This is post #8 from a 12-part blog series that SAP commissioned from finance expert Steve Player, who runs his own practice, The Player Group and also heads up the Beyond Budgeting Roundtable in North America. This series explores how new technologies such as cloud computing, mobility, and in-memory processing of Big Data are transforming planning, budgeting and forecasting best practices.
I was excited to hear of the pending 3D release of the 1986 movie “Top Gun.” It features Tom Cruise as Lieutenant Pete “Maverick” Mitchell as a young Naval pilot who is selected to train at the U.S. Navy’s Fighter Weapons School whose very best are selected “Top Guns.” When the movie first came out in 1986, I was early in my career and we all wanted to be Top Guns.
The movie’s most famous quote seems equally applicable today: “I feel the need for speed!” Top pilots know that effectively using speed and agility creates winners. It can move you to safety or if your adversary has it, his speed can threaten your existence. In today’s volatile world, most financial planning and analysis professionals are feeling the need for speed. This post shows some of the ways financial planning and analysis (FP&A) is meeting those needs.
In the past, traditional FP&A operated on a slow annual cycle dominated by an annual budget exercise. Many organizations still suffer through four to six months of back and forth discussions which negotiate the expected performance of each organizational unit in the coming year. A lot of time is spent discussing which assumptions (e.g., about the economy, the likely competitor actions, expected or hoped for customer behavior, key commodity price changes, etc.) to use for planning. Most processes go through multiple iterations as numbers are reworked.
Many find the objectives of these efforts to be quite ironic. The goal of most budget exercises seems to be negotiating the lowest acceptable target rather than trying to deliver outstanding performance. This led GE’s former CEO Jack Welch to conclude that “most organizations succeed in spite of their budgets rather than because of them.” Regrettably most of these budgets are out of date shortly after printing as all those assumptions continue to change. In these situations FP&A often impedes speed and agility rather than promoting it.
As a result many organizations are joining the Beyond Budgeting movement to dramatically improve planning and control practices. There is a great shift to adaptive rolling forecasts rather than static budgets. Those joining the Beyond Budgeting Round Table (BBRT) movement have been “freed from the budget.” This freedom is allowing planning teams to spend more time looking forward developing the systems and tools needed to handle increased speed.
Examples of these are planning models that can be generated and tested side-by-side with operational managers in the field. Simultaneously projecting the expected financial results of different potential product and process designs speeds innovation and development. It helps evaluate trade-offs much faster. As a result, many corporate planning desk jobs are relocating into field positions working directly with operating managers.
For instance, project design teams at Boeing include planners who continually estimate the target costs of different design options. Trade-offs between different performance, weight and cost variables are constantly checked to help develop an optimal product design. This is one of the many examples of how planning is not only quicker but also done with greater understanding of what is happening in the field.
The emphasis on reporting is shifting to real time monitoring. Daily checks quickly tell if operations are on-track. As a result FP&A professionals can shift from being after-the-fact variance explainers into proactive collaborators helping operational managers test the expected financial results of different operational alternatives. Rather than the old once-a-year approach, planning tools swing into continuous use updated with the most recent projections of the competitive environment. Planners move from being after-the-fact commenters to being on-board collaborators.
Mobility is also changing the speed of work by freeing both analysts and managers from being chained to desks and a monthly transactional cycle. Mobility enables financial planning and analysis departments to go much faster and reach much farther. Mobility moves you to real time — and it will move you there now (whether you want to or not).
As we seek to better understand these changes, some of the questions planners need to ask include:
- With the ability to have low-cost connections to virtually any worker, what new customer and employee listening posts should we develop?
- What tasks are enhanced by greater mobility? Which tasks are hampered? How should work processes be adjusted?
- Are any resources being spent fighting battles that are already over?
- How does a faster world change the competitive landscape? How do we need to change?
I recently spoke with SAP’s David Williams, head of enterprise performance management product marketing, who clearly articulated the current goal of planning as follows: “What you would like to do is be able at any point in time to get an instant real-time look at where you are against a goal or target. Have an instant real-time variance analysis. Know where you are tracking compared to your KPIs. Mobility and in-memory computing get you that instant analysis, but also enable you to run complex planning calculations on key business drivers more frequently to really take a look at how different scenarios may play out.” Those are the capabilities that turn FP&A into Top Guns.
Next time, we’ll look at “Improved Scenario Planning Capability for Greater Agility and More Coordinated Response with Enterprise Mobility.” Also be sure to give your opinion on how mobile, in-memory computing and cloud expand best practices in planning and performance management. You can access this Business Finance survey by clicking this link. We appreciate your feedback.