The performance ideas blog

Category: Plan & Forecast

  • Lessons from the discovery-driven planning approach

    Discovery-driven planning

    A few weeks ago I researched ideas for improving current planning and forecasting approaches. I stumbled upon a methodology that I had long forgotten. It is called ‘Discovery-driven planning’ and it was developed by Rita Gunther McGrath and Ian C. MacMillan. The idea was first published in the July 1995 issue of the Harvard Business Review. While I do not want to go into any details of this approach, I do highly recommend reading the original article. It is very inspiring and thought-provoking. Today, I want to look at some lessons that we can apply to our forecasting and planning processes. However,

    The basic idea

    Discovery-driven planning is a multi-step planning approach designed for new ventures. It encourages planners to move away from the traditional process of just creating financial projections. One of the core idea of the discovery-driven planning methodology is to develop a set of detailed assumptions around the projections. They should also be quantified and tested against the plan. What it does is the following: Rather than just saying “These are the results we are expecting” you now have a platform for answering a critical question “What has to prove true for our plan/ forecast to work?”. You should rank the assumptions by importance and/ or the level of uncertainty. The process of developing this should be quite valuable itself and one should be in a position to identify critical problems or opportunities. Once the assumptions have been created and tested, they should be assessed on an on-going basis.

    Enhance your processes

    It’s difficult to disagree with this idea. It’s not rocket-science but it makes perfect sense. Yet, we hardly ever use this approach. Our plans and forecasts are developed as if we could predict the future. Yet, we all know that this is not the case. Various studies, for example, have shown that over 60% of all annual budgets are outdated within the first fiscal quarter. I therefore believe we can significantly improve our processes by incorporating critical assumptions. Not just at the top level but also at the individual contributor level. The resulting process could look like this, for example:

    Discovery-driven planning
    The development, testing and discussion of assumptions is now a critical part of the process.

    An example

    Let’s assume we are a sales manager. We have to develop a sales forecast for the next quarter. Following a best practices approach, we only look at our best customers in detail. We spend time developing the forecast – revenue numbers by customer, by product family, by month. Perfect. The numbers look great when we compare them against budget. And our boss is happy with the look of the forecast.

    Discovery-driven planning
    The traditional approach. This looks great, doesn’t it? But are the numbers realistic?

    Most processes stop right there. A good manager would probably ask a few tough questions here and there. But developing assumptions allows us to go further than that. Incorporating this into the process as a step could help us identify risks and opportunities. Below is a simplified example:

    AssumptionsNow we can easily see that there is significant risk. And we now have to ability to act on this. The sales manager, for example, could sit down with product management to validate product release dates.

    Next steps

    Discovery-driven planning represents a very interesting and pragmatic approach. I highly recommend that you read more about this topic. The idea of incorporating assumptions and their test into our daily planning and forecasting exercises could be quite powerful. It’s not rocket-science. Some companies already do this. However, it is usually done at a high level (GDP growth above 2.5%). Managers at all levels can benefit from this idea.

  • TM1 – The swiss army knife for the finance department?

    IBM Cognos TM1

    No doubt, IBM Cognos TM1 is a unique solution. I have never met so many loyal and enthusiastic long-term customers than for any other finance-related software solution. TM1 is special indeed. There is a lot to like: it is lightening fast (64-bit in memory), configuration does not require rocket-science, it supports Excel, there is a great-looking web interface etc.. But one of the biggest benefits is that TM1 is very flexible. You can do many things with this solution. Usage is not limited to just planning and forecasting. It is not limited to the finance department but it can be leveraged across the enterprise for a plethora of business problems. And that is why many people say that TM1 is as versatile as a Swiss Army Knife.

    What can you do?

    What can you do with IBM Cognos TM1? A good colleague of mine recently put an interesting slide together. It shows various applications that European customers have built. This is not an exhaustive list but just a snapshot of what is possible.

    TM1 Usage

    Much more…

    Does this inspire you? Find out more about TM1 by reading my interviews with the author of the IBM Cognos TM1 The Official Guide. And if you haven’t bough the book itself, make sure to pick up a copy sooner than later.

  • IBM Vision 2012

    IBM Vision 2012

    Greetings from Orlando. I left Munich Saturday morning to attend the IBM Vision 2012 conference. This three day event for finance & risk management professionals will be exciting. There are fantastic keynotes lined up as well as a ton of awesome break-out sessions. I am really looking forward to it.

    IBM Vision 2012

    Keynotes

    The keynotes at IBM Vision 2012 promise to be especially interesting this year. The list of external speakers includes John Hagerty from Gartner, book author Michael Mauboussin and Everest explorer Alison Levine. Of course, there are also exciting IBM speakers including Les Rechan (GM for Business Analytics) and Mark Loughridge (CFO of IBM). I will be showing some great new solutions as part of the general keynote Tuesday morning from 11am – 12am EST.

    Join the conversation

    For those of you who will attend IBM Vision 2012, please do reach out to me (@cpapenfuss). I would love to connect. If you cannot attend the conference, you can still participate in the conversations. There are two main options:

    • Join via Twitter. The official hashtag is #vision12 . Also, make sure to follow @ibmcognos for updates. I will try to tweet whenever possible.
    • View the keynote sessions from your desk via Livestream. All keynote sessions will be broadcast and should be available for viewing after the event as well.

    Stay tuned for updates!

  • Why continuous forecasting is more enjoyable

    The case for continuous forecasting

    Time for a confession. I really hated forecasting back in my old job. Kind of crazy since I was working with clients on improving their planning, budgeting & forecasting processes. Yet, I absolutely hated doing my own forecast. What was wrong? First of all, the template was terrible. Way too much detail. It took me hours to get it done. Luckily, I only had to do this 2-4 times per year. But that was also part of the issue. Every time I received the updated template I had to start from scratch and enter a ton of data. Also, I had to re-orient myself and figure out how the template worked this time. And then there was the reconciliation between my project plans and the prior forecast. To sum it up: The ramp-up time was simply too long. It was awful. But there is a better approach: Continuous forecasting

    Fire-drill

    Indeed, the typical process for updating, distributing, collecting and aggregating forecasting templates can take up to a few weeks in many companies. Part of the issue is that the forecast templates are often unavailable to the user community. Analyst need to maintain and update hundreds of spreadsheet templates between forecasts (formula fixes, structural changes, data loads). The process looks something like this:

    Traditional Forecasting Process
    The traditional spreadsheet-driven process

    At the start of a forecast cycle, templates are distributed. Many business people feel overwhelmed at that point. Starting from scratch is always tough. You have to orient yourself, your have to build numbers up etc.. As a result, business people feel that forecasting resembles a fire-drill.

    Forecasting software

    But there is a much better approach that many of my clients have implemented. Modern planning & forecasting software allows us to keep our forecasting templates online nearly 24*7. Forecasting software like IBM Cognos TM1 automates and significantly enhances all those manual tasks such as formula fixes, data loads, aggregations, etc.. Overall maintenance is a lot easier and the templates can be online allowing the users to work with their forecast data around the clock. Forecasters can therefore perform quick incremental changes to their forecast instead of performing time-consuming, infrequent larger data input exercises. But what is the advantage of doing that? Very simple: Incremental effort is always easier and faster than ramp-up tasks. Think about your personal life: If you spend ten minutes per day cleaning up for desk or office, everything will be in good shape. But if you let things slip for a week or two, cleaning up suddenly becomes a daunting task. This is what the process can look like:

    Continuous Forecasting
    The continuous forecasting process

    Continuous Forecasting

    Does this work? Absolutely. I have experienced this myself. After every client visit, I spent a few minutes updating my forecast. A lot of my clients have implemented this approach. Clients typically experience three main advantages:

    • The more often you work with a system the more comfortable you become. Users tremendously benefit from that. Their efficiency increases.
    • The actual forecast process is a lot faster for the business users. Finance is able to reduce cycle-time.
    • Forecasts tend to be more complete. In the case of an urgent ad-hoc forecast (imagine something critical happened), the business is able to compile a near complete forecast in within a short period of time.

    But the Finance department now has to carefully manage this process and clearly communicate timelines and expectations to the business. Submission deadlines need to be crystal clear.

    Let me clarify one last thing: A continuous process does NOT mean I can simply aggregate my data every night and obtain an updated forecast. No, I need to communicate to the business WHEN I need the data. But due to the 99% availability I can collect my data very quickly.

    Continuous forecasting can be a powerful approach! Would love to hear your thoughts and experiences. Good or bad. If you are interested in this topic, why don’t you join of our Rolling Forecast workshops or IBM Finance Forum?

  • The other side of Cognos Insight – A powerful planning client for TM1 (Guestpost)

    Cognos Insight and TM1

    There is a lot of buzz about Cognos Insight. It is a great tool for analyzing and discovering data. There is also the ability to perform powerful what-if analysis through the use of write-back capabilities. But Cognos Insight is actually more than just a personal desktop analytics tool. You can use it to create visually appealing planning applications for IBM Cognos TM1.

    An awesome planning client

    Many business users literally hate the mandatory planning, budgeting and forecasting processes. Part of the issue are the cumbersome spreadsheet templates. Cognos Insight provides a radically new approach. You can develop visually appealing applications that connect directly to your TM1 model. Here are some of the great things you can do with Cognos Insight:

    • Create detailed instructions for the planning or forecasting process
    • Instructions can include images and hyperlinks
    • Automate process steps by including action buttons
    • Provide additional planning context by including dashboards that connect to your Cognos 10 models

    To do that, you simply have to connect Cognos Insight to the workflow of a specific TM1 planning application.

    Cognos Insight and TM1

    Let’s take a look at a simple example – a sales forecasting model. It is a well-known best practice to include specific instructions in a planning template. That helps the business understand the model and to identify specific tasks that they need to focus on. Cognos Insight allows you to insert text boxes, images and hyperlinks. Action buttons make it easy for casual users to jump between different planning pages and cubes. The result is a clean-looking set of pages.

    Cognos Insight TM1

    Planning and forecasting should go hand-in-hand with analysis. Cognos Insight allows you to include dashboards and reports from your Cognos 10 or TM1 environment. This makes it very easy and pleasant for the business people:

    Cognos Insight Dashboard

    You can finally also include traffic lights and real-time charts right in your actual planning application. This provides users with instantaneous & visual feedback. We all know that a picture says more than a thousand words, right?

    Cognos Insight TM1

    Last but not least, you can also leverage great short-cuts for entering data.

    Cognos Insight & TM1

    Cognos Insight is much more than just a personal analytics tool. Using it as a client for TM1-based planning or forecasting models offers up some fantastic opportunities. Business users love the visual and interactive applications you can build. Is it hard to create these applications? No, not really. All it takes is drag and drop.

    Paul BremhorstAbout our guest blogger – Paul Bremhorst

    Paul is currently working as a Solution Architect for the IBM Business Analytics Product Marketing team. He joined Cognos as a BI Consultant in 2007 from a background of developing sales reports in the banking and finance sector. He lives in beautiful Stuttgart, Germany and loves to ride his motorcycle.

     

  • The reputation of business forecasting is not positive – Time for change!

    Business Forecasting

    The budgeting and business forecasting processes often have a poor reputation in many companies. Part of the issue is that the people involved in the process do not see a lot of value in it. Last year in November, two of my colleagues and I conducted a survey amongst 162 senior finance professionals in the UK.  One section of the short questionnaire focused on the value and the perception of the business forecasting process.

    Good is the enemy of great

    The survey asked finance professionals two different questions:

    • How do you rate the value that you get out of the forecasting process?
    • How does the business rate the value they get out of the forecasting process?

    Here is what we found:

    Business Forecasting
    Business Forecasting: Low satisfaction & value

    The results are sad – not necessarily surprising, though. Only 37% of the finance people rate the value they receive from the forecast process as good or outstanding. The rest feel it is just adequate or poor. It gets worse when we look at the business users. Less than 27% feel they receive good value.

    Some people might be tempted to say that the results are not that bad. Be careful, though. Business forecasting is a critical process in turbulent times. And it is time-consuming in many organizations. We should therefore not be satisfied with ‘adequate’ or ‘poor’. Imagine we would apply the same standard to our personal life? It would be a very sad life, indeed. Or think about professional athletes – they would not put up with ‘adequate’ materials or training plans. That would put them in the lower performance bracket.

    Time for change

    Take a look at your business forecasting processes. How satisfied is finance? What about the business? We should not accept ‘adequate’ or ‘poor’ for an answer. The stakes are too high. And we should not waste our valuable time managing low-value processes.

    It’s time for change! In one of the upcoming posts,  I will write about some of the reasons that lead to the poor perception of the business forecasting processes. In the meantime, you can find ideas for improving your processes on this blog. Alternatively, pick up the fantastic book Future Ready: How to Master Business Forecasting. The authors Steve Player and Steve Morlidge have done a fine job of providing insightful best practices.

    Remember the words of management researcher Jim Collins: “Good is the enemy of great.”

  • The Cognos Blueprints are back – for Cognos Insight

    IBM Cognos Blueprints

    Have you heard of the Cognos Blueprints? They are pre-configured planing and forecasting templates. You can download them from the IBM Cognos Innovation Center website. Each blueprint comes with a fully functional set of model definition files, model and business best practices documentation. There are over 50 different Cognos Blueprints available for functional and industry-specific processes. In the past, most models were available for either IBM Cognos TM1 or IBM Cognos Planning. Today, you can also download a few of the most popular Cognos Blueprints for the new Cognos Insight product. But let’s back up for a second.

    Cognos Blueprint
    A Cognos Blueprint

    Ideas and inspiration

    What’s the purpose of the Cognos Blueprints and how can you use them? Let me quickly tell you a story to highlight the value. A few years ago, my family and I moved to Europe. We rented a house that did not have a kitchen installed. Given that my wife and I love to cook, I thought it would be easy to walk over to the next kitchen store to pick something that we liked. Our enthusiasm quickly died. The available options were overwhelming. To make things worse, the first sales person immediately asked us for details that we were not prepared or qualified to answer (“Do you want the AW3-x series or the BT-4?”). It  quickly became obvious that we had no clue how to best go about ordering a kitchen – despite our love for cooking. (Stop here for a second – think about your business analytics implementations!). The initial “requirements gathering session” was a disaster and waste of time. But a sales guy in another store recognized our problem. He asked us to read a few brochures and wonder around the store to look at various different model kitchens before sitting down with us. And that’s what we did. Reading about configuration options and touching sample kitchens helped us understand. The meeting with the advisor went well. We were able to ask the right questions and provide important input. The brochures and model kitchens were our proverbial blueprints. They helped us gain knowledge and they helped us with visualizing the future state.

    Your projects

    Think about your business analytics implementations? When you first sit down with users, they have a hard time articulating their requirements. It is also very difficult for them to visualize how their planning process could look like in the new system. This is where the Cognos Blueprints help. They are a fantastic tool for learning about common business issues, best practices and modeling techniques. Use them to either educate yourself or to help your customers in the business. But be careful, blueprints are not necessarily intended to be implemented. Most organizations use them to get ideas and to learn more about a particular process. And they do a great job with that. I have used them in many projects.

    Analyticszone.com

    A small library of Cognos Blueprints is now available for Cognos Insight. You can download them on analyticszone.com. You will get the cdd file and simply need to open it in Cognos Insight. I have not had time to play with them, yet. But they look very similar to the original ones. There is even a task bar that guides you through the process. So, take a look at the Cognos Blueprints today!

    Cognos Blueprint
    A sample dashboard from the Expense Planning blueprint

  • How to improve your forecasting templates through initiatives

    Forecasting  concerns

    Despite its tremendous importance, forecasting remains one of most disliked processes in many companies. Part of the problem are the forecasting templates themselves. They are extremely complex and cumbersome. Today, I want to look at a simple technique that can improve the usability of the forecasting templates while also increasing the ability to gain insights from them. A few months ago, I provided another technique that involved the time-horizon. Let’s take a look!

    Forecasting templates

    Typical forecasting templates follow a certain pattern: Across the columns we can find the different months of the fiscal year. The rows feature hundreds of G/L accounts:

    Budgeting Template
    Graphic 1: The traditional forecasting & budgeting template

    Let’s be honest: this type of template is really difficult to use. First of all, there is an excruciating amount of detail. The structure also does nor provide a solid picture of our business. Think about it: Business managers do not think in terms of G/L accounts. You don’t believe me? Thought-leader David Axson once proposed to try this approach at home to see how difficult it really is. This is what our personal forecasting template would look like (oh…please….don’t try this at home….):

    Forecasting Template
    Graphic 2: The family forecast?

    We can argue about this, but I doubt that our families would appreciate it. My wife Jen would certainly send me off to see a shrink…

    Initiatives

    Let’s stick to the example of the personal forecast. If you think about it, most of us intuitively follow a different approach. We use projects and initiatives to structure our thoughts. Many people typically start budgeting or forecasting by creating a list of initiatives they are planning to do. Then they figure out the associated amounts:

    Family Budget
    Graphic 3: Initiative planning at home. A better approach.

    This forecasting template provides us with a mental framework that is easy to follow. The naked account list on the other hand does not provide us with any help. We simply think about amounts without being forced to ask ourselves more intricate questions like why, what, where, etc.. And this is what often makes the process so difficult, especially for non-financial people.

    Revisions

    The beautiful thing about using initiatives in forecasting templates is that it makes revisions a lot easier. Let’s say we want to cut our expenses by 5%. Using the traditional line item approach, this will become a difficult if not random exercise (how would you know in the first place?).

    Budgeting Template

    Where do you start? Most of us would probably be tempted to reduce a few numbers here and there. The data is just too complex. Contrast that to the approach in the next screen shot. This is a lot easier to deal with. The initiatives provide context. All expenses that are not related to a project have been captured in the ‘Sustain Operations’ bucket.

    BudgetingTemplate

    You can immediately sit down and review the different initiatives. Questions like: “Which initiatives are really critical?” come to mind. Ranking them provides additional context.

    Next you could drill down on each initiative and review the different expense types. Notice that the use of initiatives speeds up the process while also providing better insights.

    Your forecasting templates

    Take a look at your corporate budget. Where can you incorporate initiatives and projects in your forecasting templates? Granted this approach does not work in all situations but it is a relatively simple thing to do. But most cost centers can probably benefit from this approach.

    P.S.: The screenshots were created with Cognos Insight.

  • Spotlight on Forecast Accuracy

    Forecast accuracy in turbulent times

    Forecast accuracy is one of those measures many finance professionals think and talk about. Turbulent times require companies to produce reliable and solid forecasts. Accuracy is a useful measure that helps finance managers assess the quality of the process (to a certain degree!).

    In late 2011, my good colleagues Mark, David and I conducted a survey amongst 160 UK finance professionals. One of the things we wanted to find out was whether accuracy is being measured at all. And guess what – we were pleasantly surprised to see that the majority of all companies do measure and also communicate accuracy. Only a few organizations face difficulties doing so (they utilize spreadsheets as their main tool).

    Forecast Accuracy Survey

    “We stand very little chance of forecasting successfully unless we measure our performance continuously and correct our forecasts accordingly.”, Steve Morlidge & Steve Player, authors of “Future Ready”

    Accuracy Insights

    About a year ago, I posted a series of articles that focused on forecast accuracy. If you are interested in this topic, I would like to invite you to read and share those entries.

    The basics

    There is a set of posts that cover the basics of this topic. You can find a bunch of examples in there as well.

    Experiences

    Experiences are also important. You can find out what some experts are saying about this topic.

    If you have any experiences with forecast measurement, please leave a comment. As solid as the above mentioned survey results look, experience shows that many finance professionals are looking for more information about this topic.

  • Forecast Analysis – An Effective Dashboard

    FORECAST ANALYSIS

    Last week I argued that a detailed variance report is not very helpful before and during the forecasting and budgeting process. That post continues to be one of the most popular ones recently. But why not take the basic ideas a few steps forward and create a dedicated forecasting dashboard? A dashboard allows us to view the critical information that we need to get our job done (i.e. create the forecast or the budget) in a single place. Conducting forecast analysis with this dashboard becomes easy and is less time-consuming than analyzing hundreds of variances in a spreadsheet.

    A COGNOS 10 DASHBOARD

    My colleague Paul took the ideas from the last post and he created an awesome forecasting dashboard in Cognos 10. Take a look (click on the image to enlarge):

    forecast analysis
    Forecast Analysis with IBM Cognos 10 – Business Insight

    This forecasting dashboard is geared towards a revenue forecast. The widget in the upper left corner provides a quick overview of year-to-date product sales. You might notice the use of micro-charts: the sparklines display the sales trend for each region. The accompanying bullet charts show the current status against plan (YTD).

    The other widgets provide a balanced mix of historical data (revenue, deal-size, expense ratio) and leading indicators (Win/ Loss Ratio, Customer Satisfaction). But there is also other important forward-looking information. Take a look at the lower left corner: We can view upcoming marketing events along with the anticipated number of participants and the expected sales pipeline. That is helpful for assessing future sales.

    EFFECTIVE FORECAST ANALYSIS

    This forecasting dashboard can help prepare for the actual forecasting process. It provides a better picture of the business than any detailed variance report can. And think about the time savings as well. The latter requires a lot of effort to be consumed. The dashboard on the other hand is efficient and effective. Last but not least, the dashboard can be utilized on a daily basis.

    So, that is a forecasting dashboard built with Cognos 10. I love the look and feel. It is simple, clean and easy to interact with.

     P.S.: The type of information to be included in such a dashboard obviously varies by company and industry.