This article will continue the discussion of improving these tasks and processes and ensuring that the strategy is aligned with the reporting, planning, and analysis.
Planning consists of creating both an annual budget and forecasts. A forecast can include a rolling-forecast, five-year forecast, monthly forecast, and a quarterly forecast. The process to put together a budget or forecast can be very complex and time-consuming for organizations, but this section will discuss the best practices of the planning process and how it relates to strategy.
For budgeting, a good practice is to create a top-down and a bottom-up budget. The top-down budget should be set as part of the strategy session and is an efficient practice to determine if the strategies will be successful. This involves more general increases and decreases, but it would be aligned with the strategy of the company. The bottom-up budget would be determined by the employees after the strategy has been communicated and finalized with the management team and employees involved in the budgeting process. If there is a substantial difference at the end of the two processes, then it must be analyzed to determine the differences.
The difficulty is aligning the strategy to the planning process. Many discussions about investments and budget reductions must take place prior to the planning process. For example, it may not be possible to increase revenue by 50% without hiring more employees or cutting departmental costs by 20% without having any loss in production. Therefore, it is imperative that any decisions on investments, hiring, and financing are finalized and documented prior to the start of the planning process.
There may be times when a strategy has been set but a manager provides good reasons why the strategy may not work or why the goal is impossible to reach. Meet with the employee and discuss the issues and determine a fair common ground. It is essential that everyone is on board with the strategies and that the goals set are fair and achievable.
Below are practices that should be followed to ensure an efficient process:
- Software: most companies still use native Excel for their planning, but it is difficult to consolidate, prone to errors, contains links that are hard to maintain, and overall can be very time consuming. Purchase planning software that can ensure more efficient tools, fewer errors, less manual work, and better accessibility. Planning software also allows version control, the ability to consolidate, template control, security, and improved reporting and analysis. An Excel add-in product may be the best solution for administrators, as they already have Excel skills and then use a web portal for the end-users to enter their data.
- Standardize: use standardized and secure templates across the organization. Employees should not be able to modify the templates themselves, and the templates should be used across multiple departments rather than each department needing a specific template.
- Workflow: have a practical workflow and timeline that allows management to review status in real-time and reinforce the approval process.
- Timeline: determine the timeline, document it in detail and communicate it to all parties involved. The timeline should include when the budget administrators start the budget, through approval, and finally, consolidation of the budget.
- Lock Down: once the budget is complete, then it should be locked down.
Reporting and Analysis
There is an old saying that that states, “If you can measure it, then you can manage it.” As mentioned, it is imperative that the data needed to analyze the strategy is available. If not, then the strategy can’t be managed, as there will be no ability to report on it or analyze it.
Reporting and analysis should concentrate on the areas of the business that impact revenue growth, costs, and profitability. Every company has a handful of reports, but do the reports have value for the management in order to impact the decisions that are made? Companies may be able to eliminate many reports by creating dashboards that present KPIs (key performance indicators) and because the reports have no impact on decision making.
In our experience, we have seen reports that have hundreds of tabs while others have thousands of cells to review, and then there are companies that have hundreds of reports. The question to ask is, how can managers and employees review these reports and know what is truly important? How does an employee look at this much data and make a decision that has an impact on the company? Instead, interview the managers and employees and ask them what is important to them and why it is important and create a new report or dashboard for their use. Then, eliminate the noise of the reports and simplify it for them by only showing what they need to know. If there are issues, then detailed reports should be available for review.
Review the monthly reporting process and document the goals and the agenda of the meetings. Evaluate the purpose, the takeaways, the follow-ups and the communication during the meetings. As an example, is the finance and accounting department running the financial statements and then reviewing these with the management team, or are they creating an executive summary that concentrates on specific KPIs that drive growth and profitability?
The monthly process should also be tied to the strategy and the success or failure of the strategy based on the analytics. As an example, if one goal of the strategy is to increase revenue by 20% by the end of quarter one and increase profitability by 30%, then these KPIs should be reviewed in comparison to the goal during these meetings. If the goals are not being met, then review the strategy and goals. Discuss and determine if the goals are too aggressive or if the strategy is not working and needs to be modified to meet the goals. Create an action item list with a timeline to resolve.
One other area that must be considered is how to hold employees accountable to the goals that have been set. The managers should be involved in the decision-making to set goals, but once they are set, then they should be responsible for meeting those goals. Each month, the managers should enter any comments, and if they are continually short of their goals, then there should be warnings, write-ups, and potentially termination or demotion.
Below are additional best practices in regards to reporting and analysis:
- Process: improve the process to enable more time for decision-making. Use technology to assist in improving the processes and enabling access to data to assist in better decision-making.
- Review Variances: examine variances monthly with department heads and document the reasons for the variances. The comments should be saved and accessible anytime.
- Action Items: determine and document any action items that must be taken to improve negative variances or to enhance positive variances.
- KPIs: create a KPI report for management and separate dashboards for each department head. The dashboard should provide managers with the ability to be observant and prepared for any possible issue that may arise. KPIs should be achievable and clearly visible, and all wins should be celebrated.
- Performance: use KPIs to view the top performers and to ensure that the underperformers are not hiding. The KPIs provide evidence and facts and remove speculation around success and failure.
- All Employees: try to have at least one KPI on every person in the organization. The employee and the manager should have access to the KPI to view at any time.
- Forward Thinking: typically, KPIs are based on what has happened, but include at least a couple of forward-thinking KPIs.
Monthly Meeting: change the monthly meetings to concentrate on the KPIs and use the reports as backup or for additional detail. Create an agenda and an executive summary to ensure that the meeting stays on task and concentrates on the main areas of success and concern.
If you want to read more about a Closed-Loop Planning, Reporting and Analysis Process, I suggest you read part one of the series. Solver enables world-class decisions with BI360, a leading web-based CPM suite made up of budgeting, reporting, dashboards, and data warehousing, delivered through a web portal. Solver is reinventing CPM with its next generation solution. BI360 empowers business users with modern features including innovative use of Excel in the model design process. If you’re interested in learning more, our team is excited to hear about your organizational needs and goals.