The Planning Maturity Curve (Palo Alto June 15)

The Planning Maturity Curve:
Where Are You?
Where Do You Want to Be?

Rand Heer, CEO Alight Planning
Ben Lamorte, VP Marking Alight Planning

© 2011 Alight Planning Slide 1

Today‘s Speaker

Rand Heer
 Business Activities
 CEO, Alight Planning (Planning software)
 Co-Founder, Aspirity (Microsoft BI consulting)
 Founder, FP&A Train (Essbase training)
 Founder, Pillar Corporation (Enterprise budgeting)
 CFO for 2 public companies
 Rockwell Int‘l, Biz Unit CFO and Corporate
 Publications
 Coauthor: “Business Intelligence: Making Better Decisions Faster”
 Author of 10 white papers on planning/reporting topics
 Education
 MBA degree Harvard Business School


Agenda

 Introductions
 The Planning Maturity Curve
 Level One: Seat of the Pants
 Level Two: Budgeting
 Level Three: Reporting
 Level Four: Forecasting
 Level Five: Agile Planning
 Case Study in Agile Planning: Pittsburgh Mercy
 Short Break
 Agile Planning Simulation
 Implementing Agile Planning
 Out of Excel
 Level of Detail
 Driver-Based Planning
 Integrating Actuals
 Scenario Analysis

Business Value from Planning

 Insights
 Understanding things we didn‘t see before
 Actionable Knowledge
 Planning scenarios gives us the financial impact of
choices
 Decisions
 Having choices sets up decision making


Planning Maturity—Agile Planning

Effort Planning Maturity Curve (PMC)

Forecasting

Reporting Forecasting/Agile Planning

Budgeting

Seat of Pants

Business Value

Capability Maturity Model for FP&A

Seat of Pants Budgeting Reporting Forecasting Agile Planning

Goals
Why Do It?
Effectiveness

Key Process Areas
The Capability Maturity Model
Who Drives Carnegie Mellon University
Who Participates First described by Watts Humphrey
Frequency
Cycle time
 Capability Maturity Model applied to financial
Features planning and analysis.
Data Type
Data entry
Level of detail

Practices
Modeling
Data Integration
Iteration Tools
Presentation


Planning Maturity—Seat-of-Pants

The Happy Caveman


Planning Maturity—Budgeting

The Happy Accountant


Planning Maturity—Reporting

The Reluctant Managers


Planning Maturity—Forecasting

The Grumpy CFO


Where Are You on the Curve?



The Happy Team


Planning Maturity—Full Matrix




Forecasting
Implement driver-based planning
Integrate (don’t just import) actuals
Reporting Implement scenario analysis
Forecasting/Agile Planning

Move out of Excel
Reduce level of detail
Budgeting

Seat of Pants

Business Value

Case Study: Pittsburgh Mercy

Ray Wolfe
 Business Activities
 Chief Financial Officer, Pittsburgh Mercy Health
System 2006-present
 Director of Fiscal and Information Systems– Mercy
Behavioral Health 1996-2006
 Chief Fiscal Officer, Summit Center for Human
Development, 1988-1996
 St. Francis Medical Center, Patient Account
Manager, 1986-1988
 Awards: Ventana Leadership 2010
 Education
 Juris Doctorate, West Virginia University 1977
 BA, Marshall University, 1974



 Community Mental Health and Health Care Related
 Mental Health, Mental Retardation, Drug/Alcohol, Homeless
 Prevention Services and a Private Foundation
 Serving Southwestern Pennsylvania
 Business Metrics
Pittsburgh Mercy Health System has
 3 subsidiary corporations

 60 community locations

 27 major programs product lines

 260 revenue/cost center

 1,700 employees; 106 Managers & Supervisors

 Funded through traditional insurance billing, government grants and
capitation contracts, Private Foundations



 Demographic Problems
 Managers with only clinical backgrounds/ no business skills
 60 sites yielded communication barriers and no common language
 Excel based —
 Overload mode of worksheets with link and formula errors
 Too much time to maintain and no certainty of integrity
 No way to import and compare actual data to the budget design
 Budgeting became a ritual without meaning
 Budgeting full year totals with no seasonality
 Tops down budgets w/o manager buy in
 No P&L visibility by critical factors
 No operational integration



 Organization of Forecast Groups and Processes
 Group managers by functional areas—e.g.
 Community Treatment Teams
 Outpatient Clinics
 Child Services

 15 Groups each meet once a quarter
 3 to 12 managers per group
 4 members from accounting/finance

 Real time process elements
 Alight Planning displayed on Overhead Projector with Smart Board
 CFO is facilitator; Alight Admin on the mouse and keyboard
 Review/ make changes in real time
 Everyone sees everything!


Level of Detail

 Technical Issues
 What level of detail? Actuals and plan
 Transportation example


Using Actuals to Drive Plan

 Technical Issues
 Visibility into Units/Rates/Amounts
 Revenue and Allowance Rate Example



 Progress to Date
 Financial Results
 $600K+ in documented revenue increases and cost cuts from MET goals

 Process Results
 No budgeting
 Global updates twice a year – detailed updates quarterly
 Forecast accuracy to 2%
 Manager commitments based on demonstrated best practices
 Understanding the business as an operating entity
 Reaction to issues on a two year horizon, e.g. present cut plan
 Model Status
 Now on third model iteration built from scratch




Forecasting
Implement driver-based planning
Integrate (don’t just import) actuals
Reporting Implement scenario analysis
Forecasting/Agile Planning

Move out of Excel
Reduce level of detail
Budgeting

Seat of Pants

Business Value

Guidelines for Agile PlanningTM

1. Move Out of Excel
 Deal with structure issues
 Deal with modeling issues
2. Reduce Level of Detail
 Plan the way managers think; not the Happy Accountant
 Reduce detail to better integrate strategy
3. Implement Driver-Based Planning
 Reduce direct input data volumes
 Increase ‗modeled elements‘—operational/driver based planning
4. Integrate (Don‘t Just Import) Actuals
 ―Rolling over‖ actuals in plan files—apples to apples
 Using actuals to understand trends—focus on rates
5. Implement Scenario Analysis
 You can‘t predict the future, but you can construct scenarios
 You‘re looking for easy maintenance and comparisons at all levels

The Need for Real Time

 The Excel PowerPoint Cycle


The Need for Real Time

 The ―need for speed‖
 Everything refreshes in near real time
 The planning tool is the presentation tool
 The planning tool enables collaboration on-the-fly


Agile Planning Simulation

 Background
 Wombat, Ltd: mid market ERP for verticals: healthcare, manufacturing,
technology
 Bongo is main competitor in manufacturing
 Event driver: Bongo cuts prices 30% in manufacturing
 The Players
 Ben, Sales Guy
 Rand, Finance Guy
 Sid, Services Guy
 Phyllis, CEO (not present)
 What You‘ll See
 Real Time Collaboration
 Driver-Based Financial Model
 Scenario Planning


Follow Up with Alight

 Follow up with Ben
 Blamorte@AlightPlanning. com
 Telephone: (415) 456-8528
 Webinar Resources
 Transforming Planning at Pittsburgh Mercy:
 www.Alightplanning.com/Webinars/PM/Video.html
 Application Requirements for Rolling Forecasts
 www.AlightPlanning.com/Workshop/Requirements-for-Rolling-Forecasts/Video.html
 Forecasting for Black Swans:
 www.ie.articfoxtv.com/224/planning-for-black-swans


1. Out of Excel

 Structure Issues
 Bound by templates: can‘t add line items on-the-fly
 Rollup structures with dimensions are difficult to create and maintain
 No multi-user security/process controls
 Importing (rekeying) actuals is error prone/cumbersome

Structure problems
Save As
relate to budget
templates where you
need to build in
structure and
financial intelligence
from scratch.

Version A Version N…


1. Out of Excel

 Modeling Issues
 Formula and structure errors—aka #Refs
 Dependency on key individuals—Lone Ranger Syndrome
 Line manager spreadsheet skills are limited; untrained/dangerous.

Modeling problems: cell-
based linking which
discourages driver-based
planning which is the
source of most errors.


1. Out of Excel

 What to Look for in Planning Applications
 You can build rollup structures with multiple dimensions/attributes
 Application incorporates multi-user security and process controls
 Users can create line items on-the-fly without breaking things

A fundamental deliverable
of a Planning Application is
user security and process
controls.


1. Out of Excel

 What to Look for in Planning Applications
 You can build rollup structures with multiple dimensions/attributes
 Application incorporates multi-user security and process controls
 Users can create line items on-the-fly without breaking things
 Importing capabilities—aka ETL (Extract, Transform & Load)
 Object-based linking with audit trails

Object-based linking is
critical for implementing
driver-based planning.



 Plan at the Right Level
 Lowest level natural class accounts create too much detail
 Let managers plan the way they think
 Set the stage for driver-based planning

It‘s the data that‘s the killer
7 T&E accounts *
100 cost centers *
12 months = 8,400



 Guidelines for ―Right Level‖
 Plan/report at a higher level—especially for natural accounts; or
 Set up a dual system: traditional budgeting plus forecast at higher level.
 Do the math for various alternatives; test imports for a ‗visual picture‘.
 Go step-by-step: not everything need be done all at once.
 The planning application must have line item detail

Example of an account
structure at a higher
level with line items
created by managers.



 Benefits of Reducing Level of Detail
 Better operational connection for line managers
 Reduces overall data volumes; better visibility
 Set the stage for driver-based planning

Reducing level of detail
along with moving out of
spreadsheets reduces
Effort and enhances
Business Value.


3. Driver-Based Planning

 What Is Driver-Based Planning?
 A series of sub-models for revenues and expenses based on drivers
 Drivers are typically units of things: unit sales, customers, transactions
 The fundamental structure is: Units * Rate = Amount
 The spending focus is on big ticket items and large departments

Example of a driver
model that calculates
amount of explosives for
a gold mining operation.



Software Conversion # Services Hours Per Billable Bill Rate Billable
Licenses rate Customers Customer Services Services
Sold Hours Revenues

Predictive logic
diagram for a
software/services
business
It’s about
Activities & Rates



Software Conversion # Services Hours Per Billable Bill Rate Billable
Licenses rate Customers Customer Services Services
Sold Hours Revenues

Staff
Utilization
Predictive logic Rate

diagram for a Services Hours Per Services
Staffing Month Staffing
software/services Hours Heads
business Services Expenses
 Salaries
It’s about  PR taxes/ benefits
 Supplies
Activities & Rates  Travel
 Recruitment
Training
 Etc.

Services
Profitability



 Benefits of Driver-Based Planning?
 Tight turn-around for forecasting has a chance
 Enforces focus on important operational drivers
 Visibility into the numbers—allows meaningful causal analysis of variances
 Sets up ―real time planning‖ for scenario analysis

Driver-based planning
delivers a significant
increase in Business
Value


4. Integrate Actuals

 Import Actuals
 Metadata and data imports based on chart of accounts structures
 Monthly updates from the general ledger
 Automated with ―connectors‖ or semi-automated with ETL tools
 Integrate Actuals
 Any source—GL,HR, CRM, RDBMS, OLAP
 Any data type—text, number, currency, percentage, currency
 Any level—line item, natural accounts, cost center, etc.
 Any modeling—simple of complex linking, back calculate rates



 Integration Issues
 Data spread across multiple sources
 Actuals and Plan at different levels
 No underlying activity drivers
 Actual and plan structures out of sync



 Deliverables
 Insights: What‘s Going On with the Numbers
 Actionable Knowledge: What Are Our Choices Between Things To Do
 Decisions: ―OK gang, here‘s what we‘re going to do!‖

About the Future
“Trying to predict the future is like driving down a
country road at night with no lights while looking
out the back window.”

Peter Drucker

“The future ain’t what it used to be…”
Yogi Berra



 Types of Scenario Analysis
 Manage Resource Allocations: Adjust Short Term ―Who Gets What‖
 Strategic Planning: Extend Time Frames; Same Model As Short Term



 Types of Scenario Analysis
 Manage Resource Allocations: Adjust Short Term ―Who Gets What‖
 Strategic Planning: Extend Time Frames; Same Model As Short Term
 Black Swan Planning: Understand Improbable Events [Nassim Taleb]



 Implementation Guidelines
 Easy to Create: On-the-Fly; No IT; Selectively Include Line Managers
 Easy to Maintain: Change Data and Structure in Near Real Time
 Scenario Drill Down: Comparison & Analysis at All Levels
 Real Time Feedback: The Planning Tool is the Presentation Tool


Spreadsheet Issues

 Spreadsheets Don‘t Do the Job
 Not multi-user: security and process control issues
 Not a database: consolidation and reporting issues
 Not multi-dimensional: reporting and analysis issues
 Cell based modeling: limitations on driver-based planning
 Save As for versions and scenarios: just not viable!

Scenario A Scenario B Scenario C

The Planning Maturity Curve (Palo Alto June 15)

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