The performance ideas blog

Category: Finance

  • 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.

  • Please welcome IBM Cognos TM1 10.1

    IBM Cognos TM1 10.1

    There is a lot of exciting stuff happening in the Business Analytics area. Last week, I wrote about the release of the personal analytics tool Cognos Insight. But there is more. Along with Cognos Insight, IBM also released the latest version of TM1. And let me tell you, IBM Cognos TM1 10.1 is a significant release. There is a lot of new and really exciting stuff in there. Here is a really short preview. If you want to see more, make sure to register for the official virtual launch on Wednesday, March 7th.

    Performance Modeler

    One of the most significant enhancements to TM1 10.1 is the addition of Performance Modeler. This is the environment where you can build and maintain the different models for planning, forecasting, profitability analysis and such. Performance Modeler provides new and highly visual tools for getting the work done. There are guided processes for standard tasks such as importing data and deploying models to end users.

    Performance Modeler
    TM 10.1 – New modeling workbench

    (more…)

  • 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.

  • Better Forecasting And Budgeting Starts With Analysis – IBM Cognos 10 in Action

    FORECAST ANALYSIS

    Much has been written about developing better forecasting and budgeting templates or improving the overall process. But to my surprise there is hardly any focus on the role of analysis. I have seen many organizations where managers ‘survive’ the forecasting and budgeting cycle without ever spending time performing meaningful analysis of their data. They simply focus on getting the numbers in to satisfy finance and senior management.

    This is a wasted opportunity. People should use that occasion to gain insights about their business. Lack thereof is likely to result in forecasts and budgets that are not meaningful. Some of you might say: ‘Wait a second! Managers do obtain some reports.’ True. They get the classic variance report with a ton of detail. But working with this is time-consuming and it is extremely difficult to identify critical trends and to see the big picture.

    Forecasting Report
    A traditional variance report. What does it tell us?

    BETTER FORECASTING WITH ANALYSIS

    Using a Business Analytics platform like IBM Cognos 10, you can make is easier for managers to gain critical insights. Here are a few ideas that you might find useful. Let’s look at the example of a sales manager for a European division of a global company. This manager has to forecast revenue and associated expense.

    1. GO VISUAL

    First of all, toss those detailed variance reports. Line of Business managers will most likely not obtain any information from them. Human beings do much better processing visual information. You can find a lot of information about this topic on this blog. So, try to swap out those hundreds of data points with a few meaningful charts. Your teams will be thankful.

    2. CONSIDER EXTERNAL DATA

    The variance report does not really tell us anything about our business potential. We could therefore consider looking at external data such as market trends. More and more of my clients do that. It helps them with assessing their overall position and it also helps them set realistic but ambitious targets. The example below shows that market growth in Europe is a bit limited compared to North America and Asia.

    Market Size chart
    The situation in Europe is not looking good

    3. STUDY HISTORY

    History is not necessarily a predictor of the future. But we should not ignore it. We might be able to identify seasonality and to detect general trends. Pick the critical measures. Line charts are usually a great choice to display this type of data. The example below shows that revenue is cyclical and that the general trend is positive:

    Revenue Reporting
    On the rise: Revenue trend for Europe

     

    4. CHANGE YOUR PERSPECTIVE

    One of the nice things about modern Business Analytics tools like Cognos 10 is that we can view data from multiple different angles. Use that capability to your advantage! Try to explore different perspectives. Look at the example above. Now, compare this to the view below. Same data. Just a simple change in Cognos 10:

    IBM Cognos 10 dashboard
    A different perspective

    Our biggest months used to be in summer time. But that has shifted towards year-end. Same data – different perspective. Explore!

    5. BENCHMARK YOURSELF

    It makes sense to learn from others as well. We could do some internal benchmarking as well. In our example, we could look at deal sizes (looks like Europe’s deals are growing nicely and they are above company average):

    Deal size chart
    The average deal has grown bigger

    Ok. That sounds good. But does the deal size come at a cost? Once again, let’s do some internal benchmarking and look at the ratio of expenses and the associated revenue. It looks like Europe is slightly higher which might explain the higher deal size.

    Expense Ration chart
    Every penny that is earned in Europe requires higher expenses

    That information is valuable. It also leads us to think further and to ask some critical questions (Does it make sense to review our spending? Does the higher spending lead to bigger deals?). We should obviously not stop right here.

    6. LOOK AT LEADING INDICATORS

    What about other non-financial data as well? For revenue budgeting, I might also want to look at a leading indicator like customer satisfaction. And I might also want to look at our track record of winning deals (win-loss-ratio). Take a look:

    Customer satisfaction chart
    Customer satisfaction is rising again. A leading indicator for sales?

    BETTER INSIGHTS

    This is a simple example. The manager is now equipped with a few key insights:

    • Market growth is low
    • Our revenue trend is still positive
    • Buying patterns have shifted
    • Our strategy of investing in selling activities has increased the deal size
    • Customer satisfaction is increasing which could lead to higher sales

    These are valuable insights. And it did not take much time to obtain them. The old variance report would not have provided that insight and it would have consumed a lot of time.

    Try to incorporate a few of those ideas in your forecasting and budgeting processes. Doing this with spreadsheets is obviously difficult and probably explains why so many organizations are stuck with the traditional approach. Business Analytics software like IBM Cognos 10 makes it a lot easier to do that.

  • Budgeting – Your Northern Star (Guest Post)

    A budget plants an iron rod of confidence and accountability into the spine of your business.

    I recently blogged about Six Ideas for Setting Successful Budgets:

    1. Budgeting begins with assessing the current business environment
    2. Leave your optimism at the curb
    3. Budgeting must be driven by strategy
    4. Connect the dots
    5. A careless budget will cause more pain
    6. Don’t forget the smell test

    Today, I expand on ideas 4 and 5, which deal more with the actual preparation of the budget; the practical challenges.

    Connect the dots

    Because we assemble budgets at the line item level, we risk believing the process is simply the aggregation of line item budget amounts. This fragmented approach will yield a fragmented result, with little value to you or the business.

    Budgets are not forecasts or estimates of what could happen. The budget is your plan of what will happen. Accordingly, the budget process actually starts from the top. A quality budget will tell a complete and coherent story at the highest level – like a navigator’s map, reflecting your point of origin, your destination (goals), the terrain (environment), distance to travel (measure progress), direction, optional routes (when stuff happens) and landmarks (reference points).

    Northern Star
    The Budget – Your Northern Star?

    Getting the big picture requires that you understand the correlation/interaction of its components – the line items. For example, if you are increasing your direct marketing budget, have you also considered?

    • A possible corresponding reduction in display advertising
    • Costs for crafting direct marketing campaigns (usually more work than display ads)
    • Staffing costs for timely follow up on leads form direct marketing campaigns
    • Costs incidental to the staffing increase (tax, benefit, training, etc)
    • Effect of strategy on the fulfillment/sales/collection cycles

    There are few items in your budget that truly stand alone. Make your budgeting process worth the effort you are putting into it by connecting all the dots to plot next year’s journey.

    A careless budget will cause more pain

    Understandably, the budgeting process can feel like a tedious, time consuming and futile effort. “Why set a budget? I can’t control what is going to happen to my business. We respond how we have to respond and spend what we have to spend anyway.”

    This attitude will doom your efforts. The very purpose of budgeting is to gain control. As I noted, budgets are not just casual estimations of what might happen. A quality budget plants an iron rod of confidence and accountability into the spine of your business.

    Sure, “stuff happens” to your business, but you control how it responds. Succumbing to the belief that budgeting is a pointless exercise will result in a careless effort to “just get it done.” The real pain will come the following year when stuff does happen and the maps (budget) you are using to navigate your business lack a Northern Star to guide you.

    This was part 2 of the 2011 budgeting series on the Performance Ideas blog. More to follow soon.

    About the author of this post:

    Mike Duncan is Partner and co-founder of Bizzeness, LLC. Mike began his career with KPMG and Deloitte. He has been a business owner and advisor for over 30 years serving over 300 businesses in various capacities. Mike focuses on SMB’s with concept development, business modeling, start-up, market adaption, strategy and succession. Mike lives in the Kansas City area. You can contact Mike at mike@bizzeness.com.

    Mike has written a prior guest post on this blog.

  • Annual Budgeting – Our favorite season?

    BUDGETING

    Yes, it’s that time of the year. The time that is often filled with pain and fear. No, I am not talking about Halloween but about the corporate budgeting process. Much has been written about the annual budget. And most of the written stuff is not positive. Jack Welch alone has provided us with a few memorable quotes such as:

    “The budget is the bane of corporate America. It never should have existed.”

    “But the budgeting process at most companies has to be the most ineffective practice in management. It sucks the energy, time, fun and big dreams out of an organization. (…) And yet (….) companies sink countless hours into writing budgets. What a waste!”

    WHAT IS A BUDGET

    In theory, a budget should actually be a rewarding and important process. Why? Let’s look at the purpose of a budget: It should outline how we want the future to look. It details planned actions, outlines investment areas etc.. When you think about it, these are very important tasks. And it should not be that nerve racking. Budgeting and planning allow us to sit back, look at our past achievements and provide us with the opportunity to lay out a path towards future success. Doesn’t sound too bad, right?

    THE PROBLEM

    Indeed, the annual budgeting process is anything but popular. No wonder. It is usually very difficult and the resulting value is dubious. So, what’s wrong? Many things. Here are a few statistics that I pulled together from various articles, books and conferences. Depending on the specific sources, number tend to vary a bit here and there. But the general trend is the same.

    • Over 70% of all budgets loose their validity after the first quarter of the new fiscal year. The speed and volatility of our global connected world renders many assumptions useless.
    • And estimated 94% of all executives do not have confidence in the budget numbers. They believe the numbers are either outdated, they are padded or they are meaningless. Huh?
    • 75% of all companies need more than three months to complete the entire cycle. Even three months is a long time these days. Responding to changing market conditions becomes very difficult with these long cycle times. Also, think about the enormous amount of resources that are invested into the process. Do we really want to spend all that time only to find that the output doesn’t actually reflect reality?
    • Over 75% of all budgets are believed to be sandbagged. Gaming the numbers remains a popular competition: cost center managers exaggerate expenses to protect their turf. Sales managers express negative market views to maximize their earning potential. Not good.

    TIME FOR CHANGE

    It’s time for a change! In the next few weeks I will share a few ideas for making the budgeting process more valuable. On Thursday, business advisor Mike Duncan will discuss the overall purpose of the budget. He recently wrote a nice article called Six Ideas for Setting Successful Budgets.

    If you have stories and best practices to share, please get in touch with me.

  • Open Pages and the convergence of Performance Management

    Part 2 of guest posts by Erwin Boeren

    Last year IBM acquired OpenPages as a strategic move into the area of Governance, Risk and Compliance. The latest announcement to acquire Algorithmics (quantative risk management) shows the serious commitment of IBM in the GRC market. GRC software will integrate into the IBM Business Analytics brand – the area where other critical acquisitions like Cognos, SPSS and Clarity reside.

    GRC AND PERFORMANCE MANAGEMENT

    Risk Management is getting more and more attention these days. Volatility and uncertainty is simply too high for organizations to ignore this area. Along with the increased focus on this discipline I have also seen more organizations moving towards an enterprise approach to risk management. And this is where I see the need for a convergence of risk management and performance management.

    Over my career I have seen many risk management implementations where a major portion of the time and budget was spent on essential things like risk reporting and dashboarding. In the past, companies struggled to collect the basic data and to create these reports and dashboards manually. Today, we experience an increased desire for self service reporting: Users not only want to create their own risk reports but they want to create them when they really need them. The enormous volatility in the markets does not allow risk managers to wait for several days or weeks to review the data in a suited format. No, they need the information almost in real-time. Any kind of delay can result in missed opportunities and sometimes even disaster.

    Open Pages GRC
    Risk Dashboard – Open Pages and Cognos

    PLANNING

    Apart from these reporting and dashboarding capabilities proper enterprise risk management also requires capabilities to align risks & controls to the strategic initiatives of an organization. Questions need to be asked: “What will prevent me from reaching my business goals?”, “How will we know that something is happening?”, “How can we prevent this?”, “What are effective controls?”. To obtain answers to these questions, one could resort to complex spreadsheets. But these are not suited for complex topics at the enterprise level. Instead, leading companies rely on solid models developed in planning software like IBM Cognos TM1. These models can then integrate into other plans such as strategic plans, annual budgets and forecasts. And that opens up a whole new opportunity: Now you can start looking at complex risk scenarios.

    PREDICTIVE

    Over the past decade, companies have collected a lot of data. Hidden in this data is a lot of information. More and more companies rely on predictive algorithms to crawl through this data to automatically detect patterns and relationships. IBM SPSS provides such capabilities, for example. Using these powerful tools, we can start looking at predicting certain events. Most importantly, the insights will enable us to gain a much better understanding of the critical risks and our control design.

    CONVERGENCE

    Effective GRC requires a lot more than just thinking and registering risks. No, we need to be able to analyze data, plan actions, run scenarios and leverage predictive capabilities. And that’s why I see a convergence of Risk Management and Performance Management. And let’s simply call this Business Analytics.

    Erwin Boeren is Governance, Risk and Compliance Leader at IBM Southwest Europe. Erwin has over 15 years experience in the software industry, in various roles in business intelligence, performance management and Governance, Risk & Compliance. Together with his family, Erwin resides in the Netherlands.

    Twitter : @erwinboeren
    Contact : erwin.boeren@nl.ibm.com

  • Rolling Forecasts Keep on Rolling

    Am I surprised? Yes. Maybe I shouldn’t. Our rolling forecasts events were popular in the past, but they keep getting more and more popular.

    ROLLING FORECASTS TODAY

    Rolling Forecasts are indeed an important topic. And why wouldn’t they? Business and life in general is turbulent these days. No doubt about that. Just think about all the stuff that has happened this year. Major events like Tunisia, Egypt & Fukushima almost seem far away given the significant rate of change these days. And most of these events have a profound impact on the world economy. Think about Fukushima: it happened in Japan but the ripple effects created a serious tremor in Germany (the German government decided to completely pull out of nuclear energy within the next few years). Volatility and uncertainty have therefore increased the need to improve forecasting and decision making processes in almost every business.

    THE FALL SEMINAR SERIES

    Rolling Forecast Popularity
    The number of participants is significantly increasing

    We have been running a lot of rolling forecast seminars around the globe for the past few years. The workshops are very interactive and feature a ton of hands-on best practices. We used to run them as roundtable events with a huge focus on personal interaction and discussion. But the latest series is different. My colleague and friend Mark Rolfe just blogged about it earlier this week: we have been getting so much interest that the events are no longer roundtables. We just can’t find any tables that can fit 50-150 people. The events are that popular. This week, we had over 40 people in London. Next week, we are expecting well over 40 people in Bratislava. While I personally prefer the smaller sizes (more interaction), I am certainly happy to see that companies are interested in improving these critical processes.

    HAVE YOU JOINED?

    The trend is very interesting. It seems to me that we are about to see a profound change in the way we run our businesses. The traditional annual budget process is just not working anymore. The huge popularity of these events reflects this trend.

    Are you interested? Please get in touch with me. You can find a description of the seminars on this blog. Also, take a look at the upcoming events in Europe. My colleague Tim O’Bryan can provide you with information about North America.

    P.S.: We are conducting a small survey amongst the participants. Look out for some interesting results in late November.