Product Review Cartesis Planning

1st December 2006

Contents

Introduction

Modern day drivers for budgeting

Strategic alignment

Communication

Developing integrated operational plans

Guided Workflow

Monitoring performance

Closing the BPM loop

Summary

Introduction

Budgeting, planning and forecasting are amongst the most neglected and unappreciated business processes yet there has never been a greater need for capability in this area. Globalisation, rapidly changing markets and legislative demands require more than ever that business managers have their 'finger on the pulse' and are able to respond to business change at a moments notice.

No business segment is immune from the rapid pace of change and even government and not-for-profit organisations are constantly challenged to justify their use of resources and demonstrate that they are strategically aligned.

In the face of such rapid change and shortening timescales for, say, product development, manufacture and taking products to market, it is tempting to consider that the appropriate response is merely to accelerate existing budgeting processes. But the budget process in many organisations is broken and discredited. Indeed, the very notion of budgeting as a standalone activity is being severely tested as organisations seek a more dynamic and joined up response to constantly shifting business conditions.

It is a familiar situation to Cartesis, one of the world's foremost software houses in the rapidly growing field of business performance management (BPM). Although its history is steeped in the provision of high end consolidation systems to global 2000 companies, it was quick to realise the crucial advantages of bringing together the three pillars of a BPM solution, namely; budgeting and planning, consolidation and reporting, and analytics. But unlike some of its competitors that have assembled a portfolio of loosely coupled applications, Cartesis 10, its latest release of BPM software, is a unified solution that combines the applications and leverages a single source for data and metadata (the Integrated Data model or IDM) for budgeting, planning, consolidation, reporting and analysis. It means that regardless of the application, or the users' role in the business, they have a shared understanding of the organisation, for example, its divisional structure, its operating geographies, management hierarchies, account codes, and product groupings. Additionally, whether one is analysing financial or non-financial information, budgets, actuals or statistics, the IDM provides a common platform for reporting and analysis which is updated in real time by the applications on which it is based.

But interestingly Cartesis has not stopped there. This review of Cartesis Planning examines how Cartesis has gone a stage further by applying the same 'joined up' thinking to linking operational and financial planning and externally gathered benchmark data to round off a complete BPM solution.

Modern day drivers for budgeting

The once a year budget is becoming an outmoded concept. The speed of decision making coupled with the pace of business change mean that an annual budget is often out of date from the moment it is published – exacerbated by the lengthy timescales associated with the annual budget cycle in most organisations. As the year progresses, reporting actual results against a budget conceived many months earlier produces an even more unreliable picture of performance.

So most progressive organisations accept the need for more frequent budgeting with many moving from static annual budgets to continuous or 'rolling' forecasts in which a sliding period of a year's trading is constantly updated with monthly or quarterly re-forecasts. It is not quite as radical as the complete abandonment of budgets mooted by some 'think tanks' but nevertheless it represents a fundamental shift in management reporting from a review of historic performance to a more insightful analysis of future outcomes.

But there are legislative as well as good business reasons for adopting a more continuous budgeting approach. Quarterly reporting, which is the norm for listed companies in the US , is soon to become the standard in Europe under the European Transparency Directive. Clearly, making sense of outcomes on a quarterly basis and dealing with analyst and shareholder enquiries is only possible when management is equipped with quarterly forecasts for comparison.

Similarly, the growth of 'narrative reporting' in the US (Management Discussion and Analysis MDA) the European Accounts Modernisation Directive in Europe, and the new Companies Act 2006 in the UK, especially the requirement to report on trends and factors affecting future performance, means that management needs to be constantly aware of under and over performance in its operations and the reasons behind it. The rising interest in non-financial measures of performance is an added complication that also has to be accommodated in the forecasting and reporting process.

The growth of narrative reporting also has broader consequences for the way that organisations set their budgets, for example, budgeting can no longer be regarded solely as a financial process since it needs to 'touch' all functional areas of a business. Production, marketing, logistics and HR can all have a material effect on business outcomes and so budgeting and forecasting process has to embrace a broader constituency of users with a variety of business backgrounds and IT competencies.

For these non-financial users, the chart of account or spreadsheet driven approach favoured by finance professionals is unsettling, because it neither reflects their skills nor the way that they work. For this wider user population, a different approach needs to be taken to gathering business assumptions and the other inputs to the budgeting process. The so called, "driver based" based approach expresses budgeting inputs in terms that are familiar and appropriate to the end user with the system, shielding them from complicated calculations and accounting concepts working in the background.

Despite the compelling reasons for a change in budgeting habits few organisations are in a position to implement more frequent driver based budgeting. Heavily reliant on spreadsheet bound processes and manual procedures they are incapable of effecting change. So how does an application such as Cartesis Planning make a difference?

The answer in a nutshell lies in a unique fusion of systems architecture, functionality and process that supports timely engagement with users right across the organisation and ensures that budgeted activities are both strategically and financially aligned.

Strategic alignment

Developing and communicating strategy is one of the most challenging aspects of the performance management cycle. Unfortunately strategy setting is often carried out in a vacuum. Sophisticated models are used for scenario planning, but in practice the output rarely makes it intact from management presentations, spreadsheets and PowerPoint slides into operational plans. Yet operational plans are the lifeblood of the organisation. They drive the allocation of resources and form the basis of performance measurement. It follows that strategic alignment of resources is only possible if strategic objectives are adequately communicated through operational plans and this is difficult to achieve if long term planning and operational plans are developed in completely different environments.

By using the same modelling environment for both strategy setting and developing operational plans Cartesis Planning overcomes many of the disadvantages of conventional approaches to the problem, such as complex but disconnected spreadsheet models.

However, there are formidable challenges in using one environment for long term (strategic) planning and operational planning. Firstly, they operate over considerably different time frames, (strategy setting is by definition long term) and operational planning is carried out at a much more detailed level of granularity. However, Cartesis Planning copes admirably with both of these concerns by respecting the need for different plans to operate at different levels of detail and by separating business logic and other metadata (structural data such as account codes, departmental structures and regional structures) from the underlying data. From a strategic planning point of view this allows the development of multiple 'what if' scenarios to be planned and detailed operational plans to co-exist with them.

Also, the time horizons in Cartesis Planning are not constrained by year end or period ends. This means that there are no complicated rollovers of results from one period to another and certainly no need to compute new formulae and macros as there would in a spreadsheet environment. As such year one of a five year strategic plan can effortlessly form the basis of the current year budget. In this way the shared environment leads to consistency between long term strategy and annual plans.

Communication

In common with the other components of the Cartesis 10 BPM suite the Cartesis Planning application is web based, so that individual users are connected to a central server rather like the spokes on a bicycle wheel. The architecture is extremely scalable and Cartesis has a number of customers with more than 1000 users.

In heterogeneous groups, for example, industrial conglomerates with widely differing trading entities, an alternative architecture (still web based) is to distribute a 'core' model reflecting the group planning requirement which can be locally enriched to meet specific local needs. The system then manages the communications and re-aggregation into a consolidated model, still leveraging a single data model and application.

Enterprise scalability is very important in a budgeting environment since it is important to engage users across the entire organisation and from all functional areas. In this way, strategic objectives set at the group can be widely communicated and, coming in the other direction, plan data captured from the 'coal face' is likely to be more accurate. Thus Cartesis Planning simultaneously encourages strategic alignment and improved data quality.

Developing integrated operational plans

Driver based budgeting is an essential component of engaging with users at an operational level. Users can take advantage of driver based formulae to enter a limited amount of data using familiar terminology, allowing the system to perform complex calculations in the background and update the model. A special 'related lines' capability in Cartesis Planning overcomes complexity by allowing the user to choose which variables to enter into a formula. For example, when planning sales revenue the user can enter the sales volume and unit price or simply enter the sales revenue and let the system impute the other elements from business rules stored behind the scenes.

Cartesis Planning makes wide use of 'visual cues', a user definable traffic lighting system which shows the real time impact of changes to individual data entry cells on other areas of the model. For example, an increase in revenue may take projected debtors above advisable limits or an increase in production may cause a stock-out of a manufactured component. Similarly, visual cues can warn the user if changing other data elements causes 'top down' budgets set by the group to be exceeded by 'bottom up' changes suggested by the user. Centrally planned drivers can be set as a default for the global organisation and overridden at the divisional level, assuming adequate security permissions.

Tabs displayed across the bottom of the data entry screen guide the users through data entry in a logical sequence developed individually for each application when it is is designed. In common with other systems Cartesis Planning provides a variety of spreading options on data entry (such as even to each period or uplift each period by 2 percent) to help the user rapidly populate the data entry sheets. Similarly, data can be allocated down through the application according to user defined criteria.

A 'Workback' function allows the user to change summary level totals (goal seeking) and let the system recalculate the underlying data on a pro rata basis. As well as the visual cues, data cells affected by any adjustment immediately change colour so that user can see the impact.

"Excel Analyst", Cartesis' Excel add-in can be used for data entry (and reporting) rather than the web based interface. It works in exactly the same way as the web based interface but has the added advantage of allowing users to work in a familiar Excel environment off-line, subsequently updating the budget when they re-connect.

Whilst Cartesis Planning has inbuilt financial intelligence, operational planning is not confined to financial forecasts. The application is equally at home generating, for example, complex demand and supply matching plans in a manufacturing environment, or capital transfer requirements in a banking environment. Most crucially, operational plans are linked so that changes in say demand are reflected in production and stock. Furthermore, the financial consequences of operational plans can be automatically reflected in the profit and loss forecast, the budget and the cash flow. All of these plans use the same metadata and business logic. Changes can be made on the fly and scenarios can be saved as desired whilst retaining the integrity of financial and operational reporting and remaining in synch with strategic objectives.

An added benefit of Cartesis Planning is an integrated HR planning module that provides pre-set, though modifiable functionality for common HR tasks such as global salary increases by grade or department, bonus allocations, planned "hires" and "leavers". The system then calculates the gross to net pay consequences and can 'post' the derived values to an integrated financial plan.

Guided Workflow

Cartesis Planning provides guided workflow governing a user definable sequence of budget review and approval. Integrated with email systems, budgets awaiting approval can be notified to a reviewer for approval with an embedded link to the underlying plan.

Workflow is an essential component of managing a budget or forecasting cycle. It gives visibility to the process, encourages a collaborative approach and accelerates the process as budget iterations are passed down the line as soon as they are completed. Anecdotal evidence suggests that workflow also contributes to improved data quality since the time liberated by automation allows more interaction between budget setters and reviewers. This heightened collaboration at an early stage means that by the time the budget nears completion and reaches the group level most of the wrinkles have been ironed out.

Cartesis Planning adds further visibility to the process through a unique window which displays the budget timeline in a Gantt style chart, rather like Microsoft Project, giving the budget administrator an immediate view of progress. The screen displays the status of the budget for each budget holder, for example, showing whether they have commenced work on their part of the budget or whether it has been approved or rejected. Reporting entities that have slipped their deadlines are highlighted in red so that they can be followed up rapidly.

Cartesis Planning gives complete visibility of the process

 

Cartesis Planning gives complete visibility of the process

Monitoring performance

In common with other systems, actual results are used within the Cartesis Planning system for comparison with budgets. Cartesis Planning does not require the physical transfer of this information through ETL (extract, transform and load) tools, but uses a proprietary utility that links Cartesis Planning directly to the underlying databases, saving considerable configuration and maintenance effort. This means data is surfaced in the budgeting application in real time from one or a number of source systems allowing, say, actuals to flow directly into the budget as soon as a new period arrives.

The same technology permits real time drill down to external data sources which can be useful when analysing the causes of variances buried deeply in the system. Drill down in Cartesis Planning is functionally rich offering the ability for the user to drill down through pre-set hierarchies as well as choosing other dimensions on the fly, so called "drill around". It means that users follow variances in context, deciding the best avenue for enquiry at each stage rather than relying on pre-set drill down capability. Icons on drill down screens together with tree like structures act as a useful reminder, illustrating the path that the user has followed to arrive at the current position.

Closing the BPM loop

Whilst Cartesis provides a very competent and functionally rich solution to long term planning, budgeting, operational and financial forecasting the solution really comes in to its own in the context of broader performance management capability.

Cartesis Planning is one of the three pillars of the Cartesis 10 BPM suite and as such, shares its data and metadata with Cartesis Finance, the consolidation system, and Cartesis Analytics, which as the name suggests is the analytical capability, including web-based dashboarding and reporting.

Plans established in Cartesis Planning can be published straight away to Cartesis Finance for comparison to consolidated actuals and both systems are amenable to analysis with Cartesis Analytics. For example, dashboards in Cartesis Analytics allow performance metrics to be displayed in a number of visually appealing ways, such as colourful dials and gauges which allow the viewer to gain an immediate appreciation of exceptional performance (good or bad) across the enterprise according to user defined thresholds. From these dashboards the user can drill down into Cartesis Finance or Cartesis Planning as required to investigate adverse variances.

Ultimately, business insights gained using Cartesis Analytics can be used to inform the long term planning process and operational plans, thereby re-enforcing the concept of BPM as a closed loop process and driving strategic value into the business.

The CEO dashboard allows drill down into the complete BPM environment

 

The CEO dashboard allows drill down into the complete BPM environment

The 'icing on the cake' is that Cartesis 10 is compatible with XBRL (Extensible Business Reporting Language) and, for example, can accept a data feed from EDGAR Online, (the US provider of business information) and bring 'tagged' financial information into Cartesis Analytics where it can be used to benchmark performance against external competitors. This advanced facility provides additional insights into performance which can be used to inform the forecasting process and improve the quality of projections.

Cartesis provides benchmarking against competitors using XBRL

 

Cartesis provides benchmarking against competitors using XBRL

Summary

In the last few years a number of software houses have entered the business performance management arena. In most cases, they had notable strength in one or two areas of performance management, say, financial consolidation, business reporting or budgeting and have added the functionality needed in other areas by making strategic acquisitions. On the surface they appear to have a complete BPM offering but close inspection reveals that the solution is only skin deep, because the applications are not fully integrated and metadata is duplicated.

Whilst Cartesis has also made strategic acquisitions (rather than develop all of its code in house) it appears to have chosen its targets wisely, taking care to preserve its early success built upon an integrated data model. As a result Cartesis is one of the few BPM vendors that can demonstrate convincingly a closed loop process, in which strategy, operational plans, performance monitoring, analysis and reporting are linked in a 'virtuous cycle' that allows strategies to be progressively refined and encourages constant performance improvement.

But in acquiring and harnessing deep budgeting and analytical capability, to add to its well regarded consolidation capability, Cartesis has extended its reach into operational planning and successfully interleaved it with financial budgeting against the framework an overall BPM solution. It means that at the lowest level of granularity operational performance is aligned with strategic objectives, but the consequences percolate up through the entire organisation to deliver complete visibility of operational and financial performance in one place. The ability to then benchmark that performance with externally gathered XBRL data means that Cartesis is a BPM vendor delivering at the leading edge of BPM thinking and capability.

About FSN Publishing Limited

FSN Publishing Limited is an independent research, news and publishing Organisation catering for the needs of the finance function. The report is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University , a Chartered Accountant and a Fellow of the British Computer Society with more than 23 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector.

Gary.simon@fsn.co.uk

www.fsn.co.uk

Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document.

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