The performance ideas blog

Tag: Business Forecasting

  • 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.”

  • 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.

  • Business Analytics news for the week

    Business Analytics news

    This has been an extremely busy but exciting week. It seems like the whole world is full of energy. Here are a few things you might want to be aware of.

    CFO.com Webinar Forecasting

    If you are interested in forecasting, make sure to register for the upcoming CFO.com webinar ‘Forecasting in turbulent times‘. Together with Tom Willman (Principle, The Hackett Group), I will discuss trends and best practices for improving your forecasting processes. The webinar is scheduled for Thursday, March 15th.

    cfo.com

    Cognos Insight & TM1 10.1 launch

    Yesterday was the official launch event for Cognos Insight and TM1 10.1. I was blown away by how many people participated. As a track host, I was especially excited to see so many questions coming through. In case you missed it, you can still watch most of the sessions on demand. I highly recommend the keynote. Robby Meyers from DirecTV gave a fantastic demo of Cognos Insight. Make sure to watch that one. It’s great to see how a successful company like DirecTV leverages Cognos Insight.

    Analyticszone.com

    There is a great new website and community entirely dedicated to Cognos Insight. Make sure to check it out. The new site provides you with a bunch of great stuff: sample Insight models, tutorials, discussion forums etc.. You can also download a revised version of the famous IBM Cognos Blueprints. Yes, they have been redesigned to work in Cognos Insight. Make sure to also upload your files and share your experiences!

    Analyticszone.com

    Updated iPad app

    There is an updated version of the Cognos iPad app. You can downloaded it directly from the iTunes store. The latest version has a slightly different look and feel. It also feels snappier. There are also a bunch of other enhancements under the hood. And there is also additional demo content in there. The upgrade takes about a minute. And….can you imagine how awesome all your Cognos report will look on the new resolutionary iPad?

    Harriet & Christoph – the story continues

    Want to see me as a bobble head? Some of you may have watched the Cognos Insight demo at the IBM BA Forum in October 2011. My colleague Harriet Fryman and I demonstrated how the business and IT can get along using Cognos Insight. Our creative team took that story and has created a series of hilarious bobble head movies. The latest edition was released last night. In the prior video, Harriet put Sleep-eeze into my coffee. Time to get even! The other parts are also available on You Tube.

  • The power of what if analysis

    What if analysis

    What do Steve Jobs, Albert Einstein, Thomas Watson and Pep Guardiola (coach of FC Barcelona) have in common? – All of them have challenged the old and set ways of doing things. Challenging old ways provided them with new opportunities and their success speaks for itself. That raises a question: What can we do to challenge set views to be more successful? Indeed, there is a very simple tool that most of us ignore: what if analysis.

    What If?

    Asking what if can help us see our world in a new and fresh way. Why? Humans are creatures of habit. We are often stuck in our old and set ways and often see just the familiar patterns around us. This limits our thinking and we often miss opportunities or risks. It restricts our creativity. Take a look at Kodak. If we can trust reports in the newspapers, former management assumed that film and paper photography would prevail. That’s what most employees were comfortable with. What if digital photography became the standard?

    What if analysis can therefore help us identify risks and opportunities. What if analysis can help us make better decisions about the future.

    “Creativity is the ability to see things in a new way, a way that combines existing things, viewpoints, elements, in a way that hasn’t been done, or  in a way that uniquely solves a problem. It is, in short, the power of “What if…?”  David du Chemin, Photographer

    Examples of what if analysis

    What if analysis can be extremely powerful in business. Think about these questions:

    • What if air traffic was shut down due to another volcano? What would this do to our supply chain?
    • What if we offered our client a new discount model? Would they buy more products in the future?
    • What if we were able to reduce our expenses by 5%? How much flexibility would we gain?
    • What if every employee reduced their business travel by just one trip per year?
    • What if we changed our fixed phone plans to variable ones? Would we be able to save cost?

    Developing those what if questions is the first step. The second step requires us to understand the answers and the potential impact on our business.

    Obstacles to what if analysis

    what if analysis
    What if the winter was really harsh? Increase production capacity?

    It is the second step where we need to sit down and play with our planning and forecasting models. We sometimes even have to create small models from scratch to identify the right answers and solutions. But that part is often too complicated. Corporate data is complex. Spreadsheets are often too cumbersome and slow to handle the complexity. As a result, too many people shy away from performing what if analysis.

    Start: What if analysis

    Start asking what if questions today. It is a very powerful too, indeed. And it is not only limited to business.

     

  • 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.

  • 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.

  • Simplicity is the ultimate sophistication

    Have you ever been to a giant buffet? Try to remember what it was like. We usually get excited when we see the various options and we ‘cruise the aisles’ to identify what we want. If you are like me, you have a hard time deciding and you end up wandering around taking a little bit of everything but nothing of anything. By the time you leave, you feel bloated and promise yourself to go easy next time. Chances are you won’t even remember what you ate.

    (more…)

  • Improve your forecasts – 6 things we can learn from weather forecasters

    Back in April, I posted an interview with a master forecaster: Franz the Frog. Interestingly enough, this post is one of the most popular entries on this blog. But all jokes and irony aside: Weather forecasters are indeed world champions in forecasting and there are some lessons that we as finance professionals can learn from them. Let’s take a look:

    LESSONS FROM MASTER FORECASTERS

    1. Forecasts should be objective: Have you ever seen a subjective weather forecast? Well, it may feel like that sometimes. But weather forecasters do not publish what they think the public or the managers of the TV stations or newspapers want to hear. That would be dangerous. No, they strictly publish what their algorithms and forecasting processes show them. We can therefore rely on them (except for the obvious and inherent forecast errors that can occur).

    2. Forecast discussions should look forward not backward: Huh? Well, weather forecasts focus on the future. Have you ever seen a weather person spend 75% of his time explaining past variances, apologizing and arguing about assumptions? No. Weather forecasts are strictly forward looking. The focus is on what lies ahead and not on what happened in the past.

    3. Forecasts should be flexible: How often do we we get an updated weather forecast? Once per quarter? Once per month? No, the weather is too volatile for that. The forecast would be outdated within a few hours. People might be unprepared for a snowstorm, for example. Instead, weather forcasters continuously update their models when new information arrives. That way we can all rely on the most current and accurate forecast. We don’t have to worry too much about being caught in dangerous weather.

    4. Forecasts should speak a clear language: Weather forecasts are being presented in a simple and concise manner: “Heavy winter storms expected with up to 20cm of fresh snow.” This type of presentation allows us to quickly make decisions (stay at home). The message is not hidden in hundreds of lines of technical details.

    Today's forecast is detailed. The further out we look the less detail we have.

    5. Detail is adjusted based on the predictive ability: What is easier to forecast – the weather tomorrow or the weather in two weeks? Stupid question: the weather tomorrow. Weather forecasts acknowledge that they cannot predict weather much further out than a few days. And they adjust the level of detail based on that insight. Today’s forecast shows detail by the hour. The forecast for next week is just a general trend (‘rising temperatures expected’). This approach obviously reduces the effort involved in creating the forecast. Most importantly, this approach avoids the trap of setting wrong expectations (“I thought it would be sunny in three weeks from now!”) More detail does not mean higher accuracy.

    6. Forecasts are compiled with the help of modern technology:

    Technology drives efficiencies and increases effectiveness

    What type of instruments and tools do weather forecasters leverage? Weather frogs, old fashioned thermometers, wet fingers, flight patterns of birds? No, they rely on modern technology. They continuously push the envelope and upgrade their equipment. This tremendously speeds up their work while also reducing mistakes and increasing the accuracy. They actively look for new ways to improve their processes and techniques.

    YOUR FORECASTS?

    Think about your forecasts. How do they stack up when compared to these six characteristics? Are there areas where your forecasts can improve? If you are interested, join of of our Rolling Forecast workshops to learn more.