7 Key Models Required to Manage Performance

© STW Consulting 2014

7 Key Models Required to Manage Performance

Michael Coveney

www.BusinessPlanningFramework.com


About …..

• 40 years trying to figure out computer technology

• 32 Years with leading technology vendors in the area of Business Intelligence and Corporate Performance Management

• Past 15 years researching ‘Best Practices’ in planning, budgeting, forecasting and the role of technology

• Author, business class creator and workshop leader on corporate performance management.

• Overall nice guy!


Topics

• Common planning issues

– The results of a recent planning survey

• What is planning?

– The different roles of planning

– Planning basics and source of inaccuracies

• 7 key planning models

– Models that every organization needs to manage and monitor business

performance

• Transforming planning into a data driven activity

– The role of technology

– Next steps


Changing Business Environment

• 3-5 year planning • Annual Budgeting • Qtrly forecasting • Monthly reporting

PLANNNG HORIZON

• Product/service options • Market served • Economic / political environment • Customer expectation

COMPLEXITY OF BUSINESS

• Market trend / competitor response • Price / resource stability • Customer feedback impact • Product development cycle

SPEED OF BUSINESS

Annual

Qtrly

Weekly

24/7 world

Mass Market

Customer of 1

Social Responsibility

Intermediaries

Social Networks

Global Competitors

Today’s world needs different tools, techniques and approaches


The Different Roles of Planning

Strategic Planning

Tactical Planning

Budgeting

Financial / Capital

Planning

Forecasting

Operational Planning

Long-term view of where the

organisation should be

Activities to be

implemented to

achieve strategic

plan goals

Allocation of

resources to ensure

day-to-day operation

of the business.

Cash/capital requirements: How

shortfalls are funded / surpluses invested

Short-term view of what

is actually going to

happen

Short-term resource /

activity optimization

The

Planning

Cycle


The Purpose of Planning

• Model the organisation in a way that can be used to make decisions over resource requirements and how activities are conducted.

• Challenge assumptions on the current mode of operation.

• Prepare management for a range of anticipated futures.

• Set a clear path through which change can be implemented and monitored for success.

The very act of planning the

future will cause it to be

different from what it would

have been!


Common Planning Issues

1. Dissatisfaction with the planning process:

Strategic planning: • 53% said is not fit for purpose with too little time

spent

Financial Planning / Budgeting: • 40% said too much time spent on annual process

Conducted by CIMA in the UK and AICPA in the US, June 2013. 495 participants

“No integration with goals, objectives and accountability”

“Move towards am environment where planning is part of our

regular activities and not a periodic exercise.”



1. Dissatisfaction with the planning process

2. Issues with the planning culture:

“More focus on the long-term health of the company

than short-term goals”

“Planning should be based on the real numbers and not on

what senior management want them to be.”

“Senior management commitment to goals and objectives in

the plan and budget.”

“Lack of accountabilty leads to a lack of buy-in which leads to poor

or no implementation and a reduced desire to properly plan. ”






3. Need for a holistic approach

“Use performance measures that tie into critical

organisational success factors”

“Better awareness of how functions interact with each other

and discussions around each other's budgets and plans”

“Commitment to the interrelationships required to meet

overall corporate goals”

“Better follow-up on execution”






3. Need for a holistic approach

4. Need for better planning technologies

Over 50% still use spreadsheets for planning - Too manual

- Too error prone

“Implementing enterprise planning system would offer

opportunities for better analyses and improving planning skills”



Four Sources of Planning ‘Inaccuracy’

• Known unknowns – e.g. competitor actions, political surprises,

social attitude, commodity prices - these can't be predicted in advance

• Mistakes – e.g. errors in ‘cause and effect’ models of the

business

• Unknown unknowns – e.g. things that cannot be imagined or were

treated as a constant - breakthrough technology, paradigm shift in attitude ….

• Personal bias – People selectively use facts to bolster their

own view of the future:


Planning Basics

• There are only 3 things any organisation can control:

– Arrangement of business processes (sales, production, customer service, …)

– Resources (money, people, assets) applied to those business processes

– Work carried out in those business processes (hours, effort, volume, …)

• Through these outputs are generated which are hoped to be sufficient to achieve its purpose

Resources

Workload

Outputs

P

U

R

P

O

S

E


Economic

Environment

Political

Environment

Social Media Competitors Investors

The role of planning is to help manage what can be controlled (business processes,

resources, and workload) to produce outputs that will achieve organisational

objectives, within an uncontrollable and unknowable external environment. .

UNCONTROLABLE:

UNKNOWABLE:

CONTROLABLE:

Planning Basics


Different Views of Business Processes

What choices do we face and

what’s the impact on corporate

goals?? What actually

happened?

How much cash do we need and where

would this be funded?

How efficient and effective are our

business processes?

What could we do differently, how

much would it cost if we did?

What should we be aiming for given where the market is heading?

What is going to happen if we do

nothing?


What actually happened?




business processes?


much would it cost and if we did?

What should we be aiming given where

the market is heading?


nothing?

7 Vital Questions for Managing Performance



goals??



much would it cost and if we did?

What should we be aiming given where

the market is heading?


nothing?



goals??





business processes?

Essential Business Models

Cash / Funding Model

Target Setting Model

Detailed Forecast Model

s

Detailed Actual Models

Detailed History Models

Strategy Improvement

Model

Operational Activity Model

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation



Requires multiple models with different formats, involving different

people, at different times with different views of performance




s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


1: Operational Activity Model

How efficient and effective are the

organisation’s business processes?

Used for: – Comparing past and current business processes

– Sets relationships between resources, workload and outputs

– Assigning budgets

Key Features: – Multi-dimensional

– Intelligent attributes


Marketing programs

Lead qualification

Sales meetings

Contract negotiation

Sales order Sales

Resources:

Outcomes:

Workload:

Sales Revenue: €750,000

No. of mailings: 205 No. of calls: 450 No. of meetings: 65

No. of responses: 150 No. of leads: 95 No. of proposals: 35

Website hits: 18K

…………..

…………..


Goal:

Is the workload producing the right outcomes to achieve the goal?

Is the cost worthwhile?

Key Questions:



• Dimensions: – Organisation; version, month, year, measures

• ‘Intelligent’ attributes link: – Measure Type

• High level objectives

• Business process goals

• Outcomes

• Workload

• Income

• Resource expenditure, …

– with Department

– and Business process

Attributes associate

the appropriate

measures with the

selected department /

business process


Operational Activity Model Reports

Sample Reports to monitor

business processes,

resources and outcomes








s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


2: Cash / Funding Model

How much cash do we need and from what sources should this be funded?

Used for: – Forecasting cash requirements

– Determining funding costs

Key Features: – Works at a supplier / customer payment level

– Allows multiple cash sources to be modelled


2: Cash / Funding Model

Attributes link measures in the Operating

Activity Model with particular payment

profiles held in the Cash Model.

Customer Payment Terms

Supplier Payment Terms


Cash Outflow Cash Inflow

Other cash supplies

Other cash consumers

Net Funding Requirements

DEBT Loan interest / payment terms

EQUITY Dividend

Expectations

Cash Funding Model


Cash Funding Model Reports


Cash Funding Model Reports








s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


3: Detailed History Model(s)


Used for: – Reviewing past performance

– Analysing sales by customer, region, product ….

– Comparing revenue/cost movements over time

Key Features: – Multidimensional analysis

– Sorting and summarising transaction lists

– Analysis of unstructured data


v v

USA

Slovakia

France

Belgium

February March

Actual Budget Actual Budget

Sale

s

P1

P2

P3

P4

Mar

gin

P1

P2

P3

P4

3: Detailed History Model(s)

Tabular

lists

Multidimensional

analyses

Unstructured

data

Operational

Activity Model

Summary actual data linked

to detailed analyses e.g. list of

supplier

transactions

e.g.

analysis of

sales by

customer

and product

e.g. social

media

comments








s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


4: Target Setting Model

What should we be aiming for given where the market is heading?

Used for: – Reviewing performance in the light of the market

– Setting targets to help guide budget resource allocations

Key Features: – Driver based modelling that uses the measure

relationships between goals, resources and outcomes


Driver-based Models

Drivers are

identified by

asking the

question: “What

key measures

impact the value

of this goal?”

Models recognize that the impact of drivers on values is delayed by

time, and that there are limits on the size of values before a step-

change in activities/costs are required.

The question is then applied

to those measures until an

activity is identified.








s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


5: Detailed Forecast Model(s)

What is going to happen if the organisation continues as at present and does nothing new?

Used for: – Getting a realistic view of short term outcomes

– Collecting relevant detail behind the numbers

– Comparing forecasts with plans

Key Features: – Constructed ‘bottom-up’ by those involved

– Analytical views to assess forecast realism



Is this a good sales forecast?



How about now?

Like detailed history models, forecast models tend to be focused

on a particular subject and do not ‘fit’ with a multi-dimensional

alone technology approach.








s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


6: Strategy Improvement Model

What could we do differently, how much would it cost and if we did?

Used for:

– Collecting initiatives that bridge the gap between ‘business as usual’ and strategic targets

– Implementing and monitoring change

Key Features:

– Linked to an organisations strategy management methodology

– Allows combinations of initiatives to be assessed and approved

– Supports ‘time-shifting’ of data



Strategy is typically linked to improving specific business

processes



Each initiative has its own set of costs,

workload and outcomes, which can be

considered singly and in combinations

Data held to include:

• Initiative name

• Initiative author

• Why?

• Business process supported

• Person responsible for implementation and results

• Departments Involved

• When

• Implementation milestones

• Risk

• Supporting documentation

• Approval process

• Initiative status



Proposed

Initiatives

Strategy

Improvemen

t

Model

Data copied and ‘time-

shifted’ as required

‘Live

Initiatives’

Data

Actual /

Forecast

Data

Project Status /

Forecast reports

‘Business as

Usual’ Data

Aggregated

P&L Report

Model

Data copied back to Proposed

projects when status set to ‘on hold’




Linking initiatives to

operational budgets








s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


7: Scenario Model

What choices do we face and what would be the impact on corporate goals?

Used for:

– Assessing combinations of initiatives

– Conducting ‘What if?’ scenarios

– Choosing alternative courses of action

Key Features:

– Allows multiple structure changes to be viewed and compared ‘side by side’

– Allows range of values to be modelled for business drivers

– Allows additional combinations of initiatives to be assessed


7: Scenario Model

Scenario 1:

Detail:

Forecast sales down by 10%

Energy costs rise by 5%

Scenario 1 Scenario 2

Scenario 2:

Detail:

Forecast sales increase by 10%

Energy costs stay as at present

Basis of Risk Management

“Planning is not about developing a singular view

of the future: one of the most valuable elements

of any planning activity is the ability to factor in

the impact of risk on assumptions, initiatives and

targeted results.

A scenario is a story that describes a possible

future. It identifies significant events, the main

actors and their motivations, and it conveys how

the world functions.”

David Axson,

Best Practices in Planning and Performance Management



Which one can you leave out?

Which model does not have to be connected?




s




Model

Actual

Budget,

Forecast,

Actual

Target

Forecast


Actual Forecast

Scen

ario A

nalysis /

Re

sou

rce O

ptim

isation

Actual,

Budget,

Forecast

External Market

Data

CRM + Others

ERP + Manual

Manual

GL Data


Technology Solutions

Financial Consolidation & Close Management

Financial / Mgmnt Reporting & Disclosure

Budgeting

Strategic Planning and Forecasting

Profitability Modeling & Optimization

Scorecards

Main issues: Multiple products with functionality overlap:

- Different architectures and set up procedures to learn - Duplicate maintenance effort – how do you ensure data and structures stay in synch? - No workflow to control users and operations between models - Limited reporting between models

Problem definition: - What business problem is solved? -How does this setup improve business processes or make them more competitive?

All categories required to work together

Not designed to operate as a single system to improve performance


Data Driven Planning Requirements • Business modelling

– Multi-format architecture

– Intelligent attributes that links resources, workload and business activities to outcomes

• Methodology support – Supports the chosen strategy methodology

• Dynamic workflow management – That triggers the allocation / adjustment of resources based on events and exceptions

• Adaptable security – That involves people as required through automated, personalised ‘To Do’ lists

• Initiative management – To collect, assess and approve projects focused on improving business processes

• Scenario planning – To assess the impact of unknowable and uncontrollable events

• Reports, analyses, scorecards and dashboards – To report progress of execution and their impact on corporate objectives


Management Processes

Analyze current

performance

Analyze market

forecast

Set Baseline

Financial Plan Set Objectives &

Strategies Assess risks

Develop

initiatives

Assess Initiative

resources Agree plan

Assess risks

Assess Initiative

combinations

Develop

contingency

Strategic planning

Tactical planning

Financial planning

Management reporting

Forecasting

Risk management

Processes:

Assess risks

Evaluate

options

Adjust plan

Develop

contingency

Develop

Baseline Budget Develop

funding plan

Start

Plan Develop

Initiative Budget

Measure initiative

progress

Monitor Risks

/

Assumptions

Report current

and forecast

status Measure Strategic

success

Measure financial

performance

Forecast Sales

Forecast

Initiative status

Forecast Costs

Forecast

Strategic

Outcomes


Budgeting

Controlling Management Processes

“Best Practice companies decouple their internal management processes from the calendar and provide a set of planning and reporting processes that utilize continuous processing and monitoring of activity.

Aspects of strategic planning are not once-a-year events but a continuous process. The pace of change is so great that management needs to monitor the strategic implications of new developments on a continuous basis.” Best Practices in Planning and Performance Management. David Axson


Dynamic Workflow and Models

Continuous planning requires the different planning/monitoring activities to be triggered by dates,

exceptions and events



Analyze current

performance

Analyze market

forecast

Set Baseline

Financial Plan Set Objectives &

Strategies Assess risks

STRATEGIC PLANNING



Develop

Baseline Budget Develop

funding plan

Start

Plan Develop

Initiative Budget

FINANCIAL PLANNING


Next Steps

• Define clearly the role of the different planning processes

– Are they linked to business processes? What role does budgeting and management reporting play?

• Develop a network of planning models

– Review the proposed planning framework. Decide on the content and purpose of each element.

• Review current planning process / models

– Are the linked to each other? Are they triggered by events and exceptions? What areas are weak and need changing?

• Discuss internally

– CFO / CEO commitment is essential. Get agreement on purpose and the need to change. Set priorities.

• Move to a data-driven planning architecture

– Investigate emerging technologies in the area of data-driven planning


Questions?

email: [email protected]

Blog: www.businessplanningframework.com

email me for a copy of my latest white paper on Data Driven Planning

mailto:[email protected]



http://www.businessplanningframework.com

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7 Key Models Required to Manage Performance

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