Planning at the Business Unit Level


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BPM (business performance management) systems are gaining traction in
Fortune 1000 companies. BPM integrates actuals, plan and business intelligence
information from multiple users and data sources, helping C level executives
better understand operations and anticipate problems and opportunities.
Such systems, however, do very little for business units at lower levels
whose requirements for planning, reporting and analysis are typically at different
levels and have modeling requirements that the BPM system cannot accommodate.
Planning at the business unit level is most commonly done in Excel with cost
center inputs gathered using workbook templates that are difficult to format
and consolidate. While business units can’t escape from “Excel Hell” using a
corporate BPM system, they can streamline planning and analysis processes
with Alight Planning, a multi-user software package with built in driverbased
planning architectures and automated analytics.

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Planning at the Business Unit Level

  1. 1. BPM (business performance management) systems are gaining traction in Fortune 1000 companies. BPM integrates actuals, plan and business intelli- gence information from multiple users and data sources, helping C level ex- ecutives better understand operations and anticipate problems and opportuni- ties. Such systems, however, do very little for business units at lower levels whose requirements for planning, reporting and analysis are typically at dif- ferent levels and have modeling requirements that the BPM system cannot ac- commodate. Planning at the business unit level is most commonly done in Excel with cost center inputs gathered using workbook templates that are difficult to format and consolidate. While business units can’t escape from “Excel Hell” using a corporate BPM system, they can streamline planning and analysis processes with Alight Planning, a multi-user software package with built in driver- based planning architectures and automated analytics.Planning at theBusiness Unit LevelBy Rand Heerand Lisa Torbin-Shaw The CFO of Alliance Industries signed the $1.2 million purchase contract with flair. The rest of the sourcing team watched on— most with anticipation, some with reserva- tions, and a couple, including Jed Walker, with a shrug. Alliance is a $7 billion manu- facturer of electronic equipment and com- ponents for hard goods industries. Jed is Controller of the Flow Control Products Di- vision. The sourcing team, charged with selecting and then implementing a new generation BPM (business performance management) system, was made up of members of the CFO and CIO staffs and three representa- tives, including Jed, from the operating di- visions. The goal for the new BPM system was to link together the organization’s data sources for the purpose of better tying exe-© 2007 by Alight LLC. All rights reserved.
  2. 2. Planning at the Business Unit Levelcution to strategy, reacting more quickly to interpreting; and possibly best of all, easychanging conditions, and providing earlier on-demand access to information withnotice of problems and opportunities. An graphical presentation formats that seniorintegral subset of the BPM system was to managers on-the-run can quickly grasp.provide a corporate-wide platform forbudgets, forecasting and management re- The dirty little secret acknowledged pri-porting. vately by some BPM industry analysts is that such systems don’t actually do muchThe BPM sourcing team spent five months for line managers and finance staff at lowersorting through proposals from Cognos, levels who provide budget and forecastBusiness Objects, Hyperion Solutions and data for such systems. In fact, plan data isother vendors. The “short list” vendors often developed in Excel and then offloadedmade many on-site visits and developed to the corporate BPM system, rather thanprototypes. entered or modeled in the BPM planning tool by the responsible line managers or fi-For Jed and others on the team, the presen- nance staff. According to BPM Partners, atations tended to blend together—each ven- prominent research group: “Ease of use is ador’s feature set being more or less the major issue. There are large vendors ofsame; each one with a few special whiz- budgeting software, for example, whosebang differentiators; all very pricey. The own employees use Excel on the sly becauseCFO’s final decision was based mostly on they find the mandated budgeting applica-price and contract warranties, though the tion too difficult.”∗sales rep’s style certainly had an effect.Jed was happy to bepart of the sourcing “There are large vendors of budgeting soft-team, but he became ware…whose own employees use Excel onincreasing the sly because they find the mandateduncomfortablevoicing his opinions budgeting application is too difficult.”about the various offerings. While each sys- This is nothing new for business unit fi-tem supported the C-level objectives of roll- nance managers such as Jed Walker. Sinceing up and reporting on actual and plan the early days of Lotus 123 and then thedata plus other business intelligence fea- takeover of budgets and forecasting by Ex-tures, Jed saw little that would help him at cel in the mid-90’s, financial planning at thethe business unit level. business unit level has been done in spread- sheets with results off-loaded to the corpo-The Dirty Little Secret rate rollup system.Certainly business performance manage-ment has gained traction in recent years. One myth is that BPM satisfies planningWhile the ROI of some implementations and reporting requirements across themay be suspect, the value proposition for C-level management is enticing—better, moredetailed information flowing faster from ∗ “On-Demand Software for BPM: Now Ready foroperating units; fewer financial analysts be- Enterprise Adoption” White paper from BPMtween operations and corporate sifting and Partners, May, 2006. Page 2.Page 2
  3. 3. Planning at the Business Unit Levelboard for large companies. Not so in many department shouldn’t budget advertis-situations. Yes, BPM improves visibility into ing.operations for the C-level and reduces over-heads—both important objectives. How- The templates do not allow adding mul-ever, for large and highly divisionalized tiple line items within a natural class ac-companies, BPM systems cannot accommo- count. As a result, a manager’s detail fordate the diversity of the business units in how he wants to spend in key ac-one central application—e.g. each business counts—e.g. travel for trade shows,unit plans using customized dimensions for travel for customer visits, travel forregions, products, customers and natural staff—is lost to scratch notes or a non-class accounts. In addition, business unit integrated staffs require hands-on building of The templates do not provide an inte-formulas for driver-based revenues, vari- grated activity driver interface— costs, allocations and the like that managers cannot easily build variablecould not be easily done with a centralized headcount projections driven by as-BPM tool. sumptions about activity levels such number of widgets, customers, transac-Planning at the Business Unit Level tions, or other measures.As Controller, Jed Walker oversees plan-ning, reporting and control activities for the Users can easily break the templatesFlow Control business unit. The mandated causing #Refs and other errors by add-planning cycle includes a strategic plan ing rows or columns at incorrect inser-which looks out five years, the annual tion points, filling right across total col-budget with a one year time horizon, and umns or creating formulas with errorsquarterly forecasts which look out twelve in them. Such errors choke the consoli-months on a rolling basis but tend to focus dation causing planning managers lotson the balance of year outlook for the cur- of frustration and the occasional all-rent fiscal year. nighter.The annual budget and rollingforecasts are Jed’s two forums for Jed and other division controllers atimplementing a collaborativeplanning discipline amongst line Alliance will testify: the Excel templatemanagers. Both processes use process has big problems.Excel templates which cost centermanagers fill in for headcount and spend- Finally, the system is not secure. Aing estimates. The cost center templates, budget template sent to a wrong emaileach one a workbook, are then consolidated address can put sensitive salary or bo-into a divisional P&L. Jed and other divi- nus information into the wrong hands.sion controllers at Alliance will testify: the That happened to Jed once.Excel template process has big problems. The Flow Control finance staff also needs to The templates need to be customized by model critical elements of the financial plan account for each cost center so that in Excel. These models incorporate sophisti- managers do not enter data into non cated formulas that sales and marketing applicable accounts—e.g. the assembly Page 3
  4. 4. Planning at the Business Unit Levelmanagers who provide inputs can easily plex driver-based revenue and COGS mod-break if allowed too much access: els that were needed, much less understand the division’s allocation systems and vari- The revenue plan is built up from detail able overheads. Nor did he see how his by product which sales managers pro- planning staff would have the bandwidth to vide. There are driver relationships be- learn a programming language. tween products, and the projections need to be broken down by region and Finally, the projected implementation cycle channel. The resulting model and un- for the new system was six months. Jed derlying formulas are complex and dif- couldn’t wait that long or devote staff re- ficult to maintain. The reason is that Ex- sources for such a protracted time frame cel does not natively support multiple without a clearer ROI. When budget season dimensions—e.g. products, channels, hit, the job needed to get done without ex- regions, customers, etc. cuses. Cost of sales is built up for materials, Jed’s conclusion was that he needed to con- labor and overhead in structures paral- tinue using Excel for budgets and forecast- lel to the revenue model. The COGS ing despite the problems. For each plan cy- model in Excel is difficult to construct cle, he would offload skimmed data with and maintain because: a) linked rela- dimension structures to the new system. tionships inherited from the revenue model are complex; and b) additional Business Unit Planning with Alight functionality needs to be modeled—e.g. Alight Planning is a multi-user planning allocations, variable overheads, and dif- and analysis software package that meets ferential labor and efficiency rates. the needs of business units of Fortune 1000Jed’s early hope that the new corporate companies for strategic planning, revenueplanning system would help him escape projections, flexible budgets and rollingfrom “Excel Hell” quickly faded. While the system could help gather information The software helps business unit financefrom line managers more efficiently and staff and line managers escape Excel Hellwith greater security, several issues became while being compatible with corporateobvious early on: rollup systems, whether loading high levelFirst, the new corporate system would col- plan data to consolidation engines such aslect information at account levels higher Hyperion Financial Management, or load-than Flow Control needed to plan—i.e. cost ing more complex data to corporate plan-center data would still need to be collected ning systems such as Cognos Planning andthrough Excel at lower natural class ac- Hyperion Planning or to OLAP (online ana-counts, then summarized to a higher level lytical processing) engines.for inputting to corporate. Alight Planning includes features and func-Next, modeling in the proposed systems tionality expected of robust financial plan-would be centralized and/or require tech- ning, reporting and analysis application:nical skills in scripting languages with un- Integrated financials Business unit financefamiliar syntaxes. Jed did not see how staffs may create any complex format forsomeone at corporate could build the com- financial statements which include a P&L,Page 4
  5. 5. Planning at the Business Unit Levelbalance sheet, cash flow and contributionanalysis. You build reports in Alight Planning using “intelli- gent operator” columns. These operators automati- cally compute totals, variances, averages, vol- ume/rate causals and other analysis functions with- out formulas. Multi-user structures Alight Planning is aUsing filters, financial statements and underlyingdetail can be instantly shown for any subset busi- multiple user system with extensive userness entity, product line, region or other dimension security and process controls. Privileges areof the business. set by role, dimensions, reports and scenar-Multi-dim Dimensions are used exten- ios. Users may work in workgroups—sively throughout Alight Planning for filter- reviewing and tracking changes independ-ing reports, modeling, and user security. ent from the plan administrator.The plan administrator may create as manyas ten dimensions with hierarchies for tag-ging line items. Dimension metadata maybe imported and maintained from externaldatabases. Line items may be imported withdimension tags.Integration of actuals Actuals data may beimported from any financial or operationaldatabase at any level of detail with auto-matic reconciliation of underlying line itemdetail to GL totals. Actuals appear as thesame line items as plan on reports, but canbe linked and calculated with differentstructures from plan.Reporting Users may access a broad vari-ety of financial and operating reports instructured and ad hoc formats. Creating re- Setting up user privileges is a point and click opera-ports is an easy point and click process not tion. Process controls include identifying changedrequiring IT involvement or report scripts. line items with color codes and time stamping changed items along with the user’s name. Page 5
  6. 6. Planning at the Business Unit LevelExport For rollup to the corporate consoli-dation or planning system, Alight exportsplan and actual at any level of detail to Ex-cel or flat files with a broad choice of for-matting options.Driver-Based Planning & ModelingFor Jed’s modeling issues—complex reve-nues, COGS and allocations—Alight Plan-ning delivers driver-based planning withintuitive and powerful tools that go beyondExcel for building multi-dimensional mod-els. Jed and his team can do it themselveswithout IT support.URA architecture Like Pillar, an early en- In Alight, you can link any line item to the units, rateterprise budgeting package, Alight incorpo- or amount of any other line item, rollup subtotal or arates a units * rate = amount structure that search based combination of records.lets users model underlying activity units Modeling interfaces Alight incorporatesand rates—e.g. 100 units * $1,000 price = six intuitive modeling interfaces, including$100,000 amount. This architecture makes conditional operators, for building any com-driver-based planning easy to implement plex model you would create in Excel.for complex revenue models and variableoverheads.Object based linking Unlike Excel wherelinking is done in formulas with cell refer-ences (e.g. =Admin!L25 * Assumptions!$H$21), modeling in Alight is based on link-ing to the units, rate or amount of namedobjects. For example: Salaries * Payroll TaxRate = Payroll Taxes. Object based linkingspeeds up modeling and makes complexlinked relationships easier to audit and The Accumulate tab interface lets you create crossmaintain. time period accumulations for subscription models and balance sheet accruals.Page 6
  7. 7. Planning at the Business Unit LevelAlight Planning’s sensitivity analysis interface lets users automatically create a ranked list of inputs that impact a speci-fied target, such as operating profit or net sales, providing an instant picture of the most sensitive assumptions in a fi-nancial plan.Alight Planning’s scenario analysis interface lets plan managers create up to 100 alternate financial plans all within thesame plan file. Scenarios can be automatically updated for the timing of key events such as launching new products,opening new channels or expanding facilities.Advanced Analytics shot above) the planner chooses a target such as net sales or operating profit andJust as Alight Planning’s driver-based archi- then clicks a run button. Alight automati-tectures let business unit planners develop cally produces a list of line items with inputand maintain more accurate financial plans, assumptions that affect the target and ranksthe software also incorporates numerous them in order, top to bottom, based on theautomated analytic tools for understanding magnitude of each one’s financial impact onactivity driver impacts and financial results. the target.Such tools, not available in spreadsheets orany other planning application, let planners Scenario analysis In a special scenariosquickly identify the most important driver pane, Alight Planning lets plan administra-assumptions in a financial plan and perform tors create as many as 100 alternate scenar-other sophisticated analyses that can deliver ios, all sharing the same underlying model-actionable insights into the business: ing structures but each with its own inputAutomated sensitivity analysis Unlike assumptions for activity drivers, volumes,spreadsheets or other planning applications prices and costs. New scenarios can be cop-where sensitivity analysis is a “hunt and ied from pre-existing ones or constructedpeck” operation, Alight automates the proc- using “stages”, Alight’s proprietary archi-ess. In a special analysis pane (see screen tecture for modeling, and then applying Page 7
  8. 8. Planning at the Business Unit Levelstages of a business—e.g. seasonal pat- the needs of business units where levels ofterns—to time periods. plan detail and modeling requirements di- verge.Goal seek analysis Alight Planning auto-mates goal seek operations. The planner By contrast, Alight Planning is suited to thechooses a target for a time period then planning requirements and implementationspecifies a desired goal and input variable. realities of business units. Installation andFor example: profits in May are forecast to maintenance do not require IT support. Im-be $50,000; the planner enters a goal of plementation time frames are measured in$75,000, then selects Unit Sales as the input weeks, not months. Plan results are easilyassumption to be tested. A dialog then ap- skimmed for export to the corporate con-pears showing the required number of Unit solidation or BPM system. And best of all,Sales necessary to meet the $75,000 profit the price tag for an Alight Planning multi-goal. user system is within the spending author- ity of most business units.Causal analysis Alight’s built-in unit/rate/ _______________________________________amount architecture allows producing vol-ume/rate causal analyses that can be ap- Rand Heer is President of Alight LLC and theplied to any activity driver or financial line creative force behind Alight Planning. He was aitem. For example, the causal operator col- contributing author to “Business Intelligence:umn can be added to a revenue report to Making Better Decisions Faster” published bycalculate the actual versus plan financial Microsoft Press. He was also the founder of Pil-impact of unit volume and price variances lar Corporation and designer of Hyperion Pillar,for each product. the first enterprise software for budgets and fore- casting.Key measures analysis In a special key Lisa Torbin-Shaw is Senior Product Manager atmeasures pane, Alight lets plan administra- Alight. Previously, she was the product managertors create custom dashboards for activity at Hyperion Solutions responsible for the launchdriver models that allow users to analyze in of Hyperion Planning. As well, she worked ex-one view multiple related line items or to- tensively with Pillar and other Hyperion prod-tals that are otherwise spread throughout a ucts in the field as an implementation consult-plan on different worksheets. User security ant.applies to key measures groups thus allow-ing creating specific key measure groups ofitems for specific users.SummaryBusiness performance management systemsfrom Cognos, Business Objects, Oracle-Hyperion and other such companies arelarge, complex products that help C-levelexecutives gain visibility into operations.However, such systems, requiring technicaltraining and IT support, often do not meetPage 8