New SAP Press Book Offers Primer on Financial Planning and Analysis

From Malcolm Faulkner, Sr Director Product Marketing, SAP

A book I co-authored has recently been published by SAP Press and is now available on their website. I’ve been asked by my SAP enterprise performance management (EPM) marketing colleague, Mr. Chris Grundy (who manages our EPM social media programs) to write a blog explaining why we wrote the book, and to describe the whole experience. In this blog, I’ll provide a short overview of the book itself and in a second blog, I’ll share some of the lessons I learned in writing a book.

FPA Book

First off, the intention in writing the book was to explain in one place what financial planning and analysis processes are and how SAP software can make them more effective and efficient. The book is written as a primer for everyone interested in implementing SAP’s enterprise performance management applications to improve their strategic, financial planning and profitability analysis processes.

To that end, I truly believe the book provides enormous value to anyone interested in these functions and how software applications support them – in general and specifically, SAP applications. Enterprise performance management is an enormous subject that embraces many functions and business practices.

If you work in strategy, financial planning, or business analysis or a related field, and particularly, if you use or are considering using SAP software, then I hope you’ll check out Financial Planning and Analysis with SAP: SAP Solutions for EPM, by William D. Newman and myself.

Part 1 – The EPM Foundation

In Part 1 of the book, we define enterprise performance management, discuss it’s relation to business intelligence (BI), describe the financial planning and analysis lifecycle, and cover the key processes that occur in it. These include strategy development and translation (execution), planning, budgeting and forecasting, profitability and cost analysis, and internal monitoring and external reporting of performance. We also introduce the EPM portfolio from SAP.

Part 2 – EPM Products from SAP

In Part 2, we explore the three key EPM applications used to enable financial planning and analysis – SAP Strategy Management, SAP Business Planning and Consolidation, and SAP Profitability and Cost Management. We also have a chapter on SAP Financial Information Management, the “glue” for integrating SAP’s EPM solutions. Lastly, we discuss the use of both SAP’s EPM products and BI tools for continuous performance monitoring and support of reporting requirements.

Part 3 – Leveraging Capabilities from Alternative Software Solutions

An important component of EPM applications is financial consolidation. This is the sister of financial planning, so we include one chapter on it just for completeness. For more information on financial consolidation you can also read Accelerated Financial Closing with SAP by James Fisher, Elizabeth Milne and Birgit Starmanns.

Deploying an EPM application shouldn’t be a protracted process. While they may embody sophisticated forecasting and modelling processes, they aren’t massive ERP applications. Therefore, the implementation times should be correspondingly shorter.

Customers are also looking for pre-built content and best practices. SAP bundles (and sells) pre-built content along with the underlying applications and a prescribed set of services that are called rapid deployment solutions (RDS). We discuss the RDS’s that currently exist to help accelerate the adoption of SAP’s EPM solutions within financial planning and analysis.

EPM is a broad domain and uses data pulled from many other systems and sources, particularly ERP and data warehouses. Therefore, it would be remiss not to include some discussion of peripheral solutions, integrating SAP EPM with them and investigating how to extend EPM capabilities into other SAP solutions.

Part 4 – The Future of Enterprise Performance Management

Anybody involved with financial planning and analysis (whether on the business or IT side) is well aware of the developments in Big Data, cloud, and mobility, along with innovations in analytics. These advances are beginning to change the way we access and use applications along with providing additional power, capability and convenience. This last section talks about the relevance of these emerging technologies and highlights the future and planned innovations for EPM from SAP.

Wrapping it up

As I wrote in the forward, when writing this book, we focused on four key processes in financial planning and analysis, which themselves are composed of many sub-processes and activities. That’s a ton of stuff before we even begin to think about SAP’s EPM portfolio. On top of this, we have to consider the turmoil from a rapidly changing global business environment and huge technology shifts that are dramatically changing the way in which applications are built, deployed, and used. To say that writing this book was a massive undertaking would be an understatement to say the least. However, we believe that it fills a void and hope that it will help all readers better grasp the issues and importance of EPM.

This blog article originally posted on SAP Analytics 14 August 2014

How do we transform finance to cope with constant change? One word; Collaboration!

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

Throughout my ten part blog series I have been discussing how CFOs can use new technologies to help leverage the finance team in providing greater organizational value. In the capstone summary I also wanted to note that underlying each of the changes discussed is a theme of greater collaboration.

Businessman and businesswoman using digital tablet in office

In many ways technology is enabling this collaboration. But your speed of adoption will increase if you start with a spirit of collaboration before any implementation begins:

  • A strong CFO looks to collaborate with his or her key lieutenants. More effective plans are developed when everyone is looking to optimize the whole organization.
  • A strong corporate finance team looks for ways to team with the business units they support. How can information be shared across units to make the whole stronger than the individual parts?
  • Strong finance teams also look to gain advantage by teaming up and down the value stream. For instance, the concept of eliminating duplicate data entry extends up and down the value stream. Why re-key a key vendor’s data or ask your customer to re-key yours?

New technologies such as integrated planning modules are leveraging collaborative work flows which are often imbedded into the design of new modules. These systems provide real time status of work flow which can be tracked automatically. Group messaging and polling functions facilitate online dialogues which can be happening with people around the globe. Joint work efforts can be tracked by automated audit trails maintaining change history. Teams can access the organization’s knowledge bases though on-line content management systems – anytime, anywhere. Even security concerns are better addressed as prepackaged solutions build in the security checks.

Old approaches that relied on linked spreadsheets had finance teams constantly trying to validate if they were working on the right numbers. Past surveys [1] have estimated that FP&A teams spend 47% of their time collecting and validating date. They spend another 30% of their time administering the planning process. As a result, they only have 23% of their time to do any real value added planning work. The new technologies we are discussing (mobile, in-memory, predictive analytics, and cloud) can flip this equation leaving finance teams free to focus just on collaborating and doing real planning work.

In addition to collaboration, success with these new technologies requires three key elements. The first is leadership and whether they are willing to explore new ways that finance can improve organizational value. This is likely a CFO who is looking to have greater impact. The second is an organization with a willingness to change. In addition to collaborating, there also needs to be an openness to what is possible. This leads to the third element which is experimentation. As Peter Drucker advised, systemic innovation “consists in the purposeful and organized search for changes, and in the systemic analysis of the opportunities such changes might offer for economic or social innovation.” [2]

Whether you are a CFO or just someone in looking to add greater value, ask yourself these questions:

  1. What changes should we be making to expand the value our finance team creates?
  2. How should our planning, budgeting and forecasting process change to take advantage of the next generation planning tools already here?
  3. How can in-memory computing help us harness Big Data for greater insights?
  4. What predictive analytics will provide us with greater lead time for improving?
  5. How can we better reach our strategies by aligning our execution efforts? What should be dropped to create capacity for what needs to be added?
  6. Which customers provide our current profitability? How will that change in the future?
  7. How can we improve the return on all expenditures?
  8. How can we eliminate wastes by moving to real time consolidation?
  9. How can we increase our response times using real time close and disclose approaches?
  10. How can finance improve collaboration?

Finally, how can finance find the time to pursue these goals? That begins with your leadership and identifying dumb stuff you are currently doing that should stop. I hope this series of blogs have helped get you started.

[1] See joint studies by APQC/ Beyond Budgeting Round Table (BBRT) and by Business Finance Magazine and BBRT. See “The Budget (1922 – 2009) Is Dead” by Jack Sweeney, Business Finance magazine, June 1, 2009.
[2] Drucker, Peter, Innovation and Entrepreneurship: Practices and Principles, (New York: Harper & Row) 1985, page 35.

Steve Player

Real time close and disclose

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

As we continue to examine how technology is helping CFOs successfully deliver greater value, I wanted to extend last week’s discussion of real-time consolidation to also include real time closing and disclosing of financial information. These can provide real benefits to all organizations from small to gigantic and everyone in between.

Technology has expanded the work day. Many business are 24/7/365 (hours per days/ days per week/ working every day of the year). The business is like a ship on the ocean, constantly serving. In most organizations, the work does not stop. For these, an accounting close of a month, a quarter or a fiscal year is merely a defined reporting period for comparison purposes. You want it to be accurate, but you also want it to be as unobtrusive as possible. For most, that means cut-off procedures with minimal disruption.

Clock in train station, Liege, Belgium

Achieving real time closing follows this same steps discussed in last week’s real time consolidations – it starts with finance efforts to stop doing dumb stuff. This means eliminating the need for duplicate data entry, converting manual account reconciliations to automated approaches, simplifying other monthly systems interfaces, and getting systems to exchange and validate information.

About 15 years ago, this approach was described as being able to do a virtual close. One of the key benefits claimed was providing management with financial information faster. Frankly, I see this as a misleading claim. In successful organizations, any critical information needed by management is already being provided.

The real reason that CFOs need to move to real time closing is that doing so will free up a huge spike in the finance team’s work load. Streamlining the manual interfaces and account reconciliations means digging up the root causes and eliminating them. The monthly time saved by these improvements is better spent developing and implementing improvement plans.

The most recent advances have extended real-time information to also include the disclosure process – which has been called the last mile of reporting. The use of the new XBRL reporting language enables information to be tagged and reused. Initially, the benefits of this development was sold as a check to make sure that any late changing numbers would be captured and updated. When Sarbanes/ Oxley began to require CFO the sign that their financial statements were accurate, this feature became an even bigger deal. Adding this capability has been a must have for most publically traded companies.

As finance teams have become more familiar with XBRL, they are beginning to see opportunities to expand its use. From its roots in financial reporting, new disclosure reporting is expanding additional external reporting such as:

  • Linking to all footnote reporting including executive compensation
  • Covering sustainability reporting issues
  • Tracking social responsibility issues

It is also begun to be used for internal reporting such as:

  • Tracking total costs of ownership
  • Quality performance reporting
  • Measuring employee personnel productivity

By using these technologies to help CFOs cover the basics, they also create more capacity to expand into additional areas. Next week, I will recap our process and look at what else the future may hold.

Steve Player

The drive for real-time consolidations

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

Our exploration of how technology has expanded the roles of CFOs has covered a lot of territory. Whenever I am facing tremendous change, I remember Stephen Covey’s advice “The key to the ability to change is a changeless sense of who you are, what you are about and what you value.”[i] So it is also with the roles of CFOs. When CFOs focus on key objectives, they can leverage process innovation to achieve amazing results. While technology enables us to reach out, it also improves the day-to-day work at the core of financial operations. A prime example is the move to real-time consolidations.

But I need to warn you, be prepared to break through the walls of resistance.

I provide this caution because many in finance are jaded by past systems that were built with IT tools that often look like they were invented in the Stone Age by comparison. I think that has to do with the historical role that CFOs played. Because the CFO historically provided the voice of reason and “prudent” investing, my experience has seen investments in finance related systems enhancements that were frequently delayed, deferred, or simply ignored. As a result, many finance teams still struggle with systems that are poorly integrated and require too much manual intervention.

Frankly, this is a waste that modern CFOs recognize must be eliminated if an organization is to have any chance of realizing the potential benefits available. Does your organization face manual reconciliations, repeated monthly systems intervention, duplicate data entry, and redundant maintenance of financial accounts? If so, you have likely turned your valuable finance talent into a team of data monkeys who spend most of the time just trying to make sure you are working with the right numbers. It is dumb stuff… and in finance you often need to simply begin with a pledge “to stop doing dumb stuff.”

Today’s technology enables real-time consolidations. Why is that important? Consider these reasons:

  1. Real-time consolidation allows the organization to eliminate batch mode processing. Finance processes are often a series of time based batches that spike work-loads near month, quarter, and annual year-ends.
  2. Real-time consolidation levels the work requiring fewer people and less overtime.
  3. Implementing real-time consolidation requires better technology integration that reduces cycle time by eliminating manual interfaces, redundancies and duplicate processing. This leaves more time for finance personnel to actually evaluate operations.
  4. Real-time consolidation provides rapid analysis of the impacts of debt covenants. Potential strategic changes such as acquisitions, mergers or spin-offs can be compared under different financial structures to see which provides the greatest flexibility and lowest capital cost.
  5. The ability to monitor a consolidated position enables deeper understanding of foreign currency exposures from both an income statement and cash flow perspective. This better supports effective treasury management.
  6. Real-time consolidation reduces planning time and frees the planning team to run more planning scenario simulations to further develop game plans for defending against risks or capturing opportunities.

The bottom line is real-time consolidation provides more time for finance to support operations and assist in improved decision making… and these are the type of benefits that CFOs have long sought.

Next week we examine how technology is changing two key outputs of finance – how we close and how we disclose.

[i] Stephen R. Covey, The Seven Habits of Highly Effective People, New York: Simon & Schuster, Inc., 1989, page 108

Steve Player

Real-Time Finance: Helping Strong CFOs Transform Their Businesses

From Birgit Starmanns, SAP

Life happens in real time. Buying a new TV? You probably research your purchase , read reviews, and compare prices online. Get store opening times, directions, and parking. Even check your account balance. All the information you need is at your fingertips.

You’re constantly making decisions based on the best available data at any given moment. So why can’t you do the same for your business?

Particularly in times of market volatility, when organizations are bombarded by risks and opportunities, finance functions need a precise view of the past, immediate insight into the present, and a clear perspective on the future.

But all too often, a disjointed landscape of IT applications and silos of data mean that the best you can hope for is reliable historical information. Why? Because it takes so long to piece together the picture that the present has already elapsed.

What Is Real-Time Finance?

Real-time finance starts with being able to align all corporate data effortlessly to provide a single source of truth. It demands agile information delivery—to help you make decisions, take action, and adjust plans based on what’s happening right now. And increasingly, it relies on predictive capability to anticipate risks and understand trends and business drivers before they impact the business.

Real time isn’t simply about accelerating your business—it’s about reinventing it. It’s about having insight and foresight whenever you need it, wherever you need it, and business processes that can adapt dynamically. That might mean:

  • Being able to provide intercompany reconciliation on the fly
  • Detecting potential fraudulent activity
  • Gaining visibility into your cash position at any given moment
  • Evolving from a periodic to a continuous financial close

To find out more about the transformative potential of real-time finance and the art of the possible, visit the innovations radio show.

Forecast with improved accuracy – leveraging BIG Data and Predictive Analytics…What!?

From Jonathan Essig, EPM Solution Director, NTT DATA Enterprise Services, Inc.

The question that has been nagging at me lately is this: why aren’t more finance organizations leveraging BIG data and predictive analytics? Is the answer, they don’t know how? Is it, they can’t pin point the value it will bring? Or even possibly, they don’t really know what BIG data is?

From what I have seen it is a combination of all three but breaking down these barriers can help the office of the CFO leverage these new technologies. Doing so will greatly improve planning accuracy, profitability analysis, and ultimately drive better decision making.

First, what is BIG Data?

For Finance organizations, BIG data can seem intimidating or a bit of a mystery. In fact, it seems as though everyone is talking about it but no one can quite define it.

Simply put, BIG Data means “data sets that are too large for traditional processing…and require new processing technologies”. Many companies have already seen the power of in-memory technologies, such as HANA, demonstrated by retrieving back millions of rows of data in seconds. This is truly impressive, but Finance executives secretly, or not so secretly snicker about what real value that can add for them. Really, it is the insight we can now extract from the increasingly large data sets that holds the opportunity. In other words, what is important is what we can do with the big data – not the big data itself. Applying predictive analytics to BIG Data is one great way to mine your data for value. As finance organizations change their mindset to viewing data as an asset, they will be better positioned to take advantage.

How can Finance organizations use Predictive Analytics?

Predictive analytics enable organizations to leverage big data to develop more accurate and timely forecasts. Specifically, predictive analytics can better analysts’ ability to foresee product demand by customer or by region. The BIG Data used for this analysis can be hidden in many places – CRM, POS system, social media, historical trends, and other macroeconomic data sources.  Predictions from these models can be fed real time into your planning tool and applied as a starting point for a rolling forecast each month.

This means you can see the profitability impact of drivers REAL time and use it to better business decision making! For example, you can model profitability with predicted changes in volume, pricing, raw material costs, inventory, receivable etc and allow management to adjust their strategy before the competition.

Why now and what is the value of Predictive Analytics with BIG Data?

Predictive Analytics has been in the news quite a bit in the last couple years as relates to consumer product companies and targeted marketing.

Companies have hired teams of consultants and analysts to come in and complete regression analysis on their POS data to identify for example, customers whose purchasing habits make them most likely to buy specific products in the future. Not surprising then that sales organizations tend to be earlier adopters than Finance organizations, but this has also been in large part because of the LARGE, measurable benefits they have obtained.

However, in the finance world, the benefits are much harder to measure and it is tough to justify a big initial investment. What we need to do is make the benefits measurable and lower the initial investment.

One of my favorite quotes from Galileo, “Count what is countable, measure what is measurable, and what is not measurable, make measurable.” Well said…

Thankfully, new technologies are bridging part of the gap.

SAP’s newest Predictive Analytics tools have taken the grunt work and hours of statistical analysis out of statisticians’ hands and made this very accessible to the typical business analyst. Predictive tools do this by providing prepackaged algorithms and an easy to use interface requiring no advanced statistical knowledge or programming. Literally with a few days of training, finance teams can analyze historical trends, CRM data, or other macroeconomic data to provide a much more accurate starting point for their forecast. Essentially, allowing them to “measure” and benefit from what was previously very challenging to do so. How do I know how easy these tools are? I have worked hand in hand with SAP developing a predictive planning use case for them and was able to hit the ground running in less than a day – and I am no more technically savvy than your average finance or business analyst.

All of the above are now enabling finance organizations to talk about Predictive analytics and BIG data intelligently and understand the applications.

Another great quote by one of my favorite authors, Oscar Wilde “Experience is the name everyone gives to his mistakes” . Those willing to gain the experience and make some mistakes along the way will be the ones to deliver their organization much greater planning accuracy, unparalleled profitability analysis, and will ultimately drive better decision making.

For more information listen to my latest appearance as guest expert panelist on Voice America’s talk radio, or start getting acclimated by viewing the beta webcast below (use case has been updated and honed since original presentation). Here are some links to follow:

Voice America SAP Radio Financial Excellence talk show

Webcast recording Maximum Agility with Big Data for Finance

Going to SAP Financials in Nice? This blog could get you in the mood.

and finally…another great blog entry on Big Data

 

BIO: Jon Essig is an EPM solutions expert. He has architected many solutions, working with c-level execs, corporate finance, regional business units, and IT to create and implement a company-wide vision. He has delivered analytics, consolidations, and planning across a variety of industries. Jon also has close to ten years of experience as leader in various financial roles including: consolidations, financial analysis, forecasting, audit, SOX, financial closes, and tax. He has a great passion for innovative technologies and is an early adopter and architect of big data and predicate analytics applied to Finance. Jon holds a B.S. in Finance and is a Certified Public Accountant.

Contact Jon: jonathan.essig@nttdata.com | linkedin | @JonathanEssig

The Goal of FP&A: Future Profits Assured

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

Last week’s blog discussed the continued expansion of the roles that CFOs are asked to play. This week we go deeper into the new role of “promoter of predictive analytics.” With the power of new technologies, many CFOs are moving to driver based forecasts that can serve as early indicators of future performance. While FP&A departments typically stand for Financial Planning and Analysis, many CFOs would prefer it to stand for “Future Profits Assured.” Let’s explore how predictive analytics are moving organizations closer to that goal.

As their name implies, predictive analytics provide insight into what is coming. In my mind it also conjures up memories of the spring rains of 2011 that led to widespread flooding along the Mississippi River. While property damage was great, the loss of life was mitigated by early warnings of when and where the rivers would crest. These were based on where rain was falling across each river’s watershed area compared to the time needed for it to flow downstream. Simply put too much water coming too fast creates a flood. Getting real time information still leaves you at risk. You need predictions.

Faster than real time. Likewise, great CFOs have learned to look far upstream to see what is coming at them. They are moving beyond data mining by tapping into deeper insights provided by predictive analytics. By identifying which variables are most predictive of profitability— and it’s never just one— the CFO defines fewer, more accurate scenarios for future outcomes. A sound approach measures the ability of an internal predictive computing effort to reduce variability and increase certainty. Doing so transforms finance from being a spectator staring off the back of the company’s boat into an early warning system helping the captain more successfully avoid risks and achieve objectives. While you often hear that finance should become a “trusted business advisor to operations,” delivering predictive insights is the goal of FP&A departments that are considered a key part of the complete business team.

Clouds, Dusseldorf, North Rhine-Westphalia, Germany

Weather forecasters are role models. Nate Silver writes in The Signal and the Noise that [i] weather forecasters maintain a “healthy balance of computer modeling and human judgment” that is lacking in other disciplines. A good weather forecaster calls other forecasters to compare notes. The savvy CFO has a roadmap for how inputs from social data— whether it’s as simple as where people go, or as complex as what kinds of information people search for— impact firm performance. CFOs are learning how mobile data can provide geo-location data to better understand and reach customers. Tapping into these vast social media vaults enables real time sentiment analysis that can predict future customer actions.

The weather forecaster has good hair. A unique example of these techniques in action comes from the Weather Channel. In 2013, the Weather Channel created a “frizziness index” for Proctor & Gamble’s Pantene shampoo brand. Women checking the Weather Channel forecast in the morning saw a custom set of Pantene ads. Retailers saw a spike in Pantene sales on days when the forecast (hot and humid) called for frizzy hair. (On a low humidity day a volumizing product is recommended.) Predictive computing helps the Weather Channel target three million global micro-climate locations, generating revenue by innovatively using data it was already capturing.

Whenever you see a weather forecast, ask if your organization is taking full advantage of the power of predictive analytics. There are typically a lot more benefits to be gained.

Your head is likely swimming with all the possibilities. Next week, I will show you how you focus in on a critical few items which should be key to your success as our discussion turns to aligning execution to strategy.

 

[i]http://fivethirtyeight.blogs.nytimes.com/2012/09/09/why-weather-forecasters-are-role-models/

 

Steve Player