Integrated Business Planning For Finance

Richard Barrett

It should come as no surprise that the next mile of Finance is upon us with changes afoot in the world of budgeting and forecasting.

Integrated Business Planning For FinanceTraditionally it has entailed the Finance organization accumulating information at a high level of aggregation from their business partners such as Sales, HR, Marketing and the other cost and responsibility centers to feed into their budgeting, forecasting and strategic planning models with most of the emphasis being on revenues and expenses. If anything the issue with many of these models is the lack of collaboration, clarity and timeliness;  all of which increasing seem to be leading many companies down the path towards Integrated Business Planning.

What is Integrated Business Planning and why should we pursue it?

With many definitions in the market place, a common definition is:  Integrated Business Planning (IBP)enables a complete and integrated planning process across strategic, long-term planning; financial planning for planning, budgeting and forecasting and profitability; and sales and operations planning (S&OP) for sales plan, production plan, inventory plan and new product introduction plan. 

Some of the challenges with business planning today that have lead companies to start pursuing IBP are as follows:

  • Planning today tends to take place on scheduled, calendar basis rather than on a “right time” basis (i.e. when it needs to be done). Most organizations adhere to a scheduled calendar of planning events through the course of the year.  These may include budgets, forecasts, budget updates and the like. However they are typically fairly infrequent mainly because of the massive amount of work involved within Finance itself as well as the workload they place on other lines of business.  So despite the fact that external threats such as competitor activity and economic crises are constantly impacting the business’s ability to achieve its financial objectives, Finance typically shy aware from asking for too many updates during the year so that forecasts are always out of step with what’s happening in the here and now of the real world. The only way to break through this deadlock is for organizations to develop the capability to perform reforecasts and deep dive analyses on the fly simply by consolidating the latest data from the lines of business, such as the current sales pipeline and the latest production plan – without having to ask each line of business to take time out to update a new set of templates.
  • Data volumes and varieties are increasing. Data volumes are increasing on a per second basis.  Although grasping this data is a challenge, the benefits of being able to rapidly consolidate massive amounts of disparate data to gain insight into how the business is performing are well worth pursuing and will help companies gain the agility to outperform their peers.
  • Performance bottlenecks prevent planning at a detailed level. Most companies plan, budget and reforecast at a very high level of aggregation simply because working with the systems they use today most businesses find that doing anything else takes an inordinate amount of time.  Numerous times I have spoken with finance teams that have abandoned the pursuit of gaining visibility into deeper levels of granularity about the revenue and costs associated with things such as individual SKUs that the business has asked for. Usually they shelter behind the excuse that “it’s just not available in the time scales” and unfortunately for the most part that is actually true. But Finance is failing in its role as a business partner to the enterprise by not providing the desired level of data. Today it’s all because of the performance limitations of the systems they use, but make the move to in-memory calculation engines such as SAP HANA and the issue goes away.
  • Delayed insight into information slows decision making and corrective action.  I once worked with a company that was trying to assess what impact awarding stock options had on the turnover of key staff.  If the organization had possessed reliable information about its workforce, this calculation would have taken an hour at most. But there was a delay of a week and a half with much back and forth with HR to source the right data, before the report could be run and the results validated. This was all because there was a poor HR system in use that contained limited information and it took endless meetings to identify the right employees, their pay grades and eligibility before deciding whether they should be included in the analysis. To make right time planning work, there can be no delay in accessing pertinent information which means all the data in core systems needs to be reliable, up to date and instantly accessible.
  • Most planning tools are not flexible enough or fast enough to keep up with organizational and external changes.  Most planning systems – and spreadsheets in particular – struggle to keep in step with everyday business life be it acquisitions, divestitures or mergers at the macro level or new product lines, new SKUs and new geographies at the micro level. For real time planning to work, finance itself needs to be able to update models – or better still the planning model updates itself whenever it encounters a new member in a dimensional hierarchy.

So how to go about starting working towards Integrated Business Planning

Clearly there are enough reasons to look at re-engineering the current planning process to bring it into line with the needs of the business, but just how do you start? One method of working towards IBP is to work through the various line items that make up your P&L and ask yourself where you could source this information within other systems rather than asking the line of business folk to fill in a template.  For instance:

  • Payroll expenses might come from HR or Operational Headcount system
  • Interest Expenses from Treasury or Liquidity systems
  • Depreciation from Capital or Fixed Assets systems
  • Revenues from Sales, CRM or other systems with best information

The common theme though is systems and today with the advances in data integration and in-memory technology, enterprises can start to make the investments needed to access and synchronize data in real time so that it is always available for analysis.

Secondly tackle the big issues such as Sales & Operational Planning.  There is so much data held in SOP systems and so many different stakeholders that Finance needs to consult with the various parties to understand exactly what data can safely incorporated into IBP and at what level of granularity.

Finally, think of IBP as a journey that will constantly evolve.  As your enterprise tackles new markets, solutions and technologies, build a culture that is constantly evolving to tackle the needs of the marketplace both internally and externally with technology being an enabler rather than the disabler it frequently is today.