customer forums

Online knowledge base

Partner network support

Vendor consulting

Quality of documentation

IT Infrastructure Support

Database support

LDAP support

Single sign-on

Portal support

Open API

Metadata support

MDX support

HTTPS support

Total Score

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Copyright IBM Corporation 2012

IBM CorporationSo tware GroupRoute 100Somers, NY 10589U.S.A.

Produced in the United States o America March 2012 All Rights Reserved

IBM, the IBM logo, and ibm.com are trademarks o International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names might be trademarks o IBM or other companies. A current list o IBM trademarks is available on the Web at Copyright andtrademark in ormation at www.ibm.com/legal/copytrade.shtml .

Microso t and Excel are trademarks o Microso t Corporation in the UnitedStates, other countries, or both.

Other company, product or service names may be trademarks or servicemarks o others.

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Conclusion The success ul implementation o a planning solution requiresthe orchestration o technology, business processes and best practices. This selection guide outlines key principles to help acompany align its business process and technology requirements during the process o selecting planning,budgeting and orecasting so tware. By matching a companys

planning process to established best practices, acilitated by theproper implementation o a planning solution, an organizationcan signi cantly improve its nancial and operationalper ormance. The bottom-line results are visibility toper ormance gaps and alternative actions, reliable orecasts,and commitments to achievable goals.

Endnotes:

1 IBM Institute or Business Value, The New Value Integrator: Insights rom the Global Chie Financial Ofcer Study, March2010

2 Ibid

3 Steve Player and Steve Morlidge, Business Forecasting: SixDesign Principles or Healthier Forecasts , The BeyondBudgeting Roundtable, 2010.

4 Ibid.

About IBM Business AnalyticsIBM Business Analytics so tware delivers actionable insightsdecision-makers need to achieve better business per ormance.IBM o ers a comprehensive, uni ed port olio o businessintelligence, predictive and advanced analytics, nancialper ormance and strategy management, governance, risk andcompliance and analytic applications.

With IBM so tware, companies can spot trends, patterns andanomalies, compare what i scenarios, predict potentialthreats and opportunities, identi y and manage key businessrisks and plan, budget and orecast resources. With these deepanalytic capabilities our customers around the world can betterunderstand, anticipate and shape business outcomes.

For more informationFor urther in ormation or to reach a representative please visitibm.com/analytics.

Request a call To request a call or to ask a question, go to ibm.com/business-analytics/contactus. An IBM representative will respond to

your enquiry within two business days.

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