Planview has announced that it had broadened into the will be entering the operational planning software market with a solution that is designed to span the three major pillars of planning: operational, strategic and financial planning (i.e., budgeting). I think such a product fills an important hole in the planning market, especially for companies divisions or departments with what you might call a “multi-task” business model.
I’ve been pointing out the need for companies to adopt Integrated Business Planning and change their focus from budgeting to planning. People, especially those that work in finance departments, tend to use the words planning and budgeting interchangeably. Indeed, in order to prepare their budget, managers must plan. Yet, planning is only incidental because the focus of the effort is on preparing an annual budget, not creating an integrated company-wide operating plan.
Planning and budgeting, although related, mean two different things and have different aims. The inherent purpose of planning is to succeed in achieving an objective while the purpose of budgeting is to not fail (that is, lose money or run out of funds). Planning is (or needs to be) an open-ended exploration of what’s possible. Budgeting is about fixing amounts to achieve financial control. Planning must be a dynamic process because business conditions are always changing and plans have to adapt to fit changing circumstances. Budgets and strategic plans are more static. Budgets, because they are a control mechanism – you can’t keep changing the yardsticks and moving the goalposts; strategic plans because of their long-term focus. Budgeting is a form of financial planning and it is a critical element of financial controls. Well run companies must budget and use this as a measure for ensuring sound fiscal control. However, budgets are a poor blueprint for managing a corporation. The budget may function reasonably well as a financial control, but it has little value as a business plan. Plans focus on things (LTL shipments, FTEs, production units, marketing campaigns and so on) and then their monetary consequences; budgets are only about money. As a consequence, operating units and departments create their own, silo-based plans that are poorly coordinated. Integrated Business Planning makes better use of information technology to shift the focus to explicitly planning the operations of a company and then derives a budget from that plan.
People use the terms planning and budgeting interchangeably because in practice corporations collapse the two processes into a single effort – preparing the annual budget. This is an artifact of a different era, when information technology tools either didn’t exist or were limited in what they could do. Twenty years ago almost all of the “numbers” that operating managers could readily access came out of accounting systems. Today, there are a wealth of systems that collect operating data from sales, customer service, product development, manufacturing, supply chain, maintenance and so on.
Habit is one reason why companies stick with the budget-as-operating-plan approach. It’s time to break the habit.
Planview’s point of differentiation is in its ability to handle multi-task operational planning, which differs from other forms of operational planning in several key respects:
• The underlying businesses model is made up of discrete, custom or semi-custom efforts rather than repetitive defined processes
• These efforts require the execution of multiple, parallel threads of activities to achieve completion
• The execution requires the ongoing coordination of efforts of people with specific skills and knowledge, often using specific equipment and/or facilities
• There are time dependencies: one or more parts of the effort cannot begin until some other part is completed
• Time itself is a resource (i.e., idle time for individuals, equipment or facilities has a tangible opportunity cost)
• By its very nature, it requires frequent re-planning to adapt to different outcomes or changes in environment
Planview’s differentiation stems from its use of an underlying project management engine – project and portfolio management (PPM) software is the company’s core business. Although there are many similarities, multi-task planning is not project planning because with the former, one almost never starts with the proverbial “blank sheet of paper” you have at the start of a project. There is usually a high degree of commonality in the tasks that are performed, lending itself to more of a template approach that makes planning by business managers that much easier.
Planview faces a significant challenge in spurring adoption. I don’t think it’s a reflection of the product or the significant value that using any tool like this can bring to a business. It’s more a question of being able to disrupt corporate inertia.
Although there is widespread agreement that planning is a broken process in most companies, the flip side of this is that not planning well is the status quo. While planning broken, unfortunately it’s not broken enough. Companies planning activities are misaligned and uncoordinated, the annual budget and review cycles are prolonged and generally regarded as poor use of time, but the consequences often aren’t dire. Indeed, there are plenty of companies with lousy planning processes that still manage to reach record sales and profits. Few companies get up the gumption to make big changes and inertia rules – “we’ve always done it that way” settles the argument.
I’m of two minds about the prospects for the operational planning software market over the next couple of years: impressed with the huge latent need for this kind of software yet experienced enough to be skeptical that competencies across the workforce are not fully ready in most organizations..
Of course, planning well pays off best in a downturn and the memories of budgets that were “dead on arrival” in the 2008-2010 are causing more companies to reexamine their process, so I’m hopeful. Yet, watching the stubborn allegiance to spreadsheet budgeting in the face of overwhelming evidence of its myriad defects, I am also a bit skeptical that mainstream adoption is coming soon but organizations know they need to act and make improvement. I think Planview is working to get needs at least a couple dozen important success stories to accelerate adoption. Ones that cause CEOs or divisional SVPs to brag to their network of peers about this great new tool they have for managing their business. That will get the ball rolling.
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Robert D. Kugel CFA - SVP Research