Business Planning for the 21st Century

Budgeting and Forecasting

The Planning Cycle

The requirement for accurate and timely forecasting of corporate results increases every day. Fuelled by the demands of the web-driven world for instant access to information, financial managers are expected to be able to predict the financial impact of each big decision - in days, or even hours.

The truth is often far removed - most management accountants still rely on a planning methodology designed in the early 20th century and a bewildering tower of spreadsheets. Long hours, questionable accuracy, and the ever-present danger of the spreadsheet tower collapsing under the strain, means that most financial managers dread the planning process.

Most organisations currently plan their businesses on an annual cycle structured around the financial year - top-down strategic planning by senior management starts about six months out, leading into the annual budget; a detailed bottom-up exercise designed to align proposed cost centre expenditure with the top-down plan for the coming year. Once the new year starts, and the first month's actuals are in, the budget will start to be revised in a forecasting process that tends to be high-level, quarterly, and less structured than the annual budget.

Out of these three distinct planning activities, it is the annual budget process that leads to most dissatisfaction amongst all concerned, and consumes most time and money. Based on an outdated model of a command-and-control business structure, the process engenders mistrust between senior and middle management as both sides engage in a highly charged political battle to secure a lower or higher cost budget respectively for the year ahead. This battle can rage for months, distracting attention from external events and draining the energy of all involved.

Worst of all, the hard-fought budget outcome becomes redundant within a matter of months, being overtaken by back-of-an-envelope forecast calculations that are produced in a hurry by senior management, in response to changing market conditions or big new ideas. Often this forecast "process" is carried out without consulting cost centres, further undermining the morale of middle management.

The Aberdeen Report, based on a survey of 167 organisations, outlines the reasons for, and the benefits of a "beyond spreadsheets" approach to financial planning, budgeting and forecasting.

[Download the report]

Towards Best-Practice Enterprise Planning

The issues here are deep-seated, ingrained as they are into corporate culture, but not insolute.

The consensus of management accounting theory over the past twenty years is that, to ensure the planning process is relevant, accurate, and most importantly, that it encourages business managers to deliver the right results, it is essential to incorporate three aspects that are absent from the current model:

Collaboration

Where plans are developed in collaboration with business managers, they are far more likely to succeed than those built by finance or senior management in isolation. Ownership increases, and the planning burden is spread. This is of course much easier said than done, requiring as it does a level of mutual trust that has been systematically eroded by the old way of doing things. Much has been written on how to break through this barrier of mistrust and cynicism, most notably by Hope and Fraser in their seminal text Beyond Budgeting, and there are some outstanding examples of companies who have acted on these approaches and had dramatic success.

Driver-Based Techniques

Modelling the business using key drivers, such as sales volume and headcount, ensures that the plan is consisten and flexible, allowing faster and more accurate scenario modelling as all elements of the plan move in step with the change being modelled. Most financial managers these days have a good sense of the drivers involved in their business, but are often frustrated by the inability of their spreadsheet models to give them a true sense of the sensitivities involved, preventing them from giving clear guidance to operational managers. This is where multi-dimensional modelling technology can help, in combination with the rigour of Activity-Based Costing/Management (ABC/ABM) approaches.

Timely Delivery

A rough estimate delivered today is worth far more than a detailed plan that is three months out of date. The old budget model was built around the relatively static world of the early 20th century, where market conditions were unlikely to change substantially from one year to the next. Budgets could safely be based on 'last year + x%' as an incentive for managers to do a little better this year in what were assumed to be the same prevailing external conditions. The world has changed radically since then, and the pace of this change is increasing exponentially, requiring new approaches that can re-model a changing business quickly. The planning process must be streamlined, with as little time as possible spent on data collection and consolidation, and far more time on 'what-if' analysis and scenario planning.

Learn about the hazards of spreadsheet-based planning and the prevalence and types of errors plaguing everyone from Olympic organisers, to researchers, to financial professionals.

[Download White Paper]

Beyond the Spreadsheet Model

Speeding up the planning process requires a revamp of the technology used to deliver it, and in particular the emphasis on the spreadsheet model, which has traditionally been the only tool available for quick financial and operational planning.

For while spreadsheets are great personal productivity tools, they are not designed to be a multi-user, enterprise scale financial application, and spreadsheets alone are no longer the answer with digital disruption having transformed the corporate landscape. Competition and convergence are ubiquitous, and businesses need tools that can rapidly evaluate trends and exploit data analytics to improve decision-making and drive corporate strategy.

Read how leading CFOs are navigating the chaos and steering their organisations to profitable growth: Redefining Performance: Insights from the Global C-suite study - The CFO perspective

Operational efficiency, accuracy and agility are vital to compete in today's age of disruption and cannot be achieved by spreadsheets alone. In fact, the technical solution requires a robust multi-dimensional data (and metadata) repository, which has workflow to enable multi-user collaboration, as well as the capability to make continual changes to the models being deployed.

This is where IBM's Business Analytics software comes in, particularly:

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IBM Cognos TM1
The global leader in budgeting tools

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IBM Cognos Express
TM1 for the mid-market

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Cognos Disclosure Management
For collaborative reporting

Cornerstone | Your Budgeting and Forecasting Experts

Getting the right tool is one thing, but the success of your project will depend on the people you engage to help.

Cornerstone has the largest team of budgeting and forecasting consultants in the Asia Pacific region, with specialists in each of our offices and over 50 certifications in IBM's Finance and Operational Performance Management product group alone. 

With our best-practice methodology and the diverse talent amongst our team, Cornerstone also offer:
         

Our Specialists

View Our Team

Chris Banaszak

Chris Banaszak

Chris Banaszak

FPM Solution Architect

Greg Leonhart

Greg Leonhart

Greg Leonhart

FPM Solution Architect

Richard Quaine

Richard Quaine

Richard Quaine

FPM Solution Architect

Yuri Kudryavcev

Specialist Profile Picture

Yuri Kudryavcev

Principal Consultant

Customer Success Stories

Cornerstone has delivered countless solutions for our enterprise and mid-market customers over the last ten years. We're proud of the results we've achieved for our customers, and the expertise we have provided in helping them solve their complex business challenges.

Please review a selection of our published case studies below. If you would like more information on these, or other projects delivered by Cornerstone, please call us on 1300 841 048 or get in touch online.

Case Study Australian Hearing
Read how Australian Hearing helped local managers run their hearing centres more efficiently
Case Study Wesfarmers Insurance
Wesfarmers Insurance accelerates business planning, increasing trust with a single enterprise-wide budgeting and forecasting model
Case Study Hellmann Worldwide Logistics
Read how Hellmann Worldwide Logistics freed up funds by improving monthly net working capital days by 25%
Case Study I-MED Radiology Network
I-MED Radiology Network supporting business growth with rapid, clinic-level insight into financial and operational drivers

More Resources

Here are some articles that explore further managing your planning and forecasting processes to help you and your organisation succeed.

Spreadsheets for planning [infographic].png
Spreadsheets for planning? A popular tool needs help [infographic]
Redefining Performance [report].png
Redefining Performance: Insights from the Global C-suite Study - The CFO perspective [report]
Digital disruption [blog].png
How Leading CFOs are Learning to Thrive amidst Digital Disruption [blog]
CapEx planning [blog].png
How to gain visibility, efficiency and accuracy in your CapEx planning [blog]
Ready to move on from your love hate relationship with spreadsheets [blog].png
Ready to move on from your Love/Hate relationship (with spreadsheets)? [blog]
IBM global financing [news].png
IBM Global Financing | Don't let budget stand in the way [news]