Viewpoints

Analyst Viewpoint For the past few years, organizations the world over have been forced to deal with volatile markets and rapidly changing environments caused by an ongoing series of unexpected events. The only certainty facing executives in these times is persistent uncertainty, which puts a premium on being able to react and pivot with agility when any black swan event occurs. Coping successfully with rapid change requires the ability to plan contingently to anticipate a range of scenarios and, when necessary, rapidly revise plans to operate most effectively in the new environment. To achieve this level of agility, executives need to harness technology to enable rapid, high-participation planning cycles that makes it possible to provide quick answers to the question, “What if?” Our Business Planning Benchmark Research demonstrates that 73% of organizations that are able to explore every relevant scenario have plans that are accurate or very accurate compared to just 36% that can only explore a limited set of scenarios or do not do this at all. Unfortunately, today’s corporate planning is flawed. For example, our research also finds that companies often react too slowly to changing market conditions. They miss opportunities to minimize risk or to take advantage of market windows to sell more. Too often they allocate resources to less productive or less profitable activities. Especially in larger companies, fragmented, silo-based planning efforts stand in the way of more effective planning processes. Our research shows that, typically, the only company-wide plan is the annual budget, supplemented by monthly revenue reforecasts and budgets revised quarterly or semiannually. Budgets are essential for financial control, but they aren’t the best tool for business planning. Budgets are built around accounting and finance. They only indirectly consider what people running the business must manage: people, products and customers and the process of setting out measurable performance objectives for these key operational elements. The key to improving planning is using appropriate information technology to support a more effective process—one that drives better business performance. Our research shows that a large majority of companies use spreadsheets for budgeting and a range of business planning activities. Spreadsheets are an indispensable personal productivity tool, but they are poorly suited to business planning and budgeting. A dedicated planning application has capabilities and delivers benefits that enhance the effectiveness of any business planning process. For instance, it can eliminate planning silos and enhance collaboration because all the planning models and related data are held in a single system. In contrast, creating a consolidated plan from multiple spreadsheets is time consuming, which makes frequent rapid planning cycles impractical. A dedicated application does a better job of modeling, analyzing and reporting because it can easily manage the dimensions of business information. With dedicated planning software, it’s possible to quickly drill into plan details to compare expected product profitability by sales channel and by quarter using different price scenarios. In addition, creating, modifying and using driver-based models is easier because these systems can easily aggregate individual business unit plans that combine the “things” that drive business results with their monetary value—for example, forecasting revenue based on the number of leads and sales funnel conversion ratios to arrive at a total number of deals closed and multiplying that number times an average deal value. A dedicated planning application enables companies to transform how they plan so that the process is a more useful business management tool. It can streamline the annual budgeting process while at the same time supporting a planning process designed to optimize business performance, one that increases a company’s ability to make timely and accurate decisions in response to changing conditions. Software such as this makes comprehensive scenario planning feasible because it enables the impact of changes in assumptions (such as prices, benefit costs or exchange rates) to be gauged almost instantly, saved and compared. High-participation, collaborative planning can be more accurate because it brings more front-line intelligence to the process. It also increases accountability—it’s no longer “the finance department’s budget” when a company can remove the constraints on who’s involved inherent in a spreadsheet-imposed, silo-based planning environment. A dedicated planning application can accelerate the pace of planning and review sessions, making them more action oriented. Since every department’s plan is held in a single data store, the impact of a change in one unit’s plan or even in a global assumption can be assessed almost instantly. Similarly, in a monthly review session, it’s possible to immediately consider the effect of one course of action instead of another. In both cases, it’s the end of “I’ll get back to you later” as a response to the question, “What would happen if…?” This capability is especially useful for rapidly responding to significant changes in the business environment and for supporting business continuity under trying circumstances. Short and frequent planning cycles make planning a more useful management tool. They can be more accurate because organizations continuously adjust to change, making their decision making and response to events more agile. By setting operational objectives as well as financial ones, performance management can be more effective. This type of planning is action-oriented because in planning and review sessions it’s possible to immediately drill down into details to answer why a condition exists and then quickly understand the impact of a range of responses. It also supports a culture of accountability because it enables broad collaborative participation in the process. However, making planning more business focused and more agile in the face of change is feasible only when an organization uses dedicated planning software that removes the barriers to better planning imposed by spreadsheets.

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