The Planning Maturity Curve (Palo Alto June 15)

© 2011 Alight Planning Slide 1

The Planning Maturity Curve: Where Are You?

Where Do You Want to Be?

Rand Heer, CEO Alight Planning

Ben Lamorte, VP Marking Alight Planning


Rand Heer Business Activities

CEO, Alight Planning (Planning software)

Co-Founder, Aspirity (Microsoft BI consulting)

Founder, FP&A Train (Essbase training)

Founder, Pillar Corporation (Enterprise budgeting)

CFO for 2 public companies

Rockwell Int‘l, Biz Unit CFO and Corporate

Today‘s Speaker

Publications

Coauthor: “Business Intelligence: Making Better Decisions Faster”

Author of 10 white papers on planning/reporting topics

Education

MBA degree Harvard Business School


Agenda

Introductions

The Planning Maturity Curve

Level One: Seat of the Pants

Level Two: Budgeting

Level Three: Reporting

Level Four: Forecasting

Level Five: Agile Planning

Case Study in Agile Planning: Pittsburgh Mercy

Short Break

Agile Planning Simulation

Implementing Agile Planning

Out of Excel

Level of Detail

Driver-Based Planning

Integrating Actuals

Scenario Analysis


Business Value from Planning

Insights

Understanding things we didn‘t see before

Actionable Knowledge

Planning scenarios gives us the financial impact of

choices

Decisions

Having choices sets up decision making


Planning Maturity—Agile Planning

Planning Maturity Curve (PMC)

Budgeting

Forecasting

Seat of Pants

Reporting

Effort

Business Value

Forecasting/Agile Planning


GoalsWhy Do It?

Effectiveness

Key Process Areas Who Drives

Who Participates

Frequency

Cycle time

FeaturesData Type

Data entry

Level of detail

PracticesModeling

Data Integration

Iteration Tools

Presentation

The Capability Maturity Model

Carnegie Mellon University

First described by Watts Humphrey

Capability Maturity Model applied to financial

planning and analysis.

Budgeting Forecasting Agile PlanningSeat of Pants

Capability Maturity Model for FP&A

Reporting


Planning Maturity—Seat-of-Pants

The Happy Caveman


Planning Maturity—Budgeting

The Happy Accountant


Planning Maturity—Budgeting

The Happy Accountant


Planning Maturity—Reporting

The Reluctant Managers


Planning Maturity—Forecasting

The Grumpy CFO


Where Are You on the Curve?



The Happy Team


Planning Maturity—Full Matrix




Budgeting

Forecasting

Seat of Pants

Reporting

Effort

Business Value

Move out of Excel

Reduce level of detail


Implement driver-based planning

Integrate (don’t just import) actuals

Implement scenario analysis


Ray Wolfe Business Activities

Chief Financial Officer, Pittsburgh Mercy Health

System 2006-present

Director of Fiscal and Information Systems– Mercy

Behavioral Health 1996-2006

Chief Fiscal Officer, Summit Center for Human

Development, 1988-1996

St. Francis Medical Center, Patient Account

Manager, 1986-1988

Awards: Ventana Leadership 2010

Education

Juris Doctorate, West Virginia University 1977

BA, Marshall University, 1974

Case Study: Pittsburgh Mercy



Community Mental Health and Health Care Related

Mental Health, Mental Retardation, Drug/Alcohol, Homeless

Prevention Services and a Private Foundation

Serving Southwestern Pennsylvania

Business Metrics

Pittsburgh Mercy Health System has

3 subsidiary corporations

60 community locations

27 major programs product lines

260 revenue/cost center

1,700 employees; 106 Managers & Supervisors

Funded through traditional insurance billing, government grants and

capitation contracts, Private Foundations


Demographic Problems

Managers with only clinical backgrounds/ no business skills

60 sites yielded communication barriers and no common language

Excel based —

Overload mode of worksheets with link and formula errors

Too much time to maintain and no certainty of integrity

No way to import and compare actual data to the budget design

Budgeting became a ritual without meaning

Budgeting full year totals with no seasonality

Tops down budgets w/o manager buy in

No P&L visibility by critical factors

No operational integration



Organization of Forecast Groups and Processes

Group managers by functional areas—e.g. Community Treatment Teams

Outpatient Clinics

Child Services

15 Groups each meet once a quarter 3 to 12 managers per group

4 members from accounting/finance

Real time process elements Alight Planning displayed on Overhead Projector with Smart Board

CFO is facilitator; Alight Admin on the mouse and keyboard

Review/ make changes in real time

Everyone sees everything!



Level of Detail

Technical Issues

What level of detail? Actuals and plan

Transportation example


Using Actuals to Drive Plan

Technical Issues

Visibility into Units/Rates/Amounts

Revenue and Allowance Rate Example


Progress to Date

Financial Results $600K+ in documented revenue increases and cost cuts from MET goals

Process Results

No budgeting

Global updates twice a year – detailed updates quarterly

Forecast accuracy to 2%

Manager commitments based on demonstrated best practices

Understanding the business as an operating entity

Reaction to issues on a two year horizon, e.g. present cut plan

Model Status

Now on third model iteration built from scratch





Budgeting

Forecasting

Seat of Pants

Reporting

Effort

Business Value

Move out of Excel

Reduce level of detail


Implement driver-based planning

Integrate (don’t just import) actuals

Implement scenario analysis


1. Move Out of Excel

Deal with structure issues

Deal with modeling issues

2. Reduce Level of Detail

Plan the way managers think; not the Happy Accountant

Reduce detail to better integrate strategy

3. Implement Driver-Based Planning

Reduce direct input data volumes

Increase ‗modeled elements‘—operational/driver based planning

4. Integrate (Don‘t Just Import) Actuals

―Rolling over‖ actuals in plan files—apples to apples

Using actuals to understand trends—focus on rates

5. Implement Scenario Analysis

You can‘t predict the future, but you can construct scenarios

You‘re looking for easy maintenance and comparisons at all levels

Guidelines for Agile PlanningTM


The Excel PowerPoint Cycle

The Need for Real Time


The ―need for speed‖

Everything refreshes in near real time

The planning tool is the presentation tool

The planning tool enables collaboration on-the-fly

The Need for Real Time


Agile Planning Simulation

Background Wombat, Ltd: mid market ERP for verticals: healthcare, manufacturing,

technology

Bongo is main competitor in manufacturing

Event driver: Bongo cuts prices 30% in manufacturing

The Players Ben, Sales Guy

Rand, Finance Guy

Sid, Services Guy

Phyllis, CEO (not present)

What You‘ll See Real Time Collaboration

Driver-Based Financial Model

Scenario Planning


Follow up with Ben

Blamorte@AlightPlanning. com

Telephone: (415) 456-8528

Webinar Resources Transforming Planning at Pittsburgh Mercy:

www.Alightplanning.com/Webinars/PM/Video.html

Application Requirements for Rolling Forecasts www.AlightPlanning.com/Workshop/Requirements-for-Rolling-Forecasts/Video.html

Forecasting for Black Swans: www.ie.articfoxtv.com/224/planning-for-black-swans

w.alightplanning.com

Follow Up with Alight

http://www.alightplanning.com/


1. Out of Excel

Structure Issues Bound by templates: can‘t add line items on-the-fly

Rollup structures with dimensions are difficult to create and maintain

No multi-user security/process controls

Importing (rekeying) actuals is error prone/cumbersome

Structure problems

relate to budget

templates where you

need to build in

structure and

financial intelligence

from scratch.

Version A Version N…

Save As


1. Out of Excel

Modeling Issues Formula and structure errors—aka #Refs

Dependency on key individuals—Lone Ranger Syndrome

Line manager spreadsheet skills are limited; untrained/dangerous.

Modeling problems: cell-

based linking which

discourages driver-based

planning which is the

source of most errors.


1. Out of Excel

What to Look for in Planning Applications You can build rollup structures with multiple dimensions/attributes

Application incorporates multi-user security and process controls

Users can create line items on-the-fly without breaking things

A fundamental deliverable

of a Planning Application is

user security and process

controls.


1. Out of Excel

What to Look for in Planning Applications You can build rollup structures with multiple dimensions/attributes

Application incorporates multi-user security and process controls

Users can create line items on-the-fly without breaking things

Importing capabilities—aka ETL (Extract, Transform & Load)

Object-based linking with audit trails

Object-based linking is

critical for implementing

driver-based planning.



Plan at the Right Level Lowest level natural class accounts create too much detail

Let managers plan the way they think

Set the stage for driver-based planning

It‘s the data that‘s the killer

7 T&E accounts *

100 cost centers *

12 months = 8,400



Guidelines for ―Right Level‖ Plan/report at a higher level—especially for natural accounts; or

Set up a dual system: traditional budgeting plus forecast at higher level.

Do the math for various alternatives; test imports for a ‗visual picture‘.

Go step-by-step: not everything need be done all at once.

The planning application must have line item detail

Example of an account

structure at a higher

level with line items

created by managers.



Benefits of Reducing Level of Detail Better operational connection for line managers

Reduces overall data volumes; better visibility

Set the stage for driver-based planning

Reducing level of detail

along with moving out of

spreadsheets reduces

Effort and enhances

Business Value.


3. Driver-Based Planning

What Is Driver-Based Planning? A series of sub-models for revenues and expenses based on drivers

Drivers are typically units of things: unit sales, customers, transactions

The fundamental structure is: Units * Rate = Amount

The spending focus is on big ticket items and large departments

Example of a driver

model that calculates

amount of explosives for

a gold mining operation.


Software

Licenses

Sold

Conversion

rate

# Services

Customers

Predictive logic

diagram for a

software/services

business

It’s about

Activities & Rates

Hours Per

Customer

Billable

Services

Hours

Bill Rate Billable

Services

Revenues



Software

Licenses

Sold

Conversion

rate

# Services

Customers

Services

Staffing

Hours

Services Expenses

Salaries

PR taxes/ benefits

Supplies

Travel

Recruitment

Training

Etc.

Predictive logic

diagram for a

software/services

business

It’s about

Activities & Rates

Hours Per

Customer

Billable

Services

Hours

Staff

Utilization

Rate

Bill Rate Billable

Services

Revenues

Hours Per

Month

Services

Staffing

Heads

Services

Profitability




Benefits of Driver-Based Planning? Tight turn-around for forecasting has a chance

Enforces focus on important operational drivers

Visibility into the numbers—allows meaningful causal analysis of variances

Sets up ―real time planning‖ for scenario analysis

Driver-based planning

delivers a significant

increase in Business

Value


4. Integrate Actuals

Import Actuals Metadata and data imports based on chart of accounts structures

Monthly updates from the general ledger

Automated with ―connectors‖ or semi-automated with ETL tools

Integrate Actuals Any source—GL,HR, CRM, RDBMS, OLAP

Any data type—text, number, currency, percentage, currency

Any level—line item, natural accounts, cost center, etc.

Any modeling—simple of complex linking, back calculate rates



Integration Issues Data spread across multiple sources

Actuals and Plan at different levels

No underlying activity drivers

Actual and plan structures out of sync



Integration Issues Data spread across multiple sources

Actuals and Plan at different levels

No underlying activity drivers

Actual and plan structures out of sync



Deliverables Insights: What‘s Going On with the Numbers

Actionable Knowledge: What Are Our Choices Between Things To Do

Decisions: ―OK gang, here‘s what we‘re going to do!‖

About the Future

“Trying to predict the future is like driving down acountry road at night with no lights while looking

out the back window.”

Peter Drucker

“The future ain’t what it used to be…”

Yogi Berra



Types of Scenario Analysis Manage Resource Allocations: Adjust Short Term ―Who Gets What‖

Strategic Planning: Extend Time Frames; Same Model As Short Term



Types of Scenario Analysis Manage Resource Allocations: Adjust Short Term ―Who Gets What‖

Strategic Planning: Extend Time Frames; Same Model As Short Term

Black Swan Planning: Understand Improbable Events [Nassim Taleb]



Implementation Guidelines Easy to Create: On-the-Fly; No IT; Selectively Include Line Managers

Easy to Maintain: Change Data and Structure in Near Real Time

Scenario Drill Down: Comparison & Analysis at All Levels

Real Time Feedback: The Planning Tool is the Presentation Tool


Spreadsheet Issues

Spreadsheets Don‘t Do the Job Not multi-user: security and process control issues

Not a database: consolidation and reporting issues

Not multi-dimensional: reporting and analysis issues

Cell based modeling: limitations on driver-based planning

Save As for versions and scenarios: just not viable!

Scenario A Scenario B Scenario C

Documents

The Planning Maturity Curve (Palo Alto June 15)