Intelligent FP&A In Action

Michael Coveney

Part 7 in the “Understanding IFP&A” series

It’s a shame that many companies do not put the full capabilities of intelligent FP&A into use. While some do use modern solutions to replace their old dashboards and reports, others fail to recognize that planning and analysis in today’s fast-paced, complex world requires a different approach from that of 10 years ago.

Fortunately, an increasing number of organizations have come to embrace what iFP&A can offer. These people step outside the box and create solutions that are both innovative and help management improve organizational performance.

Below are a few examples that incorporate artificial intelligence (AI) techniques to guide managers along the best course of action, which would have been impossible using traditional approaches.

Increasing the accuracy of forecasts

This company produced goods that were sold to large manufacturers as well as retail outlets. The products were typically seasonal, and lead time for sales was a few months. The problem was in collecting accurate forecasts for the different product streams to maximize production efficiency. As in most organizations, the sales teams would always forecast the end-of-year budget figures, because no one wanted to be seen to fail or have targets increased during the year if things went too well.

The new iFP&A solution combined trend and correlation information that accessed two years of historic data for each product revenue/geography stream. As each sales manager entered the forecast for the rest of the year, the solution would instantly generate a probability rating, along with a suggested revised target. The managers could then still submit their original forecast or a revision, but with an explanation justifying their own forecasts. This approach was a huge success and resulted in submission of forecasts enabling senior managers to set production targets or develop actions that considered the current business environment.

Automated pricing

Another company offered services that consumers typically purchased a few times a year. The market was very price-sensitive, so it was important to ensure that the price offered was the best value at any time of the day, based on Internet monitoring of competitors. The company also used market research to anticipate sales levels.

The iFP&A solution took in data at set times of the day by service and region, which included both the company’s own sales and competitors’ prices. If sales went below a set threshold during the day in any location, the system automatically recalculated the optimal price for that location and sent it to the local manager. If accepted by the manager, the system would update the online prices for new customers, which could happen several times a day. Additionally, the historic trends it generated helped management devise pricing strategies that resulted in more reliable profit forecasts.

Project-based planning

In this example, management took a different approach to planning. This organization is capital-intensive. Its equipment could be swapped from one type of production to another, but with a cost and delay before output could be restored. The company had several production facilities throughout the world, but to save on transport costs, it would try to produce products near to customers.

The system would monitor forecasts and compare this with stock already held in the different production facilities. If one product line was in danger of running out, the model would simulate the resulting costs and delays to determine whether to change the production schedule or ship in products from other locations. Alternatively, customers could be offered an incentive to accept a delivery delay.

What made this example different is that the main objective was the overall health of the company, rather than meeting local targets. Instead of penalizing a local unit when not producing, the company set up the system to enable acting as a single entity that together served the interests of the overall organization.

The concluding blog in this series goes back to basics to determine the best approach to developing an iFP&A solution.


Michael Coveney

About Michael Coveney

Michael Coveney spent more than 40 years in the software analytic business with a focus on transforming the planning, budgeting, forecasting, and reporting processes. He has considerable experience in the design and implementation of business analytic systems with major organizations throughout the world. He is a gifted conference speaker and author. His latest book "Budgeting, Forecasting and Planning In Uncertain Times" is published by J Wiley. His articles have also appeared on www.fpa-trends.com, encouraging innovation in FP&A departments.