I recently interviewed David Jones, Director in PWC’s Consulting Services EPM Practice, and Simon Kenney a Senior EPM Consultant also from PWC, in a podcast about their successes in enterprise planning implementation and their research on finance effectiveness.
Initially, we discussed the research they have been conducting around planning and forecasting effectiveness; they call it the Finance Effectiveness Benchmark. For 2012, some issues were consistent with previous years. Planning, budgeting and forecasting is taking too long to pull together, it’s still too manual and requires too many resources or effort to get it done. But the interesting headline this year is that 80% of the respondents declared that the accuracy of their forecasts is critical to the running of their business, but only 45% said that their forecasts were actually reliable. This result is very concerning as this deficiency will prevent companies from making the right critical business decisions.
So what are the causes of this large deficiency?
According to Simon, a lack of integration across the entire planning process – front office to back office is a key issue. The business functions are just not engaged enough as the forecasting is mostly finance led. Sales and marketing are essential to any forecast, but they are often not engaged properly. Ultimately, those that generate the opportunities and the revenue need to be involved with the forecast.
No wonder the forecasts are not accurate!
How do companies to fix this deficiency and move to an integrated more inclusive world of forecasting? Simon suggested the following three steps are a good start.
Step 1: Identify why the forecasting process is failing (Is each function independently running their own processes? Is there a lack of clearly defined accountabilities?)
Step 2: Determine if/when the company is ready to integrate their processes. (Does it have the required level of sponsorship in place to move to an integrated planning process? Are the functions prepared for change?)
Step 3: Define a blue print or target “n” state (Design the integrated process. Determine which technology can help support the new integrated process)
These steps sound fairly simple, so I asked David what some of the more difficult or challenging things are that he sees when undertaking these steps with his customers. David indicated that there are challenges specific to each industry, but some common ones to watch for are:
- Lack of executive sponsorship across functions (Very Key!) The drive to implement change must come from the top and be a collaborative process.
- Miss-aligned performance measures that drive the wrong behaviour.
- Too much granularity or unnecessary detail in the financial plan. Requests for more detail and more clarifications lengthens the process (without sufficient benefit) taking too much time and effort.
Simon shared his experience working with a large UK based motor car manufacturer – the challenges and success they had experienced.
Car manufacturers are a more traditional type of company with lots of legacy systems. Being so entrenched in these systems meant that they were not sure if they were really ready for a big bang approach to integrated planning and forecasting. They, therefore, decided to work on one area of the company at a time – in waves – so they could prove it was the right thing to do by demonstrating success and showing value to drive further change.
I asked David how real the benefits were that could be obtained through integrated planning and forecasting. David said that he sees real results in more accurate forecasts and a much better understanding of what goes on in the business, how it behaves, and the impact each business function has on delivering the optimal level of profit. These are real and tangible benefits. Individual functional areas need to understand their role in the overall plan and not behave independently.
What can organizations do today to evaluate their planning and forecasting processes? Simon suggested the following:
- Look at your existing processes – are they collaborative and integrated?
- How accurate are your forecasts? If you are not sure, take a retrospective look and find out.
- How effective are the different business functions in forecasting accurately?
- Take a look at benchmarks and case studies outside your organization and see how you measure up and what else you can achieve.
- If you are in the spreadsheet world, re-evaluate the process and take an honest look at how it is working for you. How accurate are your forecasts?
It became quite apparent from speaking to David and Simon that it’s all about optimizing the business as a whole and not the individual parts; without enterprise planning integration, this is simply not possible.
To listen to the webcast, click here.