“The human brain is the greatest wonder of creation. This little organ weighs only 1500 grams but contains more nerve cells than there are people on the earth, more than 10,000 million - a simply unimaginable number. Each nerve cell is joined to others by hundreds of little offshoots, and the exchange of information between them is brisker than the telephone exchange of a busy capital city.”
Samuel Pfeifer in Supporting the weak. Christian counselling and contemporary psychiatry.
Business planning and performance management should be the nerve centre of your organisation, constantly monitoring internal and external changes and reallocating the right amount of resource to each department so the organization can satisfactorily address threats and successfully exploit opportunities. However, reality is rarely like that and typically these processes are infrequent, slow and carried out in isolation in different parts of the business. But what if they were continuous, rapid and integrated just like the chemical messages that jump across synapses inside the human brain?
Creating such an organisation is no longer a pipe dream and increasingly innovative organisations of all sizes are making it a reality. What has enabled this is the newer generation of cloud-based planning platforms that can integrate vast amounts of financial and non-financial data and process it in real time. The end result is information, people and processes are always aligned. In the past, similar approaches, which were typically limited by the absence of appropriate applications, were labelled ‘driver-based budgeting’. But today’s more holistic approach is called ‘Connected Planning’.
This integrated approach is a departure from traditional silo-ed planning, where the different business functions - Sales, Marketing, HR, IT and Supply Chain – typically developed a plethora of complex spreadsheets or used a domain specific application for their own planning needs. This left the finance function with the unenviable task of unifying these disparate plans into a central planning and budgeting system, that inevitably contained little other than the higher-level line items about revenues and expenses needed to produce standard financial reports. This rift between sales and operational planning on one hand, and core financial systems and processes on the other, made annual budgeting slow and reforecasting time consuming. What’s more, it was always difficult to assess exactly how strategic and tactical business decisions would impact future financial performance.
In addition to compromising corporate agility at a time when businesses need to be increasingly nimble, such silo-ed planning and budgeting processes come with a huge cost. Reconciling data from disparate spreadsheets and applications consumes hours of resource in the finance team, at a time when they are increasingly expected to deliver faster and more accurate information to support decision making. They are also expected to do more with less, just like their peers in other parts of the business. But there are less tangible costs too. The inability to plan quickly and reforecast rapidly can mean businesses are slow to address emerging growth opportunities or keep operational capacity in step with fluctuating demand, leaving them either running with excess costs for too long, or struggling to service demand and disenfranchising customers along the way.
In contrast, Connected Planning is an enterprise-wide approach to business planning and performance management based on the following principles:
1. THE EMERGENCE OF FINANCE AS BUSINESS ADVISORS
First and foremost, the Financial Planning & Analysis (FP&A), function exists, not simply for the CFO, but to support all business leaders and decision makers anywhere across the enterprise. Freed from the time-consuming drudgery of having to integrate and validate data from disparate sources, FP&A teams can shift the balance of their role from controller and record keeper to business partner and strategist, helping their business peers to grow revenues, optimise costs and achieve sustainable growth.
2. DATA INTEGRATION
Integrating all non-financial data alongside more traditional financial data on a single platform means everyone is working with the same baseline data that is accurate, easily auditable and can be traced right back to its source.
3. EASY COLLABORATION
Business users can access models and data that are pertinent to their role and function – controlled right down to specific line items if necessary – they need to share data with others in departments that are further down the value chain and in the central FP&A team. In practice this typically results in those responsible for processes such as sales planning, supply chain planning and workforce planning developing their own models built around domain specific business rules, much of which they already have hidden deep in their legacy spreadsheets. However the critical difference with Connected Planning is such models share data via a single data repository so users are always working with a ‘single source of the truth’. In addition outputs are immediate accessible to users in other business functions enabling them to effectively collaborate around a single set of reliable data.
4. REAL TIME FORECASTING AND PREDICATIVE MODELLING
Once users and their planning models are connected across the business, upstream changes made in sales plans flow sequentially into demand forecasts and production plans, while all the time updating workforce planning models and the central budgeting model. Achieving such connectivity will undoubtedly slash the amount of time it takes to plan and budget. But once it is in place you can start to think about how to improve your performance management capabilities. Because it is such a light-touch activity, you may decide to increase the frequency of reforecasts, and with time may even decide to manage the business using real time rolling reforecasts, rather than the more traditional annual budget process. Connected Planning also makes it easier to develop predictive models so the business can explore multiple alternative scenarios. This gives senior management a broader range of strategic choices with full insight into the operational and financial consequences of any decisions they make. This results in a set of contingency plans that can be quickly implemented depending on how circumstances unfold.
5. PLANNING BY EXCEPTION
Just like the human brain which suppresses normal activity that does not warrant our attention, advanced analytics, machine learning and statistical methods can significantly reduce the amount of manual intervention required in reforecasting. Adopting such techniques alongside Connected Planning helps reduce forecasting cycle times. It focuses attention to the exceptional factors that look set to cause the greatest variances in financial performance. Being able to identify such factors early, explore the possible implications and responses by modelling scenarios using a Connected Planning capability, is exactly the type of agility that helps businesses deliver sustainable profits.
As we have already mentioned the concept of Connected Planning is far from new, having evolved from ‘driver-based planning’ and more recently, ‘integrated planning’. What is new is the recent arrival of easy-to-use technology that is enabling the adoption of Connected Planning at a rapidly accelerating rate. Setting out to build planning capability that I have compared with the wondrous human brain may seem a daunting task, but don’t be deterred. Many implementations start out in a single business function simply replacing a myriad of tangled planning spreadsheets. But once the users have gained a quick win and gain confidence in working with the new technology, they soon start to look to build the all-important connections out across the business.