Planning Problems

The time devoted to putting together a budget in most organizations consumes months of effort—time that could otherwise have been invested in strategic growth initiatives. Not surprisingly, only 11% of 273 companies in a study by Accenture are “fully satisfied” with their planning capabilities.1 The rest have wide-ranging reservations.

Certainly, many organizations are feeling the pressure to improve planning, budgeting and forecasting. According to a recent survey by Aberdeen Group, a market research firm, 43% of respondents stated that current market volatility has created a need to dynamically account for change in their planning, budgeting and forecasting processes. Rising operational costs were cited by 32% of respondents as a key pressure, followed by resource- intensive and time-consuming current processes (25%).

Pressures Driving Improvements in Planning, Budgeting, and Forecasting:

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A big part of the problem, of course, is reliance on spreadsheets and the challenges they cause—version control issues, inaccurate and/or confusing data, and the unyielding rigidity of the tool when the forecast changes. Other planning weaknesses, aside from spreadsheets, include a pronounced lack of forecasted detail, fragmented processes and technologies, inflexible systems that are narrowly deployed across the enterprise, and difficulties measuring actual versus projected performance and industry benchmarks. Despite these challenges, the traditional process ensues in many organizations, with finance glumly in the leadership role. The stress of engaging in an effort that so many people find daunting, if not hopeless, takes its toll. “In many finance groups, I’ve observed frustration and a sense of pain during planning,” said Nicole Diceman, Product Marketing Manager at Prophix Software.

Ms. Diceman offered an example that illustrates the task before finance: “Imagine the corporate goal is to grow a company with $200 million in annual revenue by 25%. The Chief Operating Officer is now responsible for achieving a revenue growth of $50 million to meet the 25% company growth objective. The finance team will now attempt to produce an all-encompassing, collaborative plan and budget to assist this goal, in addition to ensuring timely updates of this plan versus actual data.”

In the way, however, are centralized finance processes that limit collaboration, data aggregation challenges and limited ownership and accountability for data truth. Internally, companies fail to align strategy with the processes, lacking a framework for the various departments and functions to achieve strategic goals through the year. Bandwidth issues—personnel struggling to get the numbers together—are another problem as is an underdeveloped infrastructure, such as reliance solely on spreadsheets. The end result—analysis is more of an afterthought than a forethought.

“The internal weaknesses really stem from a deficiency of processes and supporting solutions to plan, forecast, report and analyze relevant information,” Ms. Diceman observed. “Unless you’re tracking the company’s performance, and using this information in action-to-forecast comparisons, action-to-budget comparisons and budget-to-forecast comparisons, it’s difficult to make sound business decisions.”

Communicating strategy from executive management to line managers is also wanting. “It’s a lack of planning synchronization,” Ms. Diceman said. “For example, if sales wants to sell ‘x’ number of units, manufacturing needs to be aware of this—so its plans can reflect this demand. You then need a consolidated view of this information to ensure that the corporate targets are being met.”

Obviously, such comparisons require collaborative input to produce insightful, accurate and timely data, a planning process that is hindered by the labor intensity involved in the use of spreadsheets, given the multiple inputs by a myriad of users. Many planning processes are dependent on spreadsheets that are extremely manual, which causes errors and data integrity issues. Another problem is the lack of operational planning and forecasting detail contained in a spreadsheet—there is no way to do a deep dive into the data for insightful decision-making.

These and other planning problems bedeviled Minneapolis-based Park Dental, the holding group for four related entities—The Dental Specialists, The Facial Pain Center, Dental Specialists Orthodontics and Park Dental. The privately held company tallies 25 separate locations throughout the Twin Cities metropolitan area and more than 100 doctors as stakeholders. It has been in business since 1972.

Through 2009, the company’s planning, budgeting and forecasting process, extending from May through November, was spreadsheet-intensive. “We came to the realization that Excel just really wasn’t cutting it anymore. It wasn’t meeting our needs,” said Jason Norman, Park Dental’s Senior Financial Analyst. “Version control, with all the different files that we were using, was really getting difficult to manage. The ability for quick changes to each location was really limited insofar as how the Excel files were being used.”

Allocating expenses among the 100-plus doctors and their respective teams of dental hygienists, dental assistants, scheduling managers, and practice managers was cumbersome. “With multiple locations, a lot of the expenses were shared among locations or among legal entities, and then being able to allocate that, even for something as simple as a gross revenue allocation, was really difficult, given all the files that we had bouncing around,” Mr. Norman explained.

Ms. Diceman pointed out that when planning functions are fragmented across multiple interfaces, the inflexibility of spreadsheets makes it virtually impossible to adjust plans quickly when economic, competitive and market factors change. This, in turn, makes it difficult for finance to expeditiously provide the new information to key stakeholders. “Part of the solution is to empower line managers, given their proximity to the front lines, with communicating accurate, up-to-date and detailed information on plan performance,” she said. “This information can then cascade upwards to senior managers to compare actual performance against the company’s overall goals.”

In attempting such comparative analyses, Park Dental was impeded by its infrastructure and processes. “We found that comparing the current plan to a past plan, or comparing it to the forecasted actual, brought the entire process to a halt,” Mr. Normal said. “For example, we were looking for cash flow and balance sheet forecasts because the organization is growing, but we just weren’t able to accommodate that within the time constraints, even with the number of months that the plan process takes. It would absorb days to validate and pull everything together, re-run the numbers and then finally put the stamp of approval on it. Meanwhile, the end result was susceptible to error.”

He compared the process to a collapsing house of cards. “You’ve got all of these Excel files put together—the vlookups, the arrays, the pivot tables, with everything linked—but it took so little effort for that entire house to come crashing down,” Mr. Norman said. “And then rebuilding it all is just so painful. As the organization grew, we found we needed more people merely to manage the plan.”

Ms. Diceman said such experiences are common. “In growing organizations, inter-departmental communication is key, yet in a spreadsheet- type world it’s hard for departments to work together,” she noted. “They’re working in silos. Consequently, planning and forecasting tends to be narrowly deployed, without a complete view of the enterprise. Measuring performance against strategy is difficult, which in turn makes it hard to feel confident about the numbers, which makes it difficult to make correct business decisions.”

To make precise decisions requires structure, process, collaboration, ownership and accountability. These goals can be abetted by a planning, budgeting and forecasting systems automating the flow of information that cascades throughout the enterprise to provide a single source of truth. This increase in efficiency provides ample time for data analysis, abetting quick changes in course to seize forecasted business opportunities.

The Aberdeen Group study affirms the value in this process. The following illustrates what it considers to be best-in-class planning strategies:

• Promotion of accountability within the organization through effective communication.
• The use of driver-driven analysis and scenario modeling.
• Alignment of treasury and risk management initiatives with financial planning.
• The development of a consolidated view of the planning process and the results, which should be available on demand.
• Improvements in data quality.

In these regards, the market research firm noted the differences in how bestin- class organizations are achieving these aims versus all other companies. For example, 71% of best-in-class companies have established enterprise-wide collaboration from the top down and the bottom up, compared to only 39%of other companies. Best-in-class companies also have business units that work collaboratively with finance throughout the budgeting and planning process, have trained line managers in the use of analytical methods and tools, and have assisted business users to create reports and charts on a self-service basis.

Best-in-Class Planning Strategies:

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To join the list of organizations with best-in-class planning, budgeting and forecasting requires finance to take firmer control of the process in their companies. “While the planning process is generally centralized in finance, there is an opportunity to broaden ownership and accountability to different stakeholders and different departments or entities, depending on the organizational structure,” Ms. Diceman commented. “There may be an opportunity to provide training and make the planning process a very positive approach. The opportunity is there for finance to look at current processes and infrastructure and really begin to make improvements, starting to align those activities and goals around planning and reporting.”

In this era of increasingly uncertain and potentially threatening macroeconomic, regulatory, market and competitive factors domestically and globally— an unrelenting sea of change—it is vital for finance to investigate, analyze and improve enterprise planning, budgeting and forecasting. As Ms. Diceman put it, “Awareness is more than half the battle. Finance must thrust itself into more of a leadership role.”

Taking charge

At Park Dental, finance drove a strategic transformation of its planning, budgeting and forecasting processes, following the completion of its 2009 planning process. “We had had enough,” said Mr. Norman. “We decided we needed a system to automate and provide more efficiency in our planning cycle and our forecasting processes.”

The company chose Prophix Software’s planning, budgeting, forecasting and reporting system. Leveraging the new system, finance created different models for expense and revenue calculations. The revenue model is where the company houses the “rules” for its doctors and hygienists, insofar as each person’s start and stop times are entered by day, week and month. “We also enter in personal leave for our doctors and hygienists along with any meeting times, which are the things that would take away from production and productive revenue,” Mr. Norman said. “We use this model to calculate our doctor production using per hour rates. Since all our revenue is in this model, and the doctors are compensated based on production, the rules are built right into the model to be able to perform the doctor compensation calculations too. We don’t have to export revenue, perform calculations in Excel, and then import anything back into the system. All of the calculations are done right in the model.”

With regard to each doctor’s team members, their salaries and hourly rates are entered into a separate team member model, in addition to the number of hours each team member works per week. “We’re doing their compensation, taxes and benefit calculations individually, and we’ve got a number of team members that work in multiple locations,” Mr. Norman said. “We’re able to take that information and perform the allocations to multiple practices using rules built into the team member model, and then feed that data right into the main model—the final resting place for all the numbers. Our revenue, team member costs and all expenses are directly connected to the main model.” Park Dental is now in the thick of creating another separate model to house fixed assets.

In evaluating RFPs from vendors for its new planning, budgeting and forecasting system, Park Dental sought a solution that was more secure than the previous spreadsheet-based process. “While you can password protect a spreadsheet, you really don’t know who it gets forwarded to and if the password is being shared,” Mr. Norman observed of the former process. “Now we’ve got about 35 end-users per planning process located in 25 different physical locations that are entering information into the system, but they have varying levels of authority and access. Some are very limited to what they can see and input, while others are more broadly able to influence the plan process.”

Aside from improved security, the company wanted workflow process enhancements in a new system. These are now largely automated, in terms of both data review and approval. It also is now able to compare plans to actual performance in ways that were elusive previously. “We have our previous plan versions going back a number of years, our current plan version, and with our new system we can have multiple revisions of the same version,” Mr. Norman said. “If we wanted to adjust to growth goals, we could do that and globally effect each location. We’ve got actual amounts we’re pulling in through our general ledger system that we can compare to, and then we’re also comparing forecasts to these versions.”

In the past, the use of spreadsheets limited the company to a single forecast, which was out of date within months. “We’d be stuck with that forecast through November and into December, depending on how long the process truly lasted,” he added. “Now, as each month-end is completed, we update that forecast and compare our current plan results to those updates pretty regularly.”

Implementation of the new system assisted a major goal at Park Dental—a substantial reduction in the time it takes for finance to prepare analyses for end-users in the organization. “We’ve gone from process pains to process gains,” Mr. Norman said. “It takes a lot less time to predict a forecast and insert that for comparison purposes. I’m finding that I’m spending a lot less of the ten, eleven and twelve-hour days trying to get ready for a morning meeting. We’re at a point now where things are much more efficient and running much more smoothly.”

Other process gains include greater visibility into data, including patient access to dental care when needed. For example, finance is now able to see where all the doctors in a particular practice have chosen the same time period for a vacation. “No doctor availability equates to no patient access to care, and no revenue,” Mr. Norman said. “We’ve also eliminated instances where weeks were laid out in the old Excel environment that created days of revenue that didn’t really exist. As a result, our accuracy has improved. Confidence among end-users in the veracity of the data has risen enormously.” When end-users struggle with aspects of the new system, finance schedules customized training sessions, he added.

Today, an executive who might ask how the plan is faring in its execution can now be told, for instance, that the company is 80.6% of the way towards completion—with assurance in this projection. “It’s been kind of a fun way to measure how things are going over the number of weeks and months that we spend on this,” Mr. Norman said.

Down the line, Park Dental hopes to further capitalize on its investment in a streamlined and efficient planning and forecasting system. “I’m excited about taking advantage of the time we’ve invested in defining and refining the system’s rules, moving beyond the burden of planning, and using the tool to assist our stakeholders identify and plan for change in the future,” says Mr. Norman.

Conclusion

This white paper examines the disjointed processes and systems that impede enterprises in their planning, budgeting, reporting and forecasting practices. The ability to effectively communicate and collaborate to ensure timely, accurate data analysis is at the core of this problem. The wide use of spreadsheets for planning purposes impedes organizations, given this tool’s inflexibility and problems with accuracy and version control. To change the status quo, finance is urged to ride herd on the planning, budgeting, reporting, and forecasting process, leveraging tools to create a more robust and competitively advantageous planning environment.