Measuring the Roi of Planning Software Boston June 2012


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It was a small group of about 15 FP&A pros gathering around the conference room at the Boston Hilton. We analyzed conditions that suggest it is better to stick with spreadsheets for budgeting and planning. Then we looked at cases where it is a "gray area" as well as "no brainer" cases for replacing spreadsheets based on estimating the ROI of implementing a dedicated planning application.

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  • Measuring the Roi of Planning Software Boston June 2012

    1. 1. Measuring the ROI of Planning Software June 21, 2012 IE Group Ben Lamorte, VP Marketing Follow us! @AlightPlanningAGILE
    2. 2. The Subtle Message 1: Is it EVEN worth it to replace spreadsheets with a planning tool? 2: If you already bought software, was it worth it? 3: Either way, how do we make planning ADD VALUE?AGILE
    3. 3. The Subtle Message 1: Is it EVEN worth it to replace spreadsheets with a planning tool? 2: If you already bought software, was it worth it? 3: Either way, how do we make planning ADD VALUE?AGILE
    4. 4. The Subtle Message 1: Is it EVEN worth it to replace spreadsheets with a planning tool? 2: If you already bought software, was it worth it? 3: Either way, how do we make planning ADD VALUE?AGILE
    5. 5. Last Month’s Webinar Survey Results Of those purchasing dedicated planning software solution, 74% report ―Unsure of ROI‖ (approx 100 on webinar) 13% Unsure 13% Good ROI Bad ROI 74%AGILE
    6. 6. Rand Heer (He’s ―Heer‖ In Spirit)  Business Activities  CEO, Alight Planning (Planning software)  Co-Founder, Aspirity (Microsoft BI consulting)  Founder, FP&A Train (Essbase training)  Founder, Pillar Corporation  CFO for 2 public companies  Rockwell Int’l, Business Unit CFO and Corporate  Publications  The Planning Maturity Curve: Where Are You? Where Do You Want to Be?  How Agile is Your Planning: Find out by Measuring the ROI of Your Planning Software  Coauthor: “Business Intelligence: Making Better Decisions Faster”. Published by Microsoft Press.  Education  MBA degree Harvard Business SchoolAGILE
    7. 7. Ben Lamorte  Business Activities  VP Marketing, Alight Planning  VP Business Development, Alight Planning  Principal, Decision Consulting (Adobe, Kaiser)  Manager, Business Intelligence,  Management Consultant, APM/CSC Healthcare  Editor of “The Agile Planner” Blog  Yes! Planning can be a Positive Experience  Why Financial Reporting Software Delivers No Value?  The Value of Agile Planning Over Time  Driver Based Planning: How is it Defined?  Education  MS Management Science & Engineering, Stanford University  BS Mechanical Engineering, UC DavisAGILE
    8. 8. Agenda for Afternoon Planning Maturity Curve Framework for ROI Small ROI Example (1x) Big ROI Example Agile Planning  33x – Pittsburgh Mercy Health  20-80x – SoftLayer  Bonus Item: Optimization – the BEST CASE SCENARIO Lisa comes on for an Alight Demo focusing on  Driver-Based Planning  Rolling Forecasts  Scenario Analysis Cocktails!AGILE
    9. 9. History: Getting to Planning Maturity Curve 2011 Planning Maturity Curve Introduced 1980s 1990s/2000s Agile Planning Spreadsheet Many Planning Trademarked Era Apps Available 1990s 2010 ―Pillar Era‖ Alight Wins Overall 1st Planning App Business Performance & Analytics Award**AGILE *BPM Partners ** Ventana Research
    10. 10. Planning Maturity Curve: Business Value! Insights Actionable Financially- Understanding things Knowledge Sound Decisions we didn’t see before Understanding Scenario analysis gives us impacts of our actions the financial impact of choicesAGILE
    11. 11. Planning Maturity Curve: 2 Types of Benefits Effort Type 2: Introduce New Forecasting Processes to Add Value Reporting Budgeting Type 1: Streamline Existing Processes Reduce Effort Business ValueAGILE
    12. 12. Small ROI : Type 1 Benefits InsightsKey Question: Who’s ROI is this anyway?Type 1 Benefits of Planning Software tend to be minimal for Line Managers – known as “end users” by vendors  Key Drivers for Annual ROI for End Users (Labor reduction/end user between $0-$800) X (# active users)  Example ($400 reduction in labor per user) X (10 users) Bottom Line for End-User Example $4,000 per year cost reduction for a 10-user systemAGILE
    13. 13. Small ROI : Type 1 Benefits InsightsType 1 Benefits of Planning Software tend to be small to moderate for Finance Departments  Key Drivers of Annual ROI for Finance Dept (Time savings improvement between 20-40%) x (Total Finance Dept Cost of budgeting in spreadsheets)  Example (30% time savings improvement from planning software) X ($80,000 Total Finance Dept Cost of budgeting in spreadsheets) Bottom Line for Finance Dept Example $24,000 per year cost reductionAGILE
    14. 14. Small ROI: ROI Calculator Example Example: 10-User System Type 1 Benefits of $19,504 per Year $10,800 for Budgeting, $8,704 for ForecastingAGILE
    15. 15. Big ROI: 33x More ROI with Agile Planning? Traditional Planning Agile Planning Type 1 Type 1 & 2 Deployment Web-Based Forms On-Premise #Seats Purchased 10 5 Costs Year 1 $30,000 $40,000 Year 2 $15,000 $5,000 Year 3 $15,000 $5,000 Total Costs $60,000 $50,000 Benefits Year 1 $19,504 $450,000 Year 2 $19,504 $600,000 Year 3 $19,504 $600,000 Total Benefits $58,512 $1,650,000 ROI Multiple 0.98 33.00 Source: Traditional Planning: Interview with web-based software user focused on saving timeAGILE Agile Planning: Ray Wolfe at Pittsburgh Mercy Health Case Study No Surprise that more than 80% report management prioritizes type 2 over type 1
    16. 16. Planning Maturity—Agile Planning Planning Maturity Curve (PMC)Effort Forecasting Reporting Forecasting/Agile Planning Budgeting Seat of PantsAGILE Business Value
    17. 17. The 4 Steps to Agile PlanningTM 4. Implement Scenario Analysis 2. Implement Driver-Based Planning 3. Integrate (Don’t Just Import) Actuals 1. Reduce Level of DetailAGILE
    18. 18. Big ROI: Pittsburgh Mercy – The Leader Ray Wolfe, CEO (was CFO)  Business Activities  Chief Financial Officer, Pittsburgh Mercy Health System 2006-2011, now CEO  Director of Fiscal and Information Systems– Mercy Behavioral Health 1996-2006  Chief Fiscal Officer, Summit Center for Human Development, 1988-1996  Awards: Overall Ventana Leadership 2010  Education  JD, West Virginia University 1977  BA, Marshall University, 1974AGILE
    19. 19. Big ROI: Pittsburgh Mercy Overview Community Mental Health and Health Care Related  Mental Health, Mental Retardation, Drug/Alcohol, Homeless  Prevention Services and a Private Foundation Business Metrics  3 subsidiary corporations  60 community locations  27 major programs product lines  260 revenue/cost center  1,700 employees; 106 Managers & Supervisors  Funded through traditional insurance billing, government grants and capitation contracts, Private FoundationsAGILE
    20. 20. Big ROI: Pittsburgh Mercy Before Demographic Problems  Managers with only clinical backgrounds/ no business skills  60 sites yielded communication barriers and no common language Excel based —  Overload mode of worksheets with link and formula errors  Too much time to maintain and no certainty of integrity Budgeting became a ritual without meaning  Tops down budgets w/o manager buy in  No operational integrationAGILE
    21. 21. Big ROI: Pittsburgh Mercy After Organization of Forecast Groups & Processes  Group managers by functional areas—e.g.  Community Treatment Teams  Child Services  15 Groups each meet once a quarter  3 to 12 managers per group  4 members from accounting/finance  Real time process elements  Alight Planning displayed on Overhead Projector with Smart Board  Ray is facilitator; Alight Admin on mouse & keyboard  Review / make changes in real time  Everyone sees everything!AGILE
    22. 22. Big ROI: Reduce Detail 10k to 3k line items Not Just a ―SOFTWARE ISSUE‖ - a ―SOLUTION ISSUE‖  Moved to a lower level of detail by reducing T&E accountsAGILE
    23. 23. Big ROI: Actuals ―Rates‖ Drive Plan ―Rates‖AGILE
    24. 24. Big ROI: Pittsburgh Mercy - Results Financial Results  $600K annual impact to bottom line  Combined revenue increase and costs cut Process Results  No budgeting  Global updates twice a year – detailed updates quarterly  Forecast accuracy to 2%  Manager commitments based on demonstrated best practices Model Status  Now on third model iteration built from scratchAGILE
    25. 25. What is Agile Planning? 3-Minute OverviewAGILE
    26. 26. The Value of Traditional Planning Over Time But ROI diminishes quickly over time. VALUE High ROI at the early stages of planning… TIME Source: The Agile Planner BlogAGILE
    27. 27. The Value of Agile PlanningTM Over Time Long-term VALUE value from planning increases significantlyROI remainshigh in theearly stagesof planning… TIME Agile Planning Defined: Impactful planning that addresses the right business issues at the right time with the right people at the right level of detail. Unlike budgeting, it is a continuous process that adds increasing value over time.AGILE Source: The Agile Planner Blog
    28. 28. Next Steps: Who wants to go Agile? Free - if exploring rolling forecast or Agile Planning  Customized ROI Assessment  In-Depth Planning Model Review  Customized Planning Maturity Curve Report! Recorded Webinars  IE Group Workshop: Application Requirements for Rolling Forecasts   Transforming Planning at Pittsburgh Mercy   IMA June 2012: Case Study: Measuring the ROI of Planning Software  1 (Register and then click Launch Presentation) Follow up with Kevin Pellegrino, VP Sales & Marketing  kpellegrino@alightplanning.comAGILE
    29. 29. Wrap-Up & Preliminary Implications Small Companies looking only to streamline existing planning processes will have marginal type 1 benefits; they may in fact be better off sticking with spreadsheets! While end-user licenses may benefit the finance department, there is minimal (and even sometimes negative ROI) associated with replacing spreadsheets as reported by end users; many of whom prefer to stick with spreadsheets and only enter data in once a year anyhow. It is no surprise that management prioritizes type 2 benefits as this is where one can experience the ―BIG ROI‖ To achieve type 2 benefits, ―software‖ alone is insufficient. We need ongoing, iterative training & model building to cross the planning maturity curve by:  optimizing ―level of detail‖ - ―implementing driver-based planning‖  ―integrating (not just importing actuals)‖ - ―leveraging scenario analysis‖ to better communicate the model and deliver actionable knowledge to inform better business decision makingAGILE
    30. 30. Examples of Type 2 Benefits Specialized Functionality  Roll the Forecast  BS/Cash Planning  Integrate Short/Long Range Operations Integration  Integrate Drivers  Volume/Rate Causal Analysis  Capture/Calculate KPIs Profitability Analysis  Complex Allocations  Analyze Customer Profitability  Analyze Product Profitability Decision Support  Interactive Dashboards AND Real-Time Planning  Scenario Analysis On-the-Fly  Strategy AnalysisAGILE
    31. 31. Planning Maturity—Agile Planning Planning Maturity Curve (PMC)Effort Forecasting Reporting Forecasting/Agile Planning Budgeting Seat of PantsAGILE Business Value
    32. 32. Types of Models Doing the thing right vs. doing the right thing Lilien and Rangaswamy, Marketing Engineering, (2001), page 11-13  “Descriptive decision models address the question, ―What will happen if we do X?‖  Normative decision models address the question, ―What is our best course of action in a given situation?…explore the value of a decision option under different scenarios (Note #1)…when there are only a few options..descriptive models may be adequate…with many options to choose from, formal mathematical procedures are needed.‖ (Note #1) Shapiro, Modeling the Supply Chain, (2001), pages 10-11  “Descriptive models are used to better understand functional relationships, e.g.,  Cost relationships that describe how direct and indirect costs vary as a function of cost drivers (Note #1)  Simulation / Forecasting models  Normative models..that practitioners develop to help make better decisions. Our view is that normative and optimization models are synonyms.‖ Note #1: Descriptive models must evaluate alternative options or scenarios, one at a time, to find the best one. Normative models evaluate huge numbers of alternative scenarios, simultaneously, and chose the best.Thanks to Alan Dybvig for Creating this SlideAGILE
    33. 33. Planning Maturity Curve with OptimizationEffort Forecasting •Implement unit-based planning •Integrate (don’t just import) actuals •Implement scenario analysis Reporting Forecasting/Agile Planning Move out of Excel Optimized Forecasting/ Reduce level of detail Budgeting Agile Planning •Implement optimized unit-based planning to create the maximally profitable projected income statement •Implement cost function variance analysis with actuals •Implement scenario analysis using profit, EVA and CLV •Implement profitability analyses •Implement analyses of broader range of constraints Seat of Pants •Implement supply chain optimizationAGILE Business Value