Making connections; the key to transforming enterprise planning
When Folia Grace reviewed Next Generation Business Planning Benchmark Research, a new report into business planning from Ventana Research, a few posts back, she focused on findings about the planning process and plan accuracy. For this follow-on piece, I am going to explore the issue of connectivity, which is a theme that underpins many of the findings.
Before I get into that though, let me first congratulate Robert Kugel and his team at Ventana Research for producing a study that went beyond the ordinary. Normally reports with planning in the title rarely explore much beyond financial budgeting and end up rehashing the usual findings that it takes too long and costs too much. This report is much broader in scope. Although the study encompasses financial planning and budgeting, it is only as one of 11 different types of business planning, the others being capital spending; IT budgeting; supply chain planning; working planning; demand planning; operational planning; project planning; strategic planning; marketing planning, and sales planning. As such, it goes all the way back up the value chain and looks at planning wherever it occurs in the enterprise. So if your role is in one of those functions, read on as there is some enlightening stuff here.
The reason I find the report such a breath of fresh air is because, all too often, the finance function acts as though enterprise planning and budgeting is entirely within its remit. That is not the case. Planning happens everywhere, and the findings of this study suggest that finance departments are unlikely to transform financial budgeting unless they first address more fundamental issues in enterprise planning. Most of these issues take the form of disconnections, and here are just a few of them from the findings of the research;
- Enterprise planning is disconnected from financial budgeting
Few respondents said their plans connected directly into the annual budget. The majority said they simply cut and paste relevant financial detail into the budget template and considered this a time-consuming process that hampers agility and responsiveness.
- Departmental plans remain disconnected from each other
Only a small number of respondents said they have the ability to measure the impact of their plan on the rest of the company with the majority saying they had only “a general idea” of its impact. Because of planning in silos, many respondents also reported that coordination between departments was often a problem with a third of those surveyed saying it happened frequently.
- Plans rapidly become disconnected from reality
Roughly two-thirds of respondents reported that due to internal and external changes, their companies struggled with plans that were no longer relevant to how their business operated. We are now a couple of months into the year, and I suspect some organizations are already finding themselves mired with this problem.
Taking action to address disconnects
Better collaboration is clearly one of the solutions to many of these disconnections. This is supported by the findings in the research which showed that almost all of companies that collaborate effectively had well-managed planning processes and more accurate plans. Using a planning solution with workflow and easier ways to share data clearly helps citizen planners to collaborate.
But for me, a more physical manifestation of connectivity is the use of drivers to model resource requirements and line item expenses. Only a quarter of the respondents participating in the survey said they did not use drivers in their planning and budgeting. However, I doubt if we can infer that the majority had developed sophisticated driver-based planning and budgeting models. If they had, they would have surely been happier with the way they plan and budget. In the majority of instances, I suspect using drivers was little more than having a few centrally controlled rules to ensure consistency in budgeting business travel and employee benefits. The real power of adopting such a methodology arises when rules and relationships flow across departments; for instance modeling the workload and staffing requirements in a warehouse operation based on changes made to the sales plan.
Only the small number of respondents who reported that they mainly use a driver-based approach have perhaps achieved this level of inter-departmental connectivity. Our white paper “Making Driver-Based Planning and Budgeting Work” explores how the lack of suitable software has stopped such a fundamentally simple approach that most planners already use in their departmental models from being scaled up to the enterprise level. However, once businesses achieve that level of connectivity, they transform their enterprise planning. In exactly the same way as neurons transmit nerve impulses around the human body; drivers connect departmental plans delivering the responsiveness and agility that other companies so often lack.
To see more of the findings for yourself first-hand, download the executive summary, (registration required).