EPM Reflections 2015 #4 – Accounting and Financial Close Series

In 2015, Elizabeth Milne, Director, EPM Product Marketing, wrote an informative series on the Accounting and Financial Close process, comprising of 14 blogs in total ran from February to May. The full list can be found here.

The series begins with breaking down a few of the many dimensions to financial close.


The second of the series asked “how fast is fast enough” when considering the speed of the financial close process. A recent CFO.com study revealed that 87% of finance executives agreed that managers at their companies need to analyze financial and performance data much more quickly than they do now to meet targets for profitable growth. Translation – speed has an impact on the bottom line.

The series continues to go into a deeper dive, covering the following topics:

  • Financial Accounting – Simple Finance and ERP Financials
  • Financial Accounting – Nakia Lease
  • Administration Financial Accounting – Revenue Recognition
  • Entity Close – Intercompany Reconciliation
  • Entity Close – Account Reconciliation
  • Entity Close – Entity Close Management
  • Corporate close – Consolidation and Notes Management
  • Reporting and Disclosure – Reporting and Analysis
  • Reporting and Disclosure – Disclosure Management
  • Financial Close
  • Governance Close to Disclose Recap


Find the full series here.

A Conversation with John To (ServiceNow)


Tell me about your organization and your role

ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise transform the delivery and management of services. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more.

My role at ServiceNow supports the financial planning and finance teams in their ability to make financial forecasts and generate financial reporting. I’m in charge of the SAP Business Planning and Consolidations system and serve to bridge that gap between what end users think they want and what IT thinks the business wants. I strive to build one of the best financial planning and reporting systems in the world to meet ServiceNow’s rapid growth.

For what business processes does your organization use SAP software (i.e. that are relevant to the event)?

We employ a full suite of SAP products from mature applications such as ECC for accounting, BPC for forecasting and consolidations and BOBJ for reporting. We have also adopted and/or are in the process of evaluating some of SAP’s latest product offerings such as S4 to better integrate transactional data, Cloud for Planning to capture and structure financial dark data, and Predictive Analytics to infuse statistical precision to modeling. There’s also Concur, SAP’s recent acquisition.

The integration of all these products and the financial meaning that can be extracted from such data will be crucial as ServiceNow continues to grow and scale, so SAP software supports all aspects of our organization. Centrally behind all this is our deployment of the HANA infrastructure which accelerates speed and performance, allowing for faster turnaround and decisions.

What are the three key benefits that this software brings to you?

 A lot of today’s solutions focus on automation of processes and centralization of data. We’ve seen reductions in time to monthly financial close, elimination of late night work culture within FP&A, and systematic alignment of finance policies.

How important is the new generation of planning/analytics in relation to the cloud?

The cloud combined with deep machine learning analytics will be incredibly beneficial to the aggregation of any and all financially relevant data that can then be used to extrapolate organizational relationships and behaviors to provide insights that facilitate decision making.

What are the biggest challenges facing internal Finance teams at present?

My observation from the financial planning standpoint is that the biggest challenges involve aggregation of data, simplification of data entry at necessarily granular levels of detail (a bottoms up approach), and ease by which that data can be matched with transactional activity with drilled through to identify meaningful relationships and explanations for financial activities. A step beyond this is the prescience of these financial activities and the ability to plan appropriately for them. Also important is the ability to simultaneously standardize and customize data perspectives such that different areas of an organization can maintain its unique language and culture, while also easily compare and reconcile between a “business perspective” and “finance perspective.”

What are the biggest opportunities for internal Finance teams at present?

Core finance activities are fundamentally routine and thus can be automated. As companies grow and scale, there is a spectrum of approaches to meet the increased demand ranging from investments in people to investments in technology. Whereas it takes time to recruit, hire and train staff, software can be identically copied infinitely many times – which creates an interesting new paradigm for work. I am not implying that machines can replace all people; far from that, but there is ample opportunity for finance teams to reevaluate their investment mix to find a balance that reduces redundancies in unproductive and dehumanizing activates for staff, while empowering them with technologies that add more significance and meaning to the work experience and ultimately increased productivity and ROI.

Looking to the future, in just a few words do you have an opinion on what aspect of technology you think will have the biggest impact on your business or your role, and how will it do this?

Advanced intelligence will be able to track data change over time and apply probabilistic models evaluate the changes in data to assist finance personnel in auditing data and finding meaningful storylines to explain financial performance. The current paradigm in finance is “addition” at a fixed point in time. You have accounts, which represent something based on how users interact with the account. Groups of these accounts are combined into nodes that subtotal the values. Imagine if each account represents a range of possibilities based on all the underlying data while automatically accounting for known and seemingly unrelated variables. The aggregation of these probabilities represents a range of potential outcomes.

You’re going to be appearing at the SAP FPCC conference soon. Why are you joining the conference as a speaker – and what are you going to talk about?

ServiceNow is leading the world into the future of the cloud and fundamentally changing the way people interact with technology to accomplish work. The possibilities are endless. I want to share that story, but also share the commonalities of our experience with colleagues across all industries which technologies like SAP and

ServiceNow touch and will disrupt in the near future.

There’s a paradigm shift in how businesses need to operate. I will be speaking to ServiceNow’s experience as it relates to our SAP Business Planning and Consolidations implementation and the changes which this system has undergone to adapt to the future of work where people expect data quickly and immediately.

SAP Conference for Financial Planning, Consolidation and Controls_Twitter

Join us at the SAP Conference for Financial Planning, Consolidation and Controls in Las Vegas 10-11 November, where I’ll be delivering a presentation on performance and risk management. I hope to see you there!  

What Do Personal and Business Planning Have in Common?

By Gary Cokins 

Before we discuss business in this blog let’s start reflecting on our personal lives. I will get straight to the point – how good of a personal planner are you? Once I’ve covered that I’ll then examine parallels between personal and business planning.


Personal planning

There are many types of personal plans ranging from mundane plans to life-impacting serious ones. An example of a mundane plan is, “How should I spend the week-end?” Others are “What should I eat for dinner?” and “What location should be my next vacation?”

Life-impacting serious plans are obviously on a grander scale. “Which university should my child attend?”, and the related question of “How should we plan for that financially?”. And of concern to us all at some point in our lives, “What kind of retirement lifestyle will I be able to afford?”

Regardless of the scope or scale of personal plans, personal plans have this in common: pleasure-seeking preferences and the need for information.

Business planning

The parallels of personal and business planning in today’s high tech lives fall into these three interrelated categories:

  • Destination and purpose – What food for dinner? Where to vacation? In business the primary responsibility of an organization’s C-suite executives is establish strategic direction by answering the question, “Where do we want to go?” Their answer will depend on the mission and vision of the organization. A core planning tool for this is a strategy map with its companion balanced scorecard to report feedback of progress toward accomplishing the strategic plan.
  • Access to information – Do I have the ingredients in my food pantry and refrigerator to prepare my planned dinner? What is the tuition amount for the universities that my child is interested in attending? In business today one cannot be blind to the digital revolution created from the internet, big data, and cloud-based computing power. One must first “collect the dots to connect the dots.”
  • Integration – A vacation plan can involve planes, hotels, and rental cars. In business there are also many interrelated moving parts. The more seamless their integration, the better the organization’s performance. Forecasts that leverage business intelligence (BI) are a primary independent variable for planning operational and financial results. With integration there are many dependent variables (derived from the forecast) such as sales and profit projections. The CFO’s function is like a master architect. Line managers are like the subcontractors who use the strategic plan and forecast to: (1) manage the capacity of required resources; and (2) schedule processes. The CFO’s financial planning and analysis (FP&A) team evaluate the line managers’ plans to determine if the strategic plan is affordable by generating pro forma financial statements including cash flow projections.

Planning our week-ends and our business

We rely on weather reports to plan our personal week-ends. We rely on data and integrated business planning systems to improve the managing of our businesses. The better that automation supports the planning’s categories (purpose, information, and integration), then the better will be the enterprise performance.

Over the coming weeks I’ll be writing more on the topics of business planning, performance and risk management, taking a look at the market trends and technology innovations that are driving business behavior and the ways they are using software solutions that address these needs.

Join me at the SAP Conference for Financial Planning, Consolidation and Controls in Las Vegas 10-11 November, where I’ll be delivering a presentation on performance and risk management. I hope to see you there!

SAP Conference for Financial Planning, Consolidation and Controls_Twitter



About the Author: Gary Cokins, CPIM


Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com .  He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methods, Risk, and Analytics and Predictive Business Analytics.

Linkedin contact:


Simplified Financial Planning, Part II: Responding to Market Volatility in Financial Planning and analysis

by Babak Ghoreyshi, Global Marketing Program manager at SAP

In the “5 Advantages of Thinking Ahead” blog, I discussed five essential market advantages that can be achieved with the right FP&A technology and strategic management of KPI’s. Now in this blog, will go deeper into what finance executives are saying about their future FP&A mandate and precisely what kind of technological innovations they will need. The FP&A mandate in the coming years will be for finance departments put the right tools in place now so they can make more substantial contributions to profitability over the next few years. The finance department is becoming a more integral part of business decision making process, participating actively and effectively. That’s what planning and analytics can empower the finance function to do.

A Survey on the Future of Financial Planning and Analysis

The main objective of any enterprise is profitability. Organizations understand that in order to improve accuracy in financial reporting, they must get a better understanding of the business drivers that impact performance. They must also involve more key stakeholders in order to ensure that all essential information is accounted for. Incremental improvements to the existing FP&A methodology haven’t delivered the kind of cost controls that companies need going forward. These pressures call for changes to the FP&A process, as well as the technology that supports it.

Asian woman looking at book in bookstore

SAP sponsored a global survey, conducted by CFO Research, of 335 senior finance executives earlier this year. The result was a report titled, “The Future of Financial Planning and Analysis: Finance Leaders on Their FP&A Mandate—and the Technology Innovations that Will Help Them to Fulfill It.” The ultimate goal of the report was to gather consensus from finance leaders about how to assist the organization in creating value. Specifically, the survey covered how the advanced techniques and technology in FP&A can factor into the bigger picture of profitability. Here are the top two findings from that original research:

Companies Need to Respond Swiftly to Volatility

Agility is emerging as the defining feature of companies that lead their respective markets. Ramped-up global competition and economic uncertainty may turn out to be persistent, if not permanent, features of this new world. The ability of finance to respond rapidly to changing market conditions came up repeatedly in our survey results. The CFO Research survey, “Future of Financial Planning and Analysis”, revealed that:

  • Approximately 77 percent of respondents identified “greater agility” in responding to market threats and seeing new lines of business have proven to be a critical competitive advantage.
  • Three out of four — 76 percent — senior finance executives said that they believe greater agility in the face of uncertainty will be critical for basic business survival over the next two years.
  • Nearly all — 92 percent — of financial execs said that better speed and responsiveness in the finance function would present the most “substantial, measurable financial benefit” to their organization.

Today, speed translates into tremendous number-crunching power. Access to real time data can empower finance departments with ad-hoc business decisions very quickly through high-performance, collaborative solutions.

CFO’s Must Prepare for Real Time Data

Making business decisions based on historical data was the only possibility in the past, but now, the real time data adds a very different kind of value added features in planning for the future. Today’s competitive landscape demands more actionable, real-time analysis to match the sudden shifts in market conditions. The kind of agility finance leaders are hoping for, will require original solutions. This is not just because of Big Data era. Different data structures, even data in lower veracity or volume can be valuable for the finance department to process, report and extract business decisions from it.

The study from CFO Research found that most CFOs recognize that demands on finance to improve profitability will grow from now through 2017. The hurdle they must overcome is the time it takes to collect, normalize and build reports from the flood of data. The “Future of Financial Planning and Analysis” also reported that:

  • CFOs are being called on to provide company decision makers with clear options and forward-looking insights. They also recognize that they have to provide them faster.
  • 84 percent say that requirements for ad-hoc decision support and analysis from finance will intensify over the next two years.
  • Among the biggest obstacles to offering insights is collecting and compiling data from various, incompatible information systems. By the time the data is merged and normalized, it is no longer real-time data.

The finance function is growing in importance as businesses’ reliable navigation system through tempestuous economic storms. New technology and solutions for FP&A operate as the finance leader’s guide to what’s on the horizon.

Financial Resource Kit

This three-part series will conclude by rounding out the top five findings from the financial executive survey. It will show how financial leaders characterize the role of finance today and the most likely scenarios for the next few budget cycles. You can build your own resource kit starting with the Finance Solution content hub. You’ll be able to read technical documents or watch videos on what’s happening in the world of SAP finance solutions.

How Does Integrated Business Planning (IBP) Support Change Management

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

In my initial blog in this series related to integrated business planning (IBP) I described IBP as seamlessly integrating user interfaces and workflows. IBP links strategic, operational, and financial objectives and plans to improve employee alignment with the executive team’s strategy and financial performance. In my second, third and fourth blogs I discussed, respectively, how IBP is part of the solution for issues and needs related to strategy execution and next to product, channel, customer profitability and operations, processes and productivity improvement and then in my fifth blog of the series to driver-based budgeting.

In this final blog I will discuss issues, needs and solutions related to behavioral change management and how IBP is part of the solution.


What are the barriers slowing the adoption rate of IBP?

Organizations seem hesitant to adopt IBP. Is it evaluation paralysis or brain freeze? Most organizations make the mistake believing that applying IBP is 90% math and 10% organizational change management with employee behavior alteration. In reality it is the other way around – it is more likely 5% math and 95% about people.

With hindsight, we now realize that past barriers impeding the adoption rate are easily removable. That is, technical barriers such as disparate data sources or low quality “dirty” data now have software solutions like extraction, transform, and load (ETL). Problems like insufficient data are also not insurmountable with a little effort. We also now realize that poor implementation of IBP methods can be knocked down with experienced consultants or better training courses.  Other barriers are misperceptions that IBP methods are too complex or from initial failures with prior pilot projects. But these are not show-stoppers, and they too can be overcome.

What other barrier continues to obstruct the adoption rate of IBP? That barrier category is social, behavioral and cultural. These obstacles include people’s natural resistance to change; fear of knowing the truth (or of someone else knowing it); reluctance to share data or information; and “we don’t do that here.” Never underestimate the magnitude of resistance to change. It is natural for people to love the status quo.

The need for IBP

I have learned that ambiguity and uncertainty should be a business analyst’s friend. Why? If getting answers were easy, a business analyst’s salary would probably be lower!

However, a problem with removing behavioral barriers to deploy IBP is that almost none of us have training or experience as organizational change management specialists. We are not sociologists or psychologists. However, we are learning to become like them. The challenge is how to alter people’s attitudes.

One way to remove cultural barriers is to acknowledge a problem that all organizations suffer from their imbalance for how much emphasis they should place on being smart rather than being healthy. Most organizations over-emphasize trying to be smart by hiring MBAs and management consultants with a quest to achieve a run-it-by-the-numbers management style. These types of organizations miss the relevance of how important is to also be healthy – assuring that employee morale is high and employee turnover is low. To be healthy they also need to assure that managers and employees are deeply involved in understanding the leadership team’s strategic intent and direction setting. Healthy behavior improves the likelihood of employee buy-in and commitment. IBP is much more than numbers, dials, pulleys, and levers. People matter – a lot.

When organizations embark upon applying or expanding its use of IBP, I believe they need two plans: (1) an implementation plan and (2) a communication plan. The second plan is arguably much more important than the first. There are always advocates for a new project, but there are also nay-sayers. Knowing in advance who the nay-sayers are is critical to either win them over or avoid them.

Why does shaken confidence reinforce one’s advocacy?

Here is some disturbing research[1] from the field of psychology that relates to the social barrier. It deals with why people actually hang on stronger to their ideas even after they learn their ideas are proven wrong. Using tests with a control group, the researchers, Gal and Rucker, revealed that the more that people doubt their own beliefs, then paradoxically the more they are inclined to support and lobby for them. The test subjects who were confronted with evidence that challenged and disproved their beliefs subsequently advocated them even more aggressively compared to the control group.

This finding is bothersome because applying fact-based quantitative statistics and logical improvement methods are superior than making decisions based on intuition and gut feel. How can we transform people who are a “Dr. No” into a “Dr. Know”? Shouldn’t executives and managers desire to gain insights or know something about the future before their organization gets there? How valuable should it be to them to know things that their competitors do not know?

Early adopters and laggards

Another barrier involves organizations that are too distracted with problems and prefer to search for quick fixes. The urgent crowds out the important. They do not take the time to solve problems with a better way. In our personal lives, many of us have no problem making everyday decisions, such as whether or not to purchase a smart phone or join a social network. How can we as individuals make decisions so quickly, while organizations often struggle and are slow to react?

The field of marketing scientifically examines influences on the rate of adoption of products, services and technology. Everett Rogers, a business researcher, developed his Diffusion of Innovations model with five categories of adoption: innovators, early adopters, early majority, late majority and laggards. Which category best describes many organizations with respect to adopting analytical methods? My observation is that most fall in the laggards category.

I believe there is the explanation for the laggards is not simply due to resistance to change but rather they are too distracted. There is no doubt that increasing volatility is part of the problem. Examples include changes in consumer preferences, foreign currency exchange rates, and commodity prices. The Internet, global communications, social networks and relaxation of international trade barriers has introduced vibrations and turbulence. But is increased worldwide volatility a good enough reason to not adopt IBP methods?

Organizations that want to move beyond the laggards category must take on the mentality of the early adopters, who understand the importance of IBP to enhance decision making and align employee behavior and priorities to execute the executive team’s strategy. They must be proactive, not just reactive. Most importantly, remember that it’s never too late to go from being in the middle of the pack to taking a commanding lead over your competitors. Organizations that achieve competency with analytics are able to sustain a long-term competitive advantage.   

IBP for value creation

Always remember that in the absence of facts, anybody’s opinion is a good one. And usually the biggest opinion wins – which is likely to be that of your boss or your boss’ boss. So to the degree your executives and work colleagues are making decisions on intuition, gut feel, flawed and misleading information or politics, then your organization is at risk. Does your organization know, or do they think they know? By creating doubt one can overcome resistance to change.

Until an organization gains mastery over validly answering questions and managing its operations with IBP, it will plod along and muddle through improving its performance rather than accelerate value creation.

[1]  David Gal and Derek Rucker; Northwestern University’s Kellogg School of Management; “When in Doubt, Shout”; Psychological Research; November, 2010.

About the Author: Gary Cokins, CPIM


Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com .  He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methods, Risk, and Analytics and Predictive Business Analytics.

Simplified Financial Planning, Part I: 5 Advantages of Thinking Ahead

by Babak Ghoreyshi, Global Marketing Program manager at SAP


Planning is everything, but for many financial executives, planning involves an extremely complex process of predicting metrics and budget impacts of sprawling projects with many moving parts. For the practical-minded finance executive, this leads to an ongoing search for better planning tools delivering faster, more informative reporting solutions that can help them be more efficient in setting and monitoring KPIs and as a result making more effective business decisions.
CFOs in many industries are looking for the right technological solutions to breathe life into their budgets and plans. Current planning, budgeting, and forecasting processes are just too difficult to complete within a reasonable amount of time without disrupting business operations. In addition, enterprises are finding it difficult to get accurate results due to market volatility using their current technology. The following are real-world examples and survey results covering how financial planning solutions are helping enterprises do more in five significant areas.

1. Adapt to Market Conditions

VELUX is a Danish window-maker that needed to adapt to the changing designs, technologies and lifestyles of modern homes and businesses. They found that their yearly budget planning process was not fast enough to accurately provide the insights that they needed to react to the market in a timely manner. They moved from yearly to a repeated monthly business planning by using SAP Business Planning and Consolidation on SAP HANA. They now have a clearer vision of what kinds of windows the market wants, the lifespan of what they produce and economic impacts across the organization.

2. Identify Growth Opportunities

Forecasting should do more than just helping enterprises avoid surprises. Good forecasting can also identify a window of opportunity before it slams shut. Intuitive modeling makes it possible to analyze a variety of complex what-if scenarios at once. Companies that embrace the new planning technology to gain the ability to identify opportunities and react in the most profitable way. That is what happened at Hunt Consolidated Inc. (HCI) when they recognized a growing need for centralized, top-down planning to manage the business as a whole. Using SAP HANA as a platform for Business Planning and Consolidation, HCI was able to run wide-open queries involving hundreds of millions of record objects, rendering what-if scenarios in seconds. This opened up a world of original solutions and opportunities for them.

3. Allocate Resources

Aberdeen’s 2014 Excellence in Financial Management Survey revealed that the top three priorities for finance leaders were:
Conducting assessments of financial processes
Automation of core functions
Promoting collaboration across all finance roles
All three play a part in discovering the optimum pathway for allocating finance resources. Allocation and replenishment assessments allow financiers to identify cost centers that need to be reduced. In addition, these assessments make sure the supply chain is optimized, so the products and services customers need, are available when they want them.

4. Execute Organizational Strategies

CFO’s are searching for self-service technology that allows them to visualize data in ways that are most convenient for them instead of relying on IT. According to Aberdeen’s report on “The Next Generation of Cloud FP&A,” 87 percent of business users in the cloud either have self-service options or would like to get them in the very near future. They need the ability to execute organizational strategies with detailed forecasts using embedded analytics and scenario projections without waiting for help from IT.

5. Increase Profitability

Many finance executives say they need better solutions to face what’s coming next. In Aberdeen’s “The Next Generation of Cloud FP&A,” 37 percent of finance leaders say that their current forecasting and budgeting processes are too long and are resource intensive. Their companies are now searching for a cloud solution that helps them to reduce the operational costs and boost profitability. Cloud-based financial planning and analysis tools are better able to run queries on thousands of variables simultaneously and respond dynamically to real-time data.

The Finance Solution

Finance leaders are searching for the right solutions to deliver better speed and computing power so they can produce results in these five areas. In our next blog, we’ll take a step further by looking at specific technological innovations that deliver results. Another great resource for CFO’s is available now at the Finance Solution content hub, where there is a rich library of researches and insights into the most relevant topics in the world of finance.

How Does Integrated Business Planning (IBP) Support Driver-Based Budgeting?

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

In my initial blog in this series related to integrated business planning (IBP) I described IBP as seamlessly integrating user interfaces and workflows. IBP links strategic, operational, and financial objectives and plans to improve employee alignment with the executive team’s strategy and financial performance. In my second, third and fourth blogs I discussed, respectively, how IBP is part of the solution for issues and needs related to strategy execution and next to product, channel, and customer profitability and them to operations, processes and productivity improvement.

In this blog I will discuss issues, needs and solutions related to driver-based budgeting and rolling financial forecasts and how IBP is part of the solution.

cloud illustration

Problems with the annual budgeting process

There are criticisms with the annual budgeting process. They include it starting months before the fiscal year start and being obsolete a few months after being published; it being disconnected from the strategy; it not being volume sensitive; and it caving in to the loudest voice and strongest muscle of long-term experienced managers who are skilled at padding their projected expenses.

How can budgeting be reformed?

To answer this question let’s first step back and ask some other broader questions. What are the impacts of the changing role of the chief financial officer (CFO)? If the CFO’s function is evolving from a bean-counter and reporter of history into a strategic business adviser and an enterprise risk and regulatory compliance manager, what are CFOs doing about reforming the archaic budget process to be more reflective of forecasted demand and projects?

Progressive CFOs now view budgeting as consisting of three streams of spending converging into a river:

  • Recurring expenses – ongoing resource capacity planning similar to 1970s factory managers projecting the operation’s manpower planning and material purchasing requirements.
  • Non-recurring expenses – the one-time investments or project cash outlays necessary to implement strategic initiatives and risk mitigation spending.
  • Discretionary expenses – optional non-strategic spending.

Within the broad portfolio of interdependent methodologies that make up today’s IBP framework, two methods offer the capability to accurately project recurring and non-recurring spending streams:

  • Activity-based planning – In the 1990s, activity-based costing (ABC) solved the structural deficiencies of myopic general-ledger cost-center reporting for calculating accurate costs of outputs (such as products, channels and customers). The general ledger does not recognize cross-functional business processes that deliver the results, and its broad-brush cost allocations of the now-substantial indirect expenses introduce grotesque cost distortions. ABC corrects those deficiencies. Advances to ABC’s historical snapshot view transformed it into activity-based management (ABM). These advances project forecasts of customer demand item volume and mix and forecast the elusive customer cost-to-serve requirements. In effect, ABC is calculated backward, and named activity-based planning, based on ABC’s calibrated consumption rates to determine the needed capacity and thus the needed recurring expenses. Without that spending, service levels will deteriorate.
  • The balanced scorecard and strategy maps – By communicating the executive strategy and involving managers and employee teams to identify the projects and initiatives required to assure that the strategy map’s objectives, non-recurring expenses, are funded. Without that spending, managers will be unjustly flagged red as failing to achieve the key performance indicators (KPIs) they are responsible for in their balanced scorecards.

The IBP Information Delivery Portal

Today’s solution to solve the budgeting conundrum and the organization’s backward-looking focus is to attempt to create a single IBP platform – together with  its Web-based reporting and analysis capabilities. Speed to knowledge is now a competitive differentiator.

The emphasis for improving an organization and driving higher value must shift from hand-slap controlling toward automated forward-looking planning. With a common IBP platform replacing disparate data sources, enhanced with improved data integrity, cleansing and data mining capabilities, an organization can create a flexible and collaborative planning environment. It can also provide on-demand information access to all who need to perform what-if scenario and trade-off analysis.

For the bold CFOs who are not wary of radical change, continuous and valid rolling financial forecasts can replace the rigid annual budget. Today, organizations need to be able to answer more questions than “Are we going to hit our numbers in December?” That’s not planning but rather performance evaluation. For the more traditional CFO, the IBP platform offers a sorely needed upgrade toward a more high-speed budgeting process.

Additionally, statistical forecasting can be combined with the information on the IBP platform.  This results in customer demand forecasting that seamlessly links to operational systems, activity-based planning and balanced scorecard initiatives.  It provides the ultimate financial view for CFOs s with valuable and needed real-time or right-time feedback to managers as part of this package.

All of this – traffic signaling dashboards, dynamic drill-down, customizable exception alert messaging to minimize surprises, profitability analysis and reporting, consolidation reporting, Excel linkages, multiple versioning and more – is available for decision making from a single shared solution. IBP resolves major problems: lack of visibility to causality, lack of timely and reliable information, poor understanding of the executive team’s strategy and wasted resources due to misaligned work processes.

IBP provides confidence in the numbers, which improves trust among managers. What today will accelerate the adoption of reforms to the budgeting process and an IBP culture – senior management’s attitude and willpower or the information technology that can realize the vision described here? I’d choose both.

IBP as for enterprise wide improvement

As mentioned, integrated business planning (IBP) integrates financial, strategic, and operational information.

In my final blog for this blog series I will discuss behavioural change management needed to get buy-in from managers and overcome human nature’s resistance to change.



About the Author: Gary Cokins, CPIM



Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com .  He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methods, Risk, and Analytics and Predictive Business Analytics.