Recent economic events have highlighted the need for faster better decision-making where continuous re-forecasting is the order of the day. But how can finance professionals sell the additional spend to the board and get the buy-in of non-finance executives? Lesley Meall, FSN contributing editor investigates.
‘Earth shattering’ events happen a lot less frequently than we use the phrase. But every now and again, something ‘epoch changing’ does happen along, to make even these terms of reference seem inadequate. The killing of John F Kennedy and the attack on the Twin Towers spring to mind: events of such significance that they split the world into a place of ‘before and after’ and prompt the “Where were you when you heard about …?” question that can define a generation.
So, I am loathe to liken the collapse of the Twin Towers to the collapse of Lehman Brothers, and even less comfortable linking these events to the budgeting and planning processes, but Fritz Roemer, who leads Hackett’s enterprise performance management executive advisory program has no such qualms. “It was a big shock when the two towers collapsed. Many US companies were mid-budget, and they needed to start again, and budget for a new world,” he says.
Something very similar happened when the global financial services giant Lehman Brothers filed for Chapter 11 bankruptcy protection. “It was the same sort of trigger, another horrible event,” he observes, and it also occurred at a time when lots of US companies were mid-budget, forcing them to “start again and budget for a new world”. And while a lot has changed over the intervening years, one thing has not – the corporate world’s abject inability to do this.
In most organisations, budgeting and planning processes remain as inadequate, ineffective, and inappropriate in 2009 as they were in 2001, and justifying the cost associated with the necessary transformation is no easier now than it was eight years ago. “People know that they need to be more flexible and not tied to rigid budgets,” observes Cindy Jutras, and analyst with the Aberdeen Group. “They need the ability to react more quickly,” she adds, “and rolling forecasts are now essential to the survival of many organisations.” But recognising this and doing something about it are two very different things.
Turning a crisis into an opportunity
“When times are good and companies have money to spend, and they could budget for improvements, they don’t think they have the need or the time,” says Robert Kugel, “then in situations like today, when a problem is obvious, they believe they don’t have the money to spend.” But the senior vice president and director of research at Ventana Research, sees the current financial crisis as an opportunity that should not be overlooked. “Now is actually the best time to change these processes, because there is more willingness to accept change,” he suggests.
During 2009, getting the buy-in of non-finance executives could be a lot less difficult than usual. “World class companies go with the top down approach,” says Roemer, by taking the CEOs long term strategic planning process and the mid-term operating planning processes, and then cascading them down though the organisation, so that people at the bottom end can’t influence targets. “People understand the process, but they don’t like it, so you usually make enemies,” he adds, but in an environment when many people feel fortunate to have a job, this is going to be a lot easier to pull off; and according to Kugel, justifying the associated cost should be a no-brainer too.
“At the start of 2009 most CFO’s plans were flapped together at the last minute, because what they’d done previously was obsolete,” says Kugel, “so selling the board on the improvements better systems can bring shouldn’t be difficult.” Just being able to present a coherent plan, that can respond as quickly as the market changes, should provide enough justification. As Martin Richmond-Coggan, VP EMEA, in the Cognos software division at IBM, points out: “You can only respond to events as they happen if you are measuring, planning and re-forecasting on very short cycles,” and you can’t do this with spreadsheets.
“To keep on top of opportunities and issues, companies need to be able to plan, forecast and re-forecast more frequently than in the past,” says Mark Nashman, president and chief technology officer with Clarity Systems. “Corporate performance management products like Clarity 6 let you iterate through multiple planning and forecasting scenarios, and easily perform ‘What if?’ sensitivity analysis,” he says, “which in turn helps management to determine the right set of decisions to guide organisations through these troubled times.”
Making the best of IT
The humble spreadsheet just doesn’t cut it in a world where agility can make the difference between the success and failure of an entire company. “If you are using a spreadsheet more than six times for a process that involves more than six people then you need to rethink what you are doing,” asserts Kugel, and stop deluding yourself that it is in any way, shape, or form, an economical approach. “Spreadhseets are the most expensive free thing you’ve got,” he says, “because they consume people’s time, stop people doing things better, and their limitations go largely unrecognised.”
On this basis, the software and systems that are needed to move into the brave new world of continuous planning and forecasting should pretty much sell themselves. But just in case they don’t, Kugel has a few more words of encouragement. “Spend the money now,” he urges, because the economic conditions have never looked worse, and the price of these systems has never been lower. “The cost is not trivial,” he admits, “but it’s not a huge burden either, and nor is the implementation or maintenance.”
Back on planet Earth, things can seem a lot less straightforward. “Many companies are in survival mode,” says Roemer, “so they are concentrating on cutting costs, and redesigning their budgeting and planning processes is not a number one priority.” But the need for improvement is not going to go away, and as IBM’s Richmond-Coggan points out: “The longer you wait, the less chance you have of being able to do something that will really help your business.” So how do you attract the attention of the board when it has a major fire to fight?
Politely pointing out the downside of not investing in the sort of software that the organisation needs to improve its budgeting and planning processes, and maximise it chances of delivering on its forecasts to the market, seems like a very real possibility. “When CFOs consider the risk and potential liabilities, including the cost of errors in the external reporting process, it is easy to justify investing in this critical business function, adding new software,” says Nashman.
It also helps to focus on the areas where change is likely to result in the biggest benefits. “If you are relying on spreadsheets and you are drowning, there are some quick wins. In just three or four months you could have something in place that will deliver very tangible benefits,” says Richmond-Coggan, adding: “Find the things that are biting hard and address the main sources of pain.” Then when the next ‘earth shattering’, ‘epoch defining’ event occurs, as it inevitably will, the world of business will be better able to deal with it, even if the personal trauma is something you never quite recover from.
