When it comes to planning and budgeting, the gap between what’s possible and what companies actually do is still wide. Spreadsheets, still widely used for budgeting as well as other aspects of corporate planning (sales, operations, HR and so on) are a major reason for the gap because of their well known (but largely ignored) defects. However, the issue is not just desktop spreadsheets. Even companies that have purchased dedicated applications keep their immature planning processes – they just automate these to make them less painful to execute.
Judging by the company success stories at Oracle Open World, there are a handful of companies that have achieved high levels of maturity in their planning activities, but a persistently large number are still at the first stages of their evolution. Our most recent “Integrated Business Planning” benchmark finds that about two thirds of large and midsize corporations are the bottom half the maturity distribution. While technology can be a constraint, process design, expectations and vision are also at fault. Companies – especially finance departments – continue to confuse budgeting with planning. Hyperion Integrated Operational Planning has been on display at Oracle World. Essentially it’s the old Interlace sales and operations planning (S&OP) product married to Hyperion Planning. Although Oracle/Hyperion is using the term “IBP” for this integration, we do not view the combination of budgeting and S&OP as IBP. This isn’t a knock on the product, which we think is a great first step in helping finance departments make the transition from just budgeting to more accurate and agile planning. Having the integration between S&OP and the financial plan in place is important because finance departments do not have a real, integrated view of the operational plan with the budget. When factor prices or demand drivers change rapidly, it’s impossible for the finance department to understand the real impact on volumes. Similarly, when conditions change significantly (as they have been repeatedly over the past three years) people in operations have only a faint idea of the impact of these changes on profitability since the models they use can only deal with incremental changes.
Having the right technology for planning (not just budgeting) is the first, critical step for most companies. Today, practical, affordable systems that are capable of speeding and streamlining the planning, budgeting, forecasting, reviewing and reporting processes are available for mega corporations all the way to midsize companies (100 employees or more). However, the right software is only the first step. Companies need to change their processes to include driver-based planning, rolling quarters planning (not just a simple, high level forecast) that integrates all facets of the business including finance, operations, sales, marketing and HR.
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Robert D. Kugel - CFA - SVP Research