By Niels Van Hove, Mental Toughness Coach & Supply Chain Consultant
Integrated Business Planning (IBP) is often seen as a natural progression from Sales and Operations Planning (S&OP), which came to life in the 80’s to align sales and operations. As S&OP found its origin in the supply chain, IBP is often biased with supply chain terminology and reasoning. It can be argued that current IBP development is still driven by a supply chain bias. With this lack of diverse thinking, IBP innovation runs the risk of being not truly ‘integrated’.
Contrary to most current defined maturity phases of IBP one can find on the internet, we also can define IBP maturity phases from a more strategic angle. Many experts agree that IBP has a monthly check and balance with the budget and the strategic intentions of a business. Therefore, a well executed IBP cycle will provide monthly visibility and measures progress against business objectives and strategy in the long term horizon. Furthermore, we can say that a business strategy and the required strategic resources and capabilities have the goal to get a company closer to its vision.
According to Collins and Porras a company vision exists from its core values, core purpose, a BHAG (big, hairy, audacious goal) and a vivid description. The core purpose is the reason for being; it captures the soul of the organization. Where you can fulfill a strategy, you can’t fulfill a purpose. Core values define what the company stands for. A company will stick to them, even if it became a competitive disadvantage in certain situations. Well defined, integrated and truly lived, purpose and values will drive companywide behavior. Imbedded company behaviors will drive a sustainable company culture, which will last over time. A well-defined achievable BHAG with a vivid description provides employees with an envisioned future they can identify with and which creates an emotional attachment, which makes them go the extra mile. As CEO Bob McDonald says on the emotional component and innovation at P&G; ‘People will innovate for financial gain or for competitive advantage, but this can be self-limiting, there is a need for an emotional component as well – a source of inspiration that motivates people‘.
If a company wants to track its budget and strategy and we use this vision framework and IBP as the planning process to support the business, IBP can be defined with the following maturity phases:
In this phase, companies start to focus on integrated planning between previously siloed functional areas. Some functions are more advanced than others. A company might have focused on state of the art finance processes and systems, but doesn’t reap the full benefits of that due to lack of integration of other functional areas into the finance process. Some integration exists, but not across all functional area’s and there is not enough integration with finance to make a monthly financial prediction on EBIT level in the long term horizon. S&OP as most define it will be in this phase.
In this phase, enough functional areas plan in an integrated way for the process to provide their input to the P&L to create a fully loaded forward projected P&L. Finance understands the ‘volume’ input and the other functional areas understand the financial ‘value’ planning. This will provide the company visibility on how it is tracking versus the budget or annual operating plan on a monthly basis on EBIT level. Why EBIT level? Because I heard too many times in a boardroom the argument, when only gross profit was on the table; ‘we can’t decide on this because we don’t have EBIT a number’. We can also expect these companies to deliver monthly balance sheet and cash flow prediction. For these companies, there is no separate budgeting or forecasting cycle. Every month can be the budgeting cycle. Dynamic indicates that opportunity and risk scenarios across all functional areas are integrated into the financial projection.
In this phase, the company has defined its strategic goals, measurements, and targets and is capable of checking and communicating monthly if they are on track to meet the strategy in the horizon beyond the budget. The strategic intent, which can be defined on lower levels like product segment, country or business unit level, will also guide in decision making for decisions on the budget horizon.
The company has also defined its core strategic capabilities to meet its strategy. There are many strategic capabilities possible. Ideally, a company shouldn’t have more than a handful as if it will define more it will erode the focus on these capabilities. Some examples are:
The list can go on and on with Technology, Sustainability etc. Once a company has defined its strategic capabilities and has defined goals, measurements and targets for these capabilities, it needs plans to implement or improve these strategic capabilities. An update on status, progress, risks and mitigations for those plans will be part of the IBP cycle in this phase. Dynamic indicates that sensitivity analysis around the plans to reach the goals of the strategic capability is part of the update.
In this phase, companies have a well-defined purpose, values and an achievable BHAG with a vivid description that people can identify with and which create an emotional attachment. The company aims to integrate this with the IBP cycle. A company can decide not to pursue strategic opportunities because doing so would compromise their core purpose or values. A large multi-billion dollar beverage company, for example, decided not to enter the very lucrative market of premium RTD’s (Ready to Drink) alcoholic beverages because the alcohol content was too high. Although the opportunity was achievable and margins were very interesting, the alcohol content would not be in line with their core purpose of ‘bringing more sociability and wellbeing to our world’. The purpose guided decision making in the strategic horizon.
The company values and the emotional attachment will be tracked in the monthly IBP process and have actions, goals, and measurement. Executives follow progress to understand if employees believe and identify with the companies values, BHAG, and purpose and show emotional attachment. This can be done by 360 degrees feedback, engagement surveys or roundtable discussion between executives and employees. Executives also have to lead by example in behavior and actions. Their own behavior will have goals and measurements and progress is tracked,
For all phases, communication is important, although it can be argued that it’s most important when developing an emotional connection. An IBP document on the key decision, outcomes, progress and wins in the IBP cycle can be communicated to a well-defined stakeholder group in the company. This will both give the stakeholders an understanding of business performance, priorities, improvement opportunities and successes, as well as keep the engagement with the company vision, purpose, and the IBP process. Executives have to realize and appreciate that this communication document is the results of all the hard work from middle and lower management to gather all required IBP information for the executives to make decisions in the IBP meeting. This communication makes sure the IBP meeting is not seen as a ‘black hole’ which only sucks up information and doesn’t provide feedback.
Once a company masters these four phases, it tracks and plans on a monthly basis the budget, the strategic intent and strategic capabilities, the company values, and purpose and the emotional attachment of the employees. If a company then links these plans with shorter term control plans and execution, we might call it real Integrated Business Planning.
Would these four phases be IBP innovation?
By James Myers , Global Finance Executive and FInance Transformation Consultant
Dashboards have become a powerful tool for FP&A to share insight and gain respect. When designed correctly, they deliver a clear message on what’s working and what’s not, and the actions to take to fix the issue. Technology now enables us to create dashboards in minutes, allowing us to share information in ways we could never before…you must leverage this technology! The big question has moved from “How do we create dashboards?” to “How do we harness this powerful tool to drive business behaviour?” Do it right and you win the day for FP&A!
Why are dashboards so important?
Without a focused strategy, most dashboards have:
In my experience, my top 3 recommendations for improving the quality of your dashboards are:
2. Measure adoption
“The ability to simplify means to eliminate the unnecessary so that the necessary may speak.” - Hans Hofmann
Usually, there is so much noise created by dashboards it’s impossible to figure out what’s important. Having it focused on fewer metrics than more is the key to a successful dashboard. Reduce the number of metrics down to about 3 or 4 to have an impact.
To be able to determine the most effective metrics requires a deeper understanding of what drives the most value in an organization. This can be determined by talking to key stakeholders - understand what decision they need to make and the information they need. For a more encompassing solution, you will need to start with the strategy and work backwards: understanding the actions derived from the strategy; the drivers of these actions and ultimately the measures for success that will drive these actions
"We must learn what customers really want, not what they say they want or what we think they should want." – Eric Ries
Adoption is the leading indicator of the value you are generating. Frequency and time of use are key to determine the success. The biggest challenge is making sure that your dashboard is solving a problem or adds value to a stakeholder. By using design thinking and empathising with your users is the first step in improving the quality of your dashboards.
Take time out to put yourself in their shoes and understand what the real business problems are that you are trying to solve. Once the dashboard has been developed, the next step is to continue the feedback loop and have an iterative improvement cycle. Continue to measure your adoption metrics and for any unexpected changes do a deeper dive – speak to stakeholders to determine why their frequency has increased/decreased after a new improvement.
“Action is the foundational key to all success” – Pablo Picasso
Metrics that help drive actions are worth more than those "Vanity metrics" that just tell you where you are. Actionable metrics reflect the key drivers of the business and lead to informed business decisions and subsequent action. Actionable metrics need to be driver based and the more you understand the drivers of your business, the easier these will be to create. At all costs, avoid the trap of “Vanity metrics”. IT’s tempting to use measurements that give “the rosiest picture possible” (Eric Ries) but they do not accurately reflect the key drivers of a business. Things like the vaulted Revenue Performance – tells us where we are, but provides no clear guidelines on how to increase revenue or mitigate the risk of a decline!
By Richard Reinderhoff, Freelance Consultant Strategy & Operations
A ‘financial’ strategist is a strategist first, and a financial second. For decades financials have been applying solutions to become a strategic business partner for the C-suite, from financial engineering and tax planning, to centralising (global) operations and deep analytics today. To avoid drilling deeper and still find nothing, reverse engineering the strategic role of the financial will show another route to be of value and increase the yield on IRR or profits with double digits…
If the aim of CFO’s and FD’s is to improve the decision-making process by the C-suite, meaning add value to the business, accounting and compliance aren't helping this quest. In fact, if you read the report by American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA), Joining the Dots: Decision Making for a New Era, you’ll be in shock:
It is all about information, yet more details or more of the same data will give you the same answers, only in more detail or at a higher spend (Capex). The trick is to reverse the direction the financial is looking: from ‘stargazing into a black hole’ to ‘storytelling based on facts’. For this to happen, the strategy of the business needs to be placed into the ‘accounting’ systems.
A simplified example will be used to show, how this ‘street smart’ solution was encountered (step 1) and how it is set-up (step 2).
A strategy is often a group of plans, where the numbers disappear in PowerPoint presentations, Excel sheets or BI software. Many financials are hooked by their screens, yet the story in the plans is ‘lost in translation’.
For example, what does the following overview tell you?
Not much, it just shows you the composition of spend, not the strategic intent. As a board member, you might even be tempted to reduce Consultancy fees and Temps, as part of a company-wide ‘savings initiative’ as a response to market pressures.
The first step to increasing your understanding is to talk to Sales & Operations and ask what drives and blocks their business. For the same example, the “Accounts” have been decomposed and reshuffled into the “Business Drivers”, it shows how each business is planning to be developed.
When result are lagging, which question will you ask now?
Of course, as a board member, you will ask where and why performance is lagging. This is how the quality of the decision is increased, avoiding ‘one size fits all’ solutions. And normally, it’s the financials that should have provided the CEO, CFO or GM with the right answer.
As a financial, you have talked to Sales & Operation (managers, directors, and global VP’s) and they have given you a jointly agreed list of key “business drivers” for each market. This list should match their business plans or strategy. One problem, there are no such descriptions in the Chart of Accounts or as Cost Centres. Here enters project accounting.
What is a project? Basically, it is a sequential flow of various tasks. Each project task can contain any kind of spend, following the Chart of Accounts, and different ‘Cost Centres’ can book on a project activity, when working (or purchasing) together.
Within project management, each project task or activity is called a Work-Breakdown-Structure (WBS), with a WBS-description and WBS-number. To transform project accounting into a strategy storyboard, you give each project task a WBS-description of a “business driver”, and have a term which lasts e.g. 20 years or more. Now the strategy is in the accounting system!
The only instruction you have to give to the budget owners is that their assistant books each transaction and allocation with one additional code: the WBS-number, which is given by the budget owner and related to one of the business drivers.
Now that you have the strategy translated into a storyboard in your accounting system and amount are being booked, this is what you get:
Project accounting has more reporting advantages, e.g. it ‘overwrites’ / no cross-border limits, bookings can be split between different WBS-numbers, and various consolidation hierarchies possible.
How does this increase the yield with double digits? Re-allocation of Capital!
A company using a traditional business planning method will learn quickly. After management sees where the money really went into and noticing they spent less time understanding the numbers, they will start to permanently reduce spend on non-value added activities and fund only the best new opportunities.
Those companies familiar with Beyond Budgeting, Driver-Based Planning, or (strategic) Zero-Based Budgeting, will immediately see the real advantages:
The increase in returns comes from the effective execution of the strategy and adapting it in accordance with the business environment. By linking the strategy with accounting, and not the other way around(!), project accounting is writing the real success story, every month!
Independent on the accounting, ERP or BI system installed, using project accounting can turbocharge any financial into a strategic business partner without the need for any significant investment. When FP&A is placed within this bigger picture, the link to strategic planning becomes evident. By translating the strategic intent of the company into business drivers made visible through the ‘use-of-funds’, the execution of the strategy becomes fact-based, transparent and verifiable: ‘talks & figures’. Just think about it, and add real value to your role and your company.
by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"
There are many software products that claim to support CPM, but often they only support some aspects, for example financial planning and reporting. One of the issues is that the term CPM is synonymous with budgeting, forecasting and management reporting which by itself cannot provide a complete solution.
Similarly, some vendors have multiple products covering different parts of CPM. For example, many have a scorecard application that they deem suitable for strategy management; a separate solution for collecting budgets and forecasts; and yet another for reporting and analysis. In the context of this framework, these multiple solutions can only work if they are truly integrated and can be made to operate as a single system. Without this level of integration system maintenance becomes an unbearable nightmare that cannot suitably adapt to the dynamics of the economic environment.
It is worth pointing out that CPM from a vendor’s point of view is a mature market and most have similar capabilities. For organisations looking for discreet planning, budgeting, forecasting and reporting solutions, there is a wide range of choice with vendors offering good solutions. But for organisations wanting to implement a complete CPM solution it is easy to be misled on what product suites can and can't do.
This evaluation section of the framework outlines the key areas to be investigated so that those evaluating solutions can accurately assess whether the products selected will meet their planned and future needs of CPM.
One area not covered in this evaluation is a detailed assessment of the technology that underpins a CPM solution, whether that is SQL, OLAP, ROLAP, or In-memory BI. One of the reasons is that having a common technology platform or a system built on a leading ‘open’ database is no guarantee that the vendor has an integrated solution or that it will perform. Solutions should be assessed on their ability to solve a business problem over a period of time. The choice of technology should be up to the vendor to provide the best application they can for the price being offered and that from a customer point of view gives the best return on its investment.
The evaluation areas here are primarily concerned with a product's capability to meet the CPM framework discussed in this document. They include:
At the heart of every CPM system is a data model that stores information relating to:
Each type of data is different and contains both structured (e.g. numbers) and unstructured (e.g. text) information that is held at different levels of granularity and for different time periods. Some data will be required on a monthly basis while other – for example forecasts involving contracts – are better handled by assigning a date. This means that if the date changes, then the system should know how to roll this up into the appropriate reporting time period. For organisations that deal in seasons, for example retail, the ability to define time as a span between specific dates is important, while results would still need to be accumulated on traditional monthly basis. All these requirements means that a single multi-dimensional model cannot (without serious compromises) meet the different needs of CPM, and yet this data still needs to be bought together if performance is to be planned and managed.
Things to look for
Much of the data within a CPM model will be organised as hierarchical structures e.g. organisation; strategy, product families. Many members will be common across different CPM data sets and so any change in definition should automatically be applied to related sets.
Hierarchies change with time, but in order to preserve historic reports, original structures need to be retained. For assessing potential changes, the CPM system should allow alternative structures that can be used to report the impact of change, should that change be adopted.
Finally, hierarchies are not the only way to select and analyse data. The ability to use attributes where members are selected and grouped according to a range of ‘tags’ assigned to them is an important capability. For example:
Things to look for:
Functionality can be split into two areas – that which is common to all areas of CPM and that which is specific to a particular CPM process. With the latter, a capability to support a specific process may well be useful in other processes. Reporting capabilities are covered in section 5.5. Here are the things to look for in a CPM solution:
Strategic planning specific functionality:
Tactical planning specific functionality:
Financial planning specific functionality:
Forecasting specific functionality:
Risk Management specific functionality:
Statutory reporting specific functionality:
Reporting occurs throughout all CPM processes, while the Management reporting process brings together a range of information that determines whether the plan is on track and what decisions can be taken to improve performance. Audit report capabilities are covered in section 5.7
Things to look for:
Workflow relates to the way users are directed through the different tasks involved in a process. There are two types of process:
Structured processes can be dealt with through menus but it does requires users to know where to look and to choose the right option. This can make it hard in creating an efficient process as there is no way to prioritise options for specific users.
Unstructured processes cannot be realistically handled by menus and will require dynamic workflow capabilities to trigger activities as and when they arise. As these activities are completed they themselves will trigger other activities to be carried out. For example, a sales forecast that is 10% outside of a limit, may trigger a request for more information and confirmation of the levels expected. When this is approved it could trigger re-planning by the factory, or an action by marketing to increase advertising spend. These will then have a knock-on effect onto other departments.
Both types of process should be supported if CPM is to become a continuous, efficient process aimed at managing corporate performance.
Things to look for:
The ability to audit any plan or result is a key requirement of any corporate system if the numbers shown are to be trusted. This includes collecting comments on what the numbers actually mean as well as how they were gathered and transformed.
Things to look for:
This area of the evaluation considers all the costs involved from initial purchase, through implementation and to the resulting systems’ on-going cost. It also looks at the expertise required to setup and maintain the system, and what else an organisation may have to purchase in order to realise their vision for a complete CPM solution.
Things to look for:
This looks at the vendor’s commitment to CPM and the maturity of the product. Maturity can be both a blessing and a curse – Mature products can offer a large reference base but also may be coming to the end of their life, which then may require an upgrade or redevelopment cost.
Things to look for:
So far the software evaluation has focused on capabilities that can be viewed in isolation to each other. However, to support CPM these capabilities must be delivered in a seamless way so that the solution operates as single application. The only way this can be properly evaluated is by performing a number of scenarios that cross different processes. This is the purpose of the demonstration workshop.
It is unlikely this can be accomplished without some planning from the vendor and so the scenarios to be evaluated should be communicated in advance and covered in detail during an interactive workshop. The aim is to gauge the levels of integration that exist and the effort required to maintain them.
Strategic Planning scenarios
Tactical Planning scenarios
Financial Planning scenarios
Management reporting scenarios
o Comparison with strategic plan (i.e. updates the strategy map)
o Comparison with tactical plan o
o Comparison with budget / forecast
The aim of this framework has been to clarify the purpose of a CPM system; ways in which it can be implemented; how it relates to supporting BI/Reporting applications; and how to evaluate CPM software solutions.
It outlines an ideal implementation although it is unlikely that a company will ever implement it in this way. However, it provides a goal for an IT systems strategy that will genuinely help managers and executives manage performance.
By adopting such a framework, organisations will realise a number of high-level benefits it provides, including:
By Simone da Silva Collins, Finance Manager, Polycom
Have you thought of becoming an FP&A professional?
When I was studying for my accounting qualification, I assumed I would become a traditional accountant. I did not know then how wrong this assumption would prove to be. This article gives an insight to my path in becoming an FP&A professional and short guide on how to become one.
I graduated from university with a Bachelor degree in Accounting and Business and started working for a local audit firm. At first, it was quite interesting: looking into the figures of different companies and industries, trying to make sure all the relevant evidence was there and that it made sense. However after some time, I realised auditing wasn’t for me – it just did not challenge me enough.
After a few years of managing budgets for a local government department and acquiring an MBA as well as an international accounting qualification (ACCA), I moved on to reporting and financial analysis at a national cable telephony company – at the dawn of the telecoms bubble in the UK. It was a good time to join the industry because there was a lot going on. I got involved not only in cost analysis but also provided assistance to other parts of the organisation including retail, wholesale and fraud. I found it exceedingly rewarding being able to support other stakeholders in minimizing risk, protecting revenue and, in some cases, growing revenue. It was then that my ‘eureka’ moment arrived: I wanted to pursue a career in which I not only provide insight but also helped promote business growth.
My next role took me closer to being a business partner. I guided my counterparts in the forecasting cycle and process, as well as reviewed the financials for the group CFO to see how we were performing against expectations. This was when one of the FP&A attributes of being inquisitive came into play. I asked my regional counterparts and decision makers what the reasons behind the variances were and what the plans were to mitigate unfavourable trends. I got to learn more about the drivers of the business. However, being inquisitive also came with its own challenges. One of my challenges was to encourage my counterparts and decision makers to share information so as to build a complete picture of what was driving the company’s financial figures. I also needed to learn to recognise if what my business partners were telling me was realistic and aligned with the direction that the financials appear to indicate. I found that through having regular reviews and discussions with my stakeholders and providing credible analysis, I gradually gained their trust. With trust, I was in a better position to encourage knowledge and information share. For me, as an FP&A professional, it is important to engage my stakeholders. This is a two-way relationship: input from my stakeholders and finance support from me.
During this role, I also got the opportunity to be involved in systems development with a view to improving the forecasting efforts. System development is an area in which FP&A is becoming more and more involved – from defining the scope and system requirements to UAT. By improving forecasting efforts, I enabled the FP&A team to free up more time to engage with their decision makers and be part of value add activities, that is to take a more proactive role in assisting the company to align its actions with its desired strategic outcomes.
My current role is a trusted business partner and ‘go to’ person for all finance matters. Although I am engaged in traditional month-end reporting, I reach out to my decision makers to help align finance with business operations. Therefore, unlike the traditional finance function which looks at what happened, my role involves assisting decision makers in assessing what should happen, what financial impacts are anticipated, why the financials may indicate deviation and how to get back on track. I find that communication and transparency are essential in fulfilling my role.
So where do you begin?
One generally begins by gaining an accounting qualification through formal education and work experience followed by a professional qualification. Professional organisations such as AFP, ACCA and CIMA, to name just a few, offer certifications and qualifications with a focus on various aspects of the finance profession.
The next step is to gain experience by working with both the traditional accounting function and the business stakeholders. You may find some FP&A migrate from traditional accounting function to more business partnering as a natural and lateral move in their career. The existing rapport with accounting function and accounting knowledge enables FP&A professionals to understand the technical aspects of transactional accounting. As a result, FP&A professionals can spend more time unlocking the business intelligence data.
Apart from the academic and technical background, FP&A professionals should also be equipped with soft skills such as listening, influencing and persuasion. A service delivery mindset is essential. FP&A is not about producing fancy reports: it actually helps the business move forward. Although FP&A skills are transferable, there is industry and organization-specific knowledge that can only be gained by FP&A proactively reaching out.
I believe that to become a successful FP&A business partner, one needs to nurture their relationships with their stakeholders. This paves the way for an FP&A professional to become their trusted adviser.
I see FP&A as the next career move for someone who has a solid accounting background and someone who actually wants to promote business growth.
Simone da Silva Collins is a FP&A professional working in Polycom, an industry leader in unified collaboration solutions.
She provides business partnering to various departments of Polycom in EMEA. She was previously the Group Finance Analyst supporting the Executive Team at Intec (now part of CSG), a provider of Business Support System (BSS) software and related services, primarily for the telecommunications industry. She also worked for Telewest (now part of Virgin Media) for over 7 years providing commercial and financial support to the Interconnect team.
Simone is originally from Macau in SE Asia. She gained her Masters at Manchester Business School. She has also recently achieved FP&A accreditation.
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