In my last post I gave some simple tips about expediting the planning and budgeting process that have stood me in good stead throughout my career and budgeting guru Steve Player talks about the same thing in his most recent post, asking does finance ‘feel the need for speed’. Well in these uncertain times, any company that is still struggling through a 4-6 month process that takes multiple iterations to arrive at an acceptable compromise that business managers feel they can achieve (and still earning their bonus) and the executive is prepared to sign off on, ought to be striving for something shorter.
With unknowns about demand and input prices there are too many assumptions to review to let budgeting remain as a once a year process and Steve recommends continual rolling forecasts fed by inputs from sales and operations. While he doesn’t spell it out, what he appears to be talking about is driver-based planning and budgeting where key inputs (and indeed KPIs) such as productivity ratios, the sales pipeline, the unit cost of inputs, exchange rates and the like can be actively monitored and managed on a daily basis with corrective action taken as required. I’ve long been sold on such an approach, worked with it a couple of roles and see it as the catalyst that will really get finance working alongside the businesses as partners.
But until now, driver-based budgeting models have been somewhat onerous to work with in that recalculating a large multi-dimensional planning model that contains lots of business rules than span time periods and departments could take some considerable time even when models have been partitioned across servers and the ingenious workarounds have been brought into play. Similarly updating sales and operational drivers relied on waiting until contributors found some quiet time to open up their laptop, which is never easy with managers who are out in the field or based in a busy production or distribution unit.
Today any inputs that are not system-generated can be collected using mobile devices with the process automated by workflow so that reminders and templates flash up on the screen ready for the two or three critical bits of data to be entered. And as drivers are typically things that any manager will monitoring as part of their daily life, it takes seconds to submit the data. Secondly building planning models that make use of in-memory calculation engines such as SAP HANA means that even the biggest driver –based planning and forecasting models will run in real-time. That way everyone in the business from a junior line manager to the CEO can get instant insight into where they stand against their goals and targets. What’s more, as the model is based on drivers, automated variance analysis will show them exactly where the issue are that need to be addressed and they can run scenarios to assess the impact of any changes that need to be made.
Admittedly, finance would need to plan the collection of drivers starting with sales and working through production, distribution and finally back office, repeatedly calculating the model so that contributors could see what demands the new forecasts of earlier upstream contributors make on their own responsibility center. So I guess we are talking a couple of elapsed hours to generate a new forecast. But coming from 4-6 months, surely this is as near real-time planning and budgeting as it’s possible to be. Bring it on.