Related Topics:
			Business Research: Business, Finance, Workforce Vendor Research: 170 Systems Acorn Systems ActiveStrategy Adaptive Planning Alight Business Objects Carpio Centage Clarity Systems Cognos Compiere Corporater Deltek Enkata Epicor Exact Software - Longview Solutions Host Analytics - Evaluating Infor InsightFormation Intacct KCI Computing Lawson Maxager Microsoft Microsoft Business Solutions Mondelio - Dropped NetSuite Oracle Oracle - Hyperion Outperformance Protia QPR Software Quantrix River Logic Sage Salient SAP SAS Satori Group Softrax Sungard Tagetik VitalSpring Technologies Whitebirch Y-Change
			Printer friendly version Email this article Send feedback to editor

Summary
Integrated business planning (IBP) is a new term applied to a longstanding objective of executive management across finance, operations and the organization’s front line: to bring together the disparate strands of forward-looking activities across a corporation so as to foster internal alignment, enhance agility and ultimately increase its financial returns and improve its strategic position. Ventana Research asserts that especially in larger companies, fragmented planning efforts prevent companies from achieving these goals. Not having achieved IBP, they miss opportunities to sell more, incorrectly allocate their resources to less productive or less profitable activities and react too slowly to changing market conditions.

View
A basic issue facing most companies is that their financial plans focus too much on finance and control issues and do not adequately address the operational aspects of the business. Conversely, a basic issue facing other parts of the business is that their plans do not reflect the true financial impact of these plans; if they attempt to do this at all, they almost always use simplistic, static assumptions. Moreover, the individual business units’ plans are, at best, imperfectly linked. Integrated business planning uses information technology to connect the disparate planning activities so managers have much better visibility into their company’s current situation and a more comprehensive view of the impact of the decisions they may be considering.

Organizations engage in a range of forward-looking activities. Sales organizations have pipelines to forecast sales. Manufacturing organizations set and reset near-term production schedules, often as a result of longer-term production plans that determine where and how they will make them. Logistics people plan inbound and outbound shipments. Marketing departments plan advertising and promotion campaigns. HR departments coordinate staffing requirements and salary and benefit costs. In any large company there are dozens of plans. Some are loosely coupled to others, while many are created by a business unit for that business unit.

By “loosely coupled” we mean the information, assumptions and conclusion that are behind one plan also affect other plans, but not directly. More tightly coupled, the data for one plan would be used to drive others. For example, a sales forecast would drive a production plan, which would feed a financial plan. In most companies, however, the connection is indirect. For example, our research finds that a majority of companies assume that production plans are incorporated in their budget. Yet since the budget is an annual exercise, this comprehensive integration is done only once a year. It is updated in the quarterly or monthly reforecast but only at a limited level of detail. 

This may not be a big issue when business conditions are stable, but how often does that happen? Budgets developed in the fall of 2007, for instance, were almost irrelevant three months later after a 20 percent drop in the value of the U.S. dollar, a sharp increase in the price of almost all commodities and turmoil in the credit markets.

Moreover, while people, especially those in the finance function, tend to use the terms “budgeting” and “planning” interchangeably, they are different things. Budgeting is financial planning – it’s about creating a statement of financial administration for a period of time based on what an organization expects to spend and how it expects to finance those expenditures, whether from internal cash sources or external ones. Planning, on the other hand, is about creating a detailed program of action consistent with strategy and objectives. Budgeting is about money, while planning is about things – units sold, headcount required, truckload shipments and so on. Budgeting sets limits; planning figures out what’s possible. Budgeting is about not failing, while planning is about succeeding. We find that companies usually put too much emphasis on the budgeting and not enough on the planning.

Integrated planning ought to be a structured dialogue across the organization – “structured” by the inclusion of numbers (units of things, amounts of money) that bring precision to the discussions. However, creating this structure is an ongoing challenge because different parts of a company view and describe the same event in different ways. Salespeople forecast by account; production people plan output in stock-keeping units (SKUs). Business units measure events using different time frames: when the order takes place, when it is fulfilled, on receipt of cash or using GAAP accrual rules. The challenge is to figure out how to collect all the forward-looking data and analysis from the various parts of the organization and assemble them into a coherent view in a consistent, timely and accurate fashion.

Assessment
Companies need tools to help them achieve integrated business planning. Until recently information technology to support a structured dialogue across an organization could not do that in a way that people would find easy to use. Most companies continue to use stand-alone spreadsheets to manage individual planning processes, even if they have adopted a dedicated budgeting application, because they don’t realize that the limits of spreadsheet technology constrain the effectiveness of the process itself and the ability to share information. Another reason for scattered planning is the human factor: Anecdotal evidence suggests that for all the grousing, most executives have not seriously considered changing the way their companies plan. Corporations are used to cobbling together plans and “winging” it when they have to adapt to change. But Ventana Research asserts that companies can improve their financial results and enhance their market positions by adopting integrated business planning. That doesn’t mean just buying software; tools to deliver IBP will help, but achieving lasting value requires a commitment to address the people and process aspects of integrating planning as well.