FINANCE

Planning and financial performance management: Happy together

December 6, 2007

Enterprise planning (EP) and financial performance management (FPM) have much more in common than just membership in the software acronym club.

Both are essential capabilities that businesses need to compete successfully in today's global economy. And the two work together to support both financial and operational performance.

"Few corporate disciplines have been more crucial to the success of an organization than planning." – Ventana Research

Financial performance management refers to the overall structuring of financial systems and processes to 1) meet basic financial management and reporting requirements, and 2) deliver the insights and guidance to drive better financial performance throughout the organization.

Planning – a "crucial" discipline

Planning, and its companion process, budgeting, are key components within the financial performance management cycle. In the words of Ventana Research, "few corporate disciplines have been more crucial to the success of an organization than planning."¹ In many organizations, however, that crucial discipline is in need of renewal.

Researchers at Ventana identified inadequate planning and budgeting as significant obstacles to effective financial performance management.

In particular, a reliance on static annual budgets and spreadsheet-based budgeting processes was discovered to carry with it a distinct competitive disadvantage. "Managers who still cling to their spreadsheets are losing ground to competitors who've found a better tool for managing the budgeting and planning process."²

Spreadsheets – the weary workhorse of finance

"Managers who still cling to their spreadsheets are losing ground to competitors who've found a better tool for managing the budgeting and planning process."
– Ventana Research

Spreadsheets have been the workhorse of finance for decades.

Finance people are very comfortable with them, and they do serve many valuable functions. But spreadsheets lack the scalability and flexibility that modern planning and budgeting systems provide.

That is why, instead of relying on fixed annual plans created with spreadsheets, many forward-thinking companies now choose an iterative approach to EP, making frequent alterations based on constantly updated data about sales, operations, products, and customers.

Using this approach, the planning process can serve as a "performance tool for keeping the organization on track, freeing it from a commitment to long-term plans that inevitably lose their value over time."³

The ability to plan and re-plan according to the latest performance information requires a tool such as IBM Cognos 8 Planning, which enables finance to easily distribute budgets and collect plan information from hundreds, or even thousands of participants.

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Ventana observes that "companies that decide to take advantage of the latest planning and budgeting applications will be the ones most likely to thrive."

Operations link to planning

Enterprise planning also forms the primary link between finance and operations. Planning connects the dots, so to speak, that link business drivers to financial outcomes, and actions to results.

Identifying those business drivers also involves defining metrics. And the best EP processes include non-financial metrics in order to provide a complete view of how well the company is executing its strategy.

Collecting information on all these metrics – financial and otherwise – requires accuracy in the underlying data. This is where spreadsheets become an obstacle.

Spreadsheets require significant manual effort and can therefore be error-prone.

Automated financial performance management applications can easily import data from a number of core systems – general ledger, enterprise resource planning (ERP), corporate databases, and spreadsheets themselves.

Because much of the information is updated automatically, there is little need to re-key data, or move data from spreadsheet to spreadsheet. This significantly reduces the opportunity for errors or wrong numbers in the planning and budgeting process.⁴

Just as EP brings non-financial insights to the FPM cycle, FPM informs the EP process.

FPM informs the EP process

Just as planning brings non-financial insights to the FPM cycle, FPM informs the EP process. It is at this intersection that the financial insights of FPM are applied to operations.

FPM lets you look at results, analyze and discover trends and relationships, and then use those insights to make your driver-based plans even more refined and effective.

For years companies have worked to overcome information silos. Now, the incorporation of modern EP into FPM enables today's best practice organizations to overcome process silos as well.