The performance ideas blog

Category: Interviews

  • Catching up with David Axson

    Performance Management professionals around the globe know David Axson. David is an exceptional consultant, public speaker and author. His bestselling book Best Practices in Planning and Performance Management can be found on most bookshelves. In the past year David has gotten a bit quiet. We were able to catch up the other day.

    Christoph: In the past, you used to jet around the planet, write books, blog and speak at a ton of conferences. But you have gotten a bit quiet lately. Where have you been hiding the past year?

    David Axson: Good question – I joined Accenture in June 2011 and obviously spent a few months getting settled in, however things are getting interesting again with the Accenture engine behind me I am now leading thought leadership efforts for our finance consulting team globally.  From a market standpoint I am spending a lot of time communicating with CFO’s of large global companies about the real power of analytics, big data and perhaps most importantly how finance can be a true value generator within the business. 

    Christoph: In your last book The Management Mythbuster you take a humorous look at popular management practices such as lean management, six sigma and budgeting. Most of them have not lived up to the hype that once surrounded them. Are there new management fads that we need to be aware of today?

    David Axson: Well at the moment it seems like the solution to every problem is cloud, big data, analytics and mobility. We need to move beyond the broad topics to get very specifc about how these mega-trends can be applied practically to drive growth and profitability.  We need to explain to a CEO, CFO, CMO or general manager what these trends mean to them and their organizations otherwise the hype will remain unfulfilled. 

    Christoph: Speaking of management fads, how do you feel about Big Data? If we trust the opinion of some industry analysts, big data is likely to create millions of jobs while also fixing a ton of problems. Do I need to worry about big data? Can big data feed my family?

    David Axson
    David in action. Professionals love his workshops and keynote speeches

    Christoph: Without a doubt, analytics is an important discipline for most companies. Today, have the ability to collect more data than ever before and we also have the tools to put that data to good work. Where do you see the real opportunity for companies today? How can they leverage analytics for their advantage?

    David Axson: Focus, focus, focus.  I have moved beyond analytics to the notion of applied enterprise performance analytics whereby an analytics strategy looks at the impact analytics can have on specific business decisions such as market selection, product and service portfolio management, customer profitability, operational excellence and the like.

    Christoph: Analytics is a relatively young discipline. It did not appear in the curriculums of universities and colleges in the past. What type of new skills do managers need today and what can they do to acquire them?

    David Axson: Well analytics embraces a number of disciplines such as statistics, operations research, portfolio management and financial analysis.  They key now is how these skillsets get applied through the analytic tools that are now becoming available.  Managers need to understand how to translate the potential of analytics into reality.  One technique I use is to explain how analytics can be applied to drive positive impact on specific line items in the P&L and balance sheet.  

    Christoph: When we speak about analytics, we also need to speak about technology. What is the most popular analytics tool today?

    David Axson: Not sure it is that simple, it is about applying the right tools for the right job. IT needs to help the business match tools to tasks.  It’s a bit like doing a DIY job, you don’t just a hammer for everything.  

    Christoph: You not only write books, but you also love to read them. What’s on your Kindle today?

    David Axson: Just finished The Signal and the Noise by Nate Silver – excellent read about statistics, analytics and forecasting in a real world context. 

    Christoph: Can we expect another book from you in the future?

    David Axson: Funny you should mention that.  Talking with my publisher about a new book focused on Enterprise Performance Analytics that takes a very pragmatic approach to applying analytics to decision making. Watch this space! 

    Christoph: Thanks for the interview, David!

    I had the pleasure to work with David for over five years and ended up delivering keynote speeches with him in over 20 countries. You can find out more about David on his Amazon.com page.

  • Success with Performance Management – An interview with Mark Lack from Mueller Inc.

    The 80 year-old company Mueller Inc is a a leading manufacturer of pre-engineered metal buildings and metal roofing products. Mark Lack is responsible for performance management at Mueller Inc. He delivered a great presentation about their IBM Cognos implementation at  the recent IBM Vision 2012 event in Orlando. Following his session we sat down for a short interview.

    Christoph Papenfuss: Mark, tell us about your role at Mueller Inc.

    Mark Lack:  I was hired to manage the planning and forecasting function and as my role evolved Strategy Management and Business Analytics became a natural extension.

    Christoph Papenfuss: Did Mueller already have established performance management processes when you joined the company. Can you provide examples?

    Mark Lack: Yes, it was Excel based.  I can’t say it wasn’t sophisticated because it was.  Lots of automation and VBA scripts to manage the roll-ups.  The problem with the system was the inordinate amount of time it took to perform manual manipulations. Ultimately it rolled up to a series of financial performance items.  The process was long and complicated, and in the end we had difficulty matching the output with the actual drivers of the performance.

    Christoph Papenfuss: Reporting and Analysis was difficult then. What about the planning and forecasting process? Did you encounter any difficulties?

    Mark Lack: The budgets weren’t kept in our main ERP system, only in Excel. We had to manually type in 300 lines of actuals each quarter in order to run variance reports.  Invariably we would encounter that someone inserted a new line and it flowed through the rollup.  Forecasting was done by evaluating what could be done, backing it off 10% and seeing if that could get passed.  Often times when a number or a project was accepted, every other plan would magically look similar.

    Christoph Papenfuss: You decided to implement new performance management processes. How did you go about that? Did you use a big bang or a phased approach?

    Mark Lack
    Mark Lack

    Mark Lack:  We had just come off of an ERP implementation that was big bang, so we realized that this next project should be phased.  Actually, when working with PM, you have to be careful of what you incentivize (to avoid bad behaviors) so it lends itself to a more phased approach.  We began by implementing a corporate balanced scorecard.  This became the framework for which the organization’s activities would be managed around, so this became the parameters.  The scorecard reporting at first was done in Excel with Red yellow green traffic lights as the metrics success and failures.  The first question when we reviewed these was always “What caused the target to be off?”  We realized that we had to put a better system in place to manage and automate the PM if we were to be able to communicate what was important about executing our strategy and drive behavior.

    Christoph Papenfuss: What does you current solution look like? What have you implemented and which processes are automated?

    Mark Lack: We have an integrated system that uses the strategy as the foundation of our company.  All of our PM processes are integrated from the balanced scorecard, to reports that indicate why we met or missed a target, to a planning system to help us get back on track.  We try to allow the data to flow systematically with little to no intervention.  We’re pretty close to an entirely closed loop system and the told we have provide the ability to automate the dissemination of important information needed to run the organizations.  The goal is to get relevant information to decision makers when and how they need it.  We’re pretty close to that goal and automation of information delivery against our “big data” has helped us in this regard.

    Christoph Papenfuss: One of the key problems companies are struggling with is target settings. Managers tend to fight for lower targets. Their argument is that their goals are arbitrary. Do you have similar issues?

    Mark Lack:  We did for a while, and for the most part they have a point.  If the goal is 15 % and they are at 5% now, a 3 times jump can be difficult to obtain if looked at from a high level.  What we were able to do with our analytics tools was to analyze organizations around a common theme, such as revenue.  By breaking them into groups and analyzing the processes within the groups, the result in target setting is less arbitrary.  In our case if 7 organizations have a similar revenue level and 5 are performing at a high level in regards to customer satisfaction scores, all things being equal, the remaining 2 orgs should be as well.    So we set the target within the per group range as an expectation.  The top 5 in the peer group set the target and then the conversations switched from “That target is arbitrary” to “This was set by your peer’s performance”.  The idea here is that now we can remove the distraction of who set the target (now it is the peer group) to what are the best practices that drive this performance?  If 70% of your peers can perform, what keeps you from performing?  Ultimately it changes the conversation for the better.

    Christoph Papenfuss: Implementing a solid performance management platform requires resources. What is the benefit for your organization? Have you ever attempted to calculate the ROI?

    Mark Lack: We always knew the answer was positive, because you can see results, right?  The problem we always had was how do you quantify it?  We had a research study done by Nucleus Research and the direct benefits were 113% per year.  If we add the indirect benefits of a better informed workforce, I’m guessing it would have to be 10x that figure.

    Christoph Papenfuss: What are your future plans?

    Mark Lack:  I’d like quote Jeff Spicoli and say “me and Mick are going to wing on over to London and jam with the Stones” but I can’t.  There are too many opportunities to use the tools available to continue to maximize the value out of our system.

    Christoph Papenfuss: Thanks much for your time, Mark

    You can find out more about the Mueller Inc implementation on IBM’s website.

  • “Focus is key for success” says the German Cognos User Group

    The German Cognos User Group

    Last year, I posted an interview with Steve Veilleux, president of the Quebec Cognos User Group. This article has gotten a lot of attention. I therefore decided to reach out to another very successful user group: The German Cognos User Group. The three leaders of this organization volunteered for an interview. Please meet Kai Noack, Martin Otto and Erik Purwins.

    Cognos User Group

    Christoph: What is the purpose and mission of your Cognos User Group?

    Kai Noack: Our group has a clear mission:

    • Provide a forum for IBM Cognos users to exchange knowledge and share experiences.
    • Provide deep expertise in all IBM Cognos related questions via newsletters and conferences.
    • Connect with IBM management to discuss trends and potential issues.

    We cover all IBM Cognos products (BI, Performance Management, etc.).

    Christoph: How many members do you have and how do you communicate with each other?

    Martin Otto: Our group was founded back in 1998. Membership has grown membership rapidly. We currently have over 300 active members from over 100 different companies. The group targets German speaking associates: 95% come from Germany and the remaining 5% are spread between Austria and Switzerland. Our roster of associates features active Cognos users, administrators, project managers and consultants.

    We have three main communication channels:

    • The website is our hub. It provides news, updates and other relevant information. There is also a discussion forum.
    • Frequent newsletters
    • Seminars and conferences are the ‘glue’ that hold our group together. We organize a bunch of those every year. They are very successful and provide us with the ability to develop long-lasting relationships.

    Christoph: Do you have to pay to become a member? If yes, how much and how do you utilize the funds?

    Erik Purwins: Our group is completely independent. IBM does not sponsor us. Anybody who is interested in IBM Cognos and Business Analytics can join our group. But we do charge for the membership. There are currently two types of memberships: Personal (100 EUR p.a.) and corporate (EUR 250 p.a.). The corporate model is very attractive as it allows up to 20 people from an organization to participate in our activities. The majority of our members have a corporate account.

    The fees that we collect are used for several purposes: maintenance of our website, conferences and marketing. German law also requires us to utilize a professional accountant and external tax advisor.

    Christoph: What are the benefits of being a member in the German Cognos user group?

    Kai Noack: There are a number of benefits for our members:

    • Education – we have a big focus on knowledge sharing. Our members have diverse backgrounds and have a lot of accumulated knowledge.
    • Problem solving – our community allows us to jointly solve problems
    • Direct connection to IBM – we enjoy an excellent relationship with IBM. This allows us to voice concerns, share ideas and obtain critical information
    • Ability to detect trends – we frequently invite guest speakers and conduct polls
    • Fun – our members really enjoy being part of the group. We are all passionate about business analytics. Being surrounded by like-minded professionals is fun and rewarding.

    We strongly believe that our group is contributing to the success of the different IBM Cognos implementations in the German speaking countries. As a matter of fact, members claim that being part of the group feels like having a professional consultant available 24/7. Our combined knowledge is that rich and deep.

    Christoph: Tell me more about your conferences.

    Martin Otto: We typically organize 4-6 conferences and workshops per year. Some of the meetings are more general, others focus on a specialized topic. Two years ago, we hosted an event about running Cognos on mainframes, for example. The events are actually open to non-members as well. We do believe we profit from having a larger circle participate. Non-members typically pay a surcharge for participating.

    We usually invite at least one representative from IBM. This provides all members with the ability to have a direct connection to IBM. At the same time, IBM benefits from being able to connect with their loyal customers. It’s a win-win situation.

    Christoph: There are some regions that do not have a user group. What advice would you have for IBM Cognos sponsors and users who are thinking about forming or joining a similar user group?

    Erik Purwins: There are certainly a lot of lessons.

    • We highly recommend defining a clear vision for the group. Our group is focused on technical topics, for example. Having that vision provides clarity and drives success. Members know what to expect when they join us. The majority of them either have a technical background or they enjoy discussing the technical topics.
    • Organize professional meetings. As mentioned earlier, they are the glue for our group. We do charge a small fee for all our meetings (in addition to the annual fee). That allows us to provide the best possible service (great locations, professional setup, etc..). Charging for attendance also acts as a filter for those people who are not passionate about the topic.
    • The conferences need to be focused and need to feature relevant content. Speakers are highly encouraged to focus on specific lessons-learned that benefit the attendees. Our members therefore have the ability to gain a tremendous amount of knowledge.
    • Edit your content. We actively discourage ‘sales and marketing’ type content. We learned our lesson early on when some people ‘hijacked’ a meeting to sell their services or software. Our group is not a market place for selling. Our members expect to learn something when they join our organization.

    Christoph: Thanks much for your time!

    You can find out more information about the German Cognos User Group on their homepage.

  • Joining a Cognos user group is key! – An interview with Steve Veilleux

    Cognos User Groups are quickly gaining a lot of interest from IBM customers around the globe. These groups provide users with the ability to learn, to connect and to share experiences. A few weeks ago, I had the honor to meet with one of North America’s largest Cognos User Groups – the ‘Groupe d’utilisateurs Cognos du Quebec‘. The president of this group, Steve Veilleux and I sat down for a quick interview.

    Christoph: What is the purpose and mission of your Cognos user group?

    Steve: The « Groupe d’utilisateurs Cognos du Quebec »has a clear mission. We primarily want to provide the Quebec BI community with networking opportunities around IBM Cognos technologies and BI concepts. We typically do that by organizing two full-day events per year (in Montreal and Quebec City). Our members help each other to gain new knowledge they can apply at work. We also share the latest news about IBM Cognos. Members frequently share case studies as well.

    Christoph: Is this a new initiative or does this user group have a longer history?

    Steve: I am proud to say that our Cognos user group has a long history in the IBM Cognos world. We were founded over 15 years ago!  I personally joined the group in 2002 and have played the role of the president since 2007.

    Christoph: How many members do you have and how do you communicate with each other?

    Steve: We currently have around 450 people. Our meetings typically attract around 100 attendees. To communicate with each other, we established a group on LinkedIn. Members and non-members can also use our web site: www.gucquebec.org . We also publish a newsletter and share the results from our different meetings.

    Christoph: Who participates in the user group?

    Steve: We have a well-balanced mix of members. The majority are IBM Cognos customers or prospects from the business or the IT side. There are also consultants and some IBM employees.

    Christoph: What are the benefits of being a member in a Cognos user group?

    Steve: A user group is definitely very beneficial for its members. I personally see three main benefits:

    • The ability to stay informed about IBM Cognos products
    • The ability to networking with other business analytics professionals
    • Privileged contact with IBM employees

    Christoph: What is your relationship with IBM through the group?

    Steve: We have a very close relationship with IBM. They actually sponsor us to a certain degree and provide us with resources for our meetings. We typically invite speakers to help us understand the latest news about the technology and services.

    Christoph: There are some regions that do not have a user group. What advice would you have for IBM Cognos sponsors and users who are thinking about forming or joining a similar user group?

    Steve: My clear advice: Start or join a Cognos user group! First of all, you need to find a few like-minded people. Once you have made up your mind, make sure to share responsibilities. A successful user group requires some time and effort. People need to provide some help with organising meetings, managing contact lists, finding and selecting presentation topics and speakers, reserving the facilities, etc.. Our “Groupe d’utilisateurs Cognos du Quebec” is managed by an executive committee for that purpose. Once the user group is up and running I recommend to take care of a few things:

    • Listen to your user community. If possible, try to find conference topics they ask for (we frequently conduct a survey).
    • Avoid consultant-only presentations. We strongly prefer customer presentations and we think this is one a the reason why our Cognos user group is so successful.
    • Encourage your members to actively participate. It can be a challenge to find and convince customer “champions” to prepare materials and to present them. To encourage them we offer free registrations to our meetings and also offer them a gift for their effort.
    • Work with IBM. We have had great IBM people present at our meetings.  Exactly like you, Christoph!
    • Charge a registration fee for your meetings. Not only does this help cover fixed expenses (room, audio/video, meals) but it also helps us get some prestigious speakers. We were able to attract influential experts like Wayne Eckerson, Shawn Rogers, Brett Knowles, Philippe Nieuwbourg, Naomi Robbins and some others. Interest in our events has significantly increased since we started bringing in these prestigious speakers (+40%).
    • Try to have fun and share the good news! This is really important! Once you start having fun and people get value out of the community, word of mouth will bring in new members.

    Christoph: Tell me about your career in Performance Management and Cognos

    Cognos user Group
    Steve Veilleux

    Steve: I started my career 17 years ago at Groupe Canam Inc.. Until 2000,  I was involved in payroll, manufacturing and financials systems development. With all the knowledge I had gained on those systems at Canam Group Inc,  I started a Data Warehouse project in 2000. And for the past 11 years I was thus responsible for the development of the BI environment. Can you believe it – I started with Cognos 6.6 back in 2000. I guess that makes me an “early adopter”. I have hands-on experience with almost all versions between Cognos 6.6 and IBM Cognos 10.1. During those years I also participated in Customer Reference and IBM Cognos Beta Programs. You can even find my profile on the IBM website. I recently decided to make a major change in my career by join Keyrus Canada as a Business Intelligence Consultant.

    Christoph: Thanks much for your time, Steve!

    You can connect with Steve directly via LinkedIn.

  • Success with Forecasting – A discussion with Pieter Coens

    Please meet Pieter Coens. Pieter is the Director of Finance & Control at Landal GreenParks in the Netherlands. He started his career in public accounting and joined Landal over 16 years ago. Pieter has held various positions in finance at Landal.

    Landal GreenParks is a leader in bungalow-park management and rental. Landal has over 65 parks with a total of approximately 11,000 chalets. With 47 parks in the Netherlands, Landal leads the Dutch bungalow -park market. Outside the Netherlands, Landal has parks in Germany, Belgium, Austria, Switzerland and the Czech Republic.

    Pieter gave a great presentation about Landal’s planning and forecasting processes at the IBM Finance Forum in Amsterdam on May 24th, 2011. We were able to have a quick chat at the event.

    Christoph Papenfuss: You have implemented IBM Cognos to automate your budgeting and forecasting processes. What have you accomplished so far?

    Pieter Coens: IBM Cognos currently helps us create an annual budget along with a monthly forecast. For that purpose, we have implemented several elements including models for Rental Revenue and our P&L.

    Christoph Papenfuss: How did you manage your processes before that?

    Pieter Coens: We used to manage our processes with a myriad of Excel files. It was very difficult. We ran into various issues such as managing excessive file sizes that slowed down the network, dealing with sluggish recalculations, difficulties tracing interdependencies etc.. Aggregating the different files was extremely cumbersome and time-consuming. And of course, there are the associated audit issues with spreadsheets.

    Christoph Papenfuss: How are you benefiting from the implementation?

    Pieter Coens: IBM Cognos has allowed us to automate a lot of the steps in the process such as preparing, distributing and aggregating planning templates. We are also able to develop more intricate models that provide us with better insights. Overall, we feel that our finance team and the business users are now able to focus more on the actual planning activities rather than the administrative tasks that I described earlier. My team is much more productive.

    Christoph Papenfuss: You have an annual budget and also a monthly forecast. Who is involved in the process?

    Pieter Coens: Finance is in charge of executing the process. But the business owners have to work and develop their own budgets and forecasts. They are in charge of entering their data in the models. Finance plays the role of the coach: we help the business make sense of the numbers and we guide them through the forecasts and budget iterations. This approach provides us with several advantages: By actively involving the business we can obtain more accurate and timely data. We also feel that the business is able to gain better business insights by actively working with their budgets and forecasts and the associated monthly actuals. Last but not least, Finance has more time to focus on value-added tasks such as performing analysis.

    Christoph Papenfuss: You have a solid forecasting process. How often do you update the forecast and how far do you look into the future?

    Pieter Coens: We currently use a monthly forecast. This allows us to anticipate and react to market changes. We ask the business to perform a detailed forecast for the next two months only. The remaining months until year-end are automatically calculated as a trend of the 2-month forecast. We found that creating a detailed forecast further out than 2 months does not necessarily result in very accurate data and it also takes a lot effort. We want the business to focus their energy on the short time-horizon and only forecast the know effects throughout the Full Year.

    Christoph Papenfuss: You are proponent of driver-based models. Can you give us an example of how you have implemented this? Also, what are the benefits for the organization.

    Pieter Coens: Driver-based models allow us to increase the speed of the budgeting and forecasting exercise. Also, we are able to perform better analysis at month-end and during the planning activities: Instead of just looking at an absolute variance, drivers allow us to review this from different angles such as price or volume effects. Food & Beverage Revenue, for example, can be calculated as Number of Guestnights * Average Spend on Food & Beverage.  The associated Cost of Sales are a percentage of the Food & Beverage Revenue that has been calculated.

    Christoph Papenfuss: How did you go about implementing the IBM Cognos solution?

    Pieter Coens: We decided to follow a modular approach and started with a few smaller projects. This allowed us to build critical skills and develop success much earlier. This in turn led to a situation where the business heard about our accomplishments and they started asking for additional projects e.g. forecasting on Operational Management Information.. Change management is a lot easier if the business users ask for projects instead of us pushing them to accept

    Christoph Papenfuss: What else are you planning to do?

    Pieter Coens: We are definitely looking to reduce the level of detail in our models. More detail does not mean higher accuracy. On the contrary, more detail requires more work and it does not necessarily drive accuracy. We are also looking to implement additional models such as cash flow and predictive modeling/forecasting for our Yield department.

    Christoph Papenfuss: Thank you very much, Pieter! Good luck with your implementation.

  • What is IBM Cognos FSR?

    Back in October 2010, IBM acquired a company that Gartner used to call ‘The hottest FPM vendor’. Rightly so. Clarity Systems had developed several cool and extremely popular software products. The most well-known solution is called FSR (Financial Statements Reporting). FSR addresses a high risk area for many companies: It automates the publication of financial statements. FSR also allows companies to translate their financial statements into XBRL.

    Do you want to find out more about FSR? Take a few minutes and watch this interview with Li Ming She, Technical Manager for Continental Europe. We met in Brussels at the IBM Finance Forum 2011 and I recorded a quick interview with him on my iPad 2.


  • A discussion about forecast errors

    Forecasting continues to be a hot topic. My recent interviews with Steve Morlidge continues to be very popular. Also, ‘Franz the Frog’ sparked some interesting discussions behind the scenes. Given the strong interest in these topics, I reached out to a friend who has spent a lot of time and effort driving solid forecasting processes.

    Please meet Ulrich Pilsl. He provides a different perspective. Ulrich currently works as an Interim Manager in Munich. He spent over 14 years at Softlab / BMW Group (later Cirquent / NTT Data Group). As a member of the executive board, he held different senior executive positions including CFO of a consulting subsidiary and as the Head of Controlling & Business Administration.

    Christoph Papenfuss: Forecasting is a key focus area for many finance professionals. But many organizations are struggling to obtain an objective view of the future. What are some of the key problems?

    Ulrich Pilsl: The biggest problem I see is complexity. Many companies have bloated processes that are too detailed. It simply takes too much time and people have a hard time differentiating between what is important and what is not. There is no clear focus. Also, management tends to have a hard time managing the process. My advice is to simplify and to get rid of excessive detail. More detail does not create more accurate forecasts. On the contrary: the more detail, the less accurate forecasts tend to be for the above mentioned reasons.

    Christoph Papenfuss: What is the main problem with inaccurate forecasts?

    Ulrich Pilsl: Inaccurate forecasts lead to a serious confidence problem. Shareholders don’t like surprises. It gets worse when surprises are caused by poor forecasting efforts.

    Christoph Papenfuss: Are positive and negative errors equally problematic? Let’s take a look at a typical sales or business forecast. Some people tend to create very conservative forecasts and often end up outperforming. Isn’t this better than creating a very ambitious forecast and then coming in lower?

    Ulrich Pilsl: This is an interesting but common situation. First of all, positive and negative errors are equally problematic. Both type of errors can create serious management challenges apart from the already discussed confidence problems. In regards to this specific situation, one might be tempted to say that it is a good thing for a sales person to continuously beat his or her forecast. However, this can create some serious challenges. Let’s take a look at a consulting company. Low sales forecasts indicated low resource requirements. Hiring efforts might be slowed down and the business might quickly end up in a situation where they do not have enough talent available. Business is lost. Customers might loose confidence in us as a trust-worthy business partner. I therefore strongly believe that both negative and positive errors require serious attention.

    Christoph Papenfuss: What should the Controller do to help minimize forecast errors?

    Ulrich Pilsl: The Controlling department should show some ‘tough love’. They have to challenge the departments to deliver realistic forecasts. We found that it is critical to provide suggestions and to jointly develop scenarios with the business managers. Finance basically acts as a tough but fair coach in the process. This continues in the the monthly and weekly management meetings: We openly discussed the forecast results and challenged the numbers. It is obviously the job of the Business Controller to moderate this process. Last but not least, we found that it sometimes makes sense to create top-down adjustments that reflect upside and downside risk.

    Christoph Papenfuss: Based on your experience, does it make sense to measure forecast accuracy? If yes, how often and at what level did you measure accuracy?

    Ulrich Pilsl: It depends on the organization. This reminds me of a quote by my former manager who said: “Most companies are over-controlled but under-managed.” A team that understands the value of a forecast will usually deliver solid forecasts. Measuring forecast accuracy won’t necessarily improve it. I do believe, though, that it makes sense to measure it if the organization has challenges with the forecast process. Especially in the case of a management team that does not see the value in the forecast. It might make sense to add an accuracy target to the annual objectives. We had a variable goal “internal quality”. This allowed us to substantially change the mindset of some managers. The goal was set once per year.

    Christoph Papenfuss: How do you utilize forecast accuracy measures? Should you communicate the numbers to the organization or is this something that should stay within the walls of the finance department?

    Ulrich Pilsl: In my opinion, it does make sense to communicate forecast accuracy to the management team. But it makes no sense to communicate it to the whole organization. The aim is to improve forecast quality and not to blame the management in the organization.

    Christoph Papenfuss: What can Finance do to help create a culture where people are happy to create meaningful and objective forecasts?

    Ulrich Pilsl: Finance simply has to be the role of a coach and consultant for the business. It is our role to educate and to support the business.

  • An imaginary conversation with a weather frog

    European folklore believed that frogs kept in a glass would be able to forecast the weather. People filled some water in the glass to keep the amphibian happy, and then added a small ladder. A climbing frog would indicate good weather, whereas a frog hanging out in the water would show bad weather. This belief especially stuck with people in the German speaking countries where weather forecasters are typically called ‘Weather Frogs’ (Wetterfrosch). Well, weather forecasters do one thing well: forecasting. They are the true masters and I thought that we could get some insights from one of them. It is frog migration season in Bavaria and I happened to have found one who is willing to talk to me. Please meet Franz the Frog. Franz resides in Bavaria, Germany where people recognize him as a trusted master forecaster.

     

    AN IMAGINARY CONVERSATION WITH THE FROG

    Christoph: How is life as a master forecaster? Your pictures are every on the side of the roads these days. You must be pretty busy? Spring is known for its volatile weather.

    Franz the Frog: All cool here in the pond. Thanks for asking. We were quite busy up until yesterday. That’s when we finished our quarterly forecast. I am looking forward to jumping around for the next few weeks.

    Christoph: But wait a second! It’s a volatile climate out there. How can you just sit there, jump around and not forecast whenever things change?

    Franz the Frog: Dude, I hear ya’. But the big boss here in the pond decided that 2-3 forecasts per year are totally fine. Plus we have so much other stuff to do. Also, do you realize how much work we have to do to complete a forecast?

    A weather frog

    Christoph: Sorry, this was news to me.  Then tell me, why exactly is this so much work?

    Franz the Frog: Helllllooooooo!!!!! Each forecast starts with us looking at weather patterns for the past five years. Just simply gathering the data that is stored all over our pond takes us forever. Our big boss in the pond also wants us to create detailed variance reports for those years. That takes about a month. To create the actual forecast, we turn over every single leaf in our pond. And we record every little rain drop. That takes a lot of time. Get it?

    Christoph: Oh…I see…a lot of detail. But a lot of detail should result in higher accuracy right? My wife Jen complained about your reliability the other day. She claimed that she would not even ‘pack a suitcase for vacation’ using your information. Errr…please don’t shoot the messenger.

    Franz the Frog: Watch it, buddy! I will stick my tongue out here in a second. What do you expect? We get paid by our big boss in the pond. If the boss is happy, the flies are happy and we are happy. The boss decided that it’s best for us to provide a forecast that tells you guys exactly what you want to hear. Last year we saw rain coming. Your wife complained that she did not want any rain that particular week. She said:’Ahh, this stupid forecast. Rain is driving me crazy. It should be sunny!!!’. That got my big boss in the pond really upset. And guess what happened: no pay. That made our decision easy: we would eliminate a lot of pain and frustration if we simply forecast what everybody wants to hear.

    Christoph: Oh…ok. That is so not cool. Let’s change topics. What type of tools do you guys use to do your forecasts? I mean, we’re in the year 2011 so  I suspect that you guys have some cool tools…like that PC game Frogger?

    Franz the Frog: Frogger rules!!! If you like Frogger, you will be happy to hear that we are still using the same platform. No changes. Here, take a look: We have special leaves from a searose that was created in Redmond, WA’. Those leaves allow us to play with the data that we collect. The nice thing is that everybody in our pond has a ton of those searoses flying around. And the other guys love those leaves. The all create their own versions. But do me a favor and DO NOT talk to the green guy over there: he has to collect all the leaves at quarter-end. He hates his job. A bunch of my colleagues sometimes play a joke on him and swap out leaves or hide them. Others change the carefully thought-out leaf structures by ripping a holes in them or by chewing on them. You should see his face when the leaves don’t stack!!! Haha…RRRiibbitt.. Hilarious.

    Christoph: Holy tadpole! That sounds like a tough job. Can you trust the data then?

    Franz the Frog: Probably not. But hey…that’s the way the pond has been for a long time. It worked in the past it should work in the future, right? We have been around for thousands of years.  And the big boss is happy and we’re getting paid—what’s not to like?

  • Future Ready? A discussion with Steve Morlidge

    Steve Morlidge, Future Ready

    The IBM Finance Forum 2011 events have officially started in Europe. These events are designed for Finance professionals seeking to deliver stronger business insight to their organizations. Apart from being a great networking opportunity, we focus on sharing a lot of best-practice knowledge. Customers share their stories. And IBM also bring in great guest speakers like Steve Morlidge who share their tremendous knowledge in the finance area.

    Steve MorlidgeSteve Morlidge will be joining many events across Europe this year. He is a true thought-leader in the area of financial performance management. In 2010, he released a ground-breaking book called ‘Future Ready – How to Master Business Forecasting’. Together with co-author Steve Player, Steve shares a lot of valuable knowledge that he gained in over 25 years as a senior finance executive working for international companies like Unilever. He is also an active member of the Beyond Budgeting Roundtable (BBRT).

    Steve Morlidge and I were able to talk over the phone right before the first Finance Forum event in Zurich.

    Christoph Papenfuss: Many companies are still developing annual budgets. Is this approach outdated or is there a place for the annual budget?

    Steve Morlidge: I believe that conventional budgeting is dead, or at least very much on the way out. It takes too long, hinders responsiveness and fosters all kinds of damaging political behavior in enterprises. Companies still need to do things like setting targets, and this may still be called ‘budgeting’, but it is a long way from the traditional process many of us grew up with.

    Christoph Papenfuss: What are some of the key issues associated with the traditional forecasting process?

    Steve Morlidge: In my view most companies do not understand the difference between budgeting and forecasting. As a result, forecasting is done in too much detail, but not frequently enough. More importantly, the mindset is very often all wrong. Budgeting teaches us that gaps (between target and prognosis) are bad, whereas the primary purpose of forecasting is to detect deviations from plan so that corrective action can be taken; so unearthing such discrepancies should be positively encouraged, not punished.

    Christoph Papenfuss: Many people talk about rolling forecasts. Are rolling forecasts a viable approach?

    Steve Morlidge: They are, but too often people underestimate the task. In my book, rolling forecasts are forecasts with a consistent horizon: 12 months, 15 months or whatever. As a result, at any one time a significant chunk of the horizon may extend beyond the fiscal year end. Many of the processes upon which forecasting relies – like activity planning and so on – are anchored on the annual budgeting process so sourcing the information you need beyond the financial year end can sometimes be a challenge, unless these supporting processes are remodeled at the same time. Also, conventional annual target setting, particularly if it is tied to incentives, can distort a rolling forecast process to the point that it falls into disrepute. As a result, my advice to people is to fix the ‘in year’ forecast process first, before you tackle rolling horizons and the ‘out year’.

    Christoph Papenfuss: We all know the saying ‘You get what you measure.’ Does this apply to the forecasting process?

    Steve Morlidge: Absolutely. In fact, if you don’t measure the quality of your forecast process and, most importantly, act upon it, you have no kind of guarantee that the forecast can be relied upon. Proper measurement – closing the feedback loop – is the only thing that separates forecasting from guesswork, and in my book, 95% of corporate forecasts fall into the latter category.

    Christoph Papenfuss: Many organizations utilize spreadsheets to manager their forecasts. What role does technology play to improve the forecasting and planning processes?

    Steve Morlidge: At one level technology isn’t important at all – the main deficiency with business forecasting is the processes used and the thinking that lies behind it – not the toolset. Having said that, few companies can sustain a successful forecasting process without technology that enables them to streamline processes, provide appropriate modeling capabilities, support rapid reiteration, provide insightful measures, communicate results effectively and so on. Tools don’t make a master craftsman, but without them nothing would ever get built.

    Christoph Papenfuss: You will be delivering a keynote presentation at many IBM Finance Forum events. Can you share a few things you will be talking about?

    Steve Morlidge: My main message is that the practice of forecasting is broken, not because we don’t have the tools, but because we don’t know how to use the tools we have. I will be sharing what I have learned about mastering forecasting articulated in the form of six simple principles.

    You can find out more about Steve on his website: http://www.satoripartners.co.uk. To see a full list of the Finance Forums 2011 events and to sign up, click here.

  • A conversation with the King of KPIs – David Parmenter

    DAVID PARMENTER

    Two winters ago, I traveled to Prague to speak at a large conference about Performance Management. As the taxi approached the hotel which was set beneath the breath-taking castle, I felt a sense of excitement: I was just minutes away from meeting a king for dinner. Not any king. Not a member of the scandal-ridden European royalty houses. No, I was about the meet a true thought-leader in the performance management community. His nickname is ‘The King of KPIs’. I am of course talking about the management guru and author, David Parmenter. David was one of the other speakers at the conference and we had the opportunity to exchange some thoughts ahead of the conference.

    For those of you who do not know David Parmenter, you are really missing out. David has authored a number of bestselling books like ‘Key Performance Indicators – developing, implementing and using winning KPIs’ and the ‘Pareto’s 80/20 Rule for Corporate Accountants’. He is also a great speaker who truly knows how to inspire his audience.

    Earlier this week, I had the great opportunity to re-connect with David Parmenter. He is about to publish a new book called ‘Winning CFOs: Implementing and Applying Better Practices’.

    Christoph Papenfuss: David, your new book focuses on providing CFOs with hands-on advice for increasing the performance of their companies. What prompted you to write this book?

    David Parmenter: I have been increasingly aware that many CFOs are not finding enough time to keep abreast of best practice.  They are spending a disproportionate amount of their time putting out fires. The “winning CFOs” book is an update of the Pareto book including additional material that a CFO would need to know in order to be a leader and business partner.

    Christoph Papenfuss: In the past, CFOs spent a lot of time on developing a detailed annual budgets. But the increasing volatility has shifted the focus away from fixed budgets towards flexible plans and forecasts. Why should CFOs consider moving towards a more flexible forecasting approach?

    David Parmenter: As I say in the book, “The standard annual planning process takes too long, is not focused on performance drivers, is not linked to strategic outcomes or critical success factors, leads to dysfunctional behavior, builds silos, and is a major barrier to success. By 2020 there will be few progressive organizations using the annual planning process to allocate resources. Quarterly rolling planning will be embedded and we will; all look back and wonder why we ever did annual planning.  As a CFO you need to be abreast of this change and ensure you are not one of the doubters who claim the “world is flat”.

    Christoph Papenfuss: Many business managers are literally afraid to submit a realistic forecast as they fear repercussions in the form of higher targets or poor performance reviews. As a result, we find that many organizations submit forecasts that mirror the plan. What can CFOs do to encourage objective and honest forecasts?

    David Parmenter: There has to be a major shift in the way we set up performance based remuneration, away from rewarding progress against a future target to measuring performance retrospectively based on relative measures. Secondly there needs to be a paradigm shift in the way we forecast.  There needs to be a separation of targets from forecasts and a rule that a forecast should tell the truth and not what we want to hear.  Both of these issues are discussed, at length, in the book.

    Christoph Papenfuss: Even today many finance organizations are highly dependent on spreadsheets for compiling their monthly forecasts and reports. What is your opinion on that and how do you see this changing in the future.

    David Parmenter: Being an expert in Excel is career limiting and should be removed from your CV.  It is like applying for a job as a test driver at Ferrari and having on your CV a gold medal for driving a horse and carriage.  All accountants, including CFOs, need to have on their CV, a statement to the effect that they have a working knowledge of a forecasting software.

    Christoph Papenfuss: Many thanks for taking the time, David. We are all looking forward to reading your new book.

    You can learn more about David Parmenter and his work on his home page. His new book is scheduled for release on April 5th, 2011.