Dynamically and Collaboratively Managing to the Bottom Line

Dynamically and Collaboratively Managing to the Bottom Line

By Doug Barton

Information technology managers and executives at companies of all sizes representing many industries are frequently called upon to provide technological and business recommendations on business intelligence and data warehousing issues and solutions.

In the past, this meant involving IT staff in hardware and software decisions relating to specific data processing/warehouse needs of a single division or department within the organization. The operations and manufacturing branches of a company, for example, would involve IT in the selection of ERP/MRP systems. Similarly, sales and marketing would appoint an IT representative to the committee tasked with evaluating various sales force automation (SFA) or customer relationship management (CRM) programs.

Today, as individual departments collaborate on new solutions to old problems using the best that current technology has to offer, IT is increasingly being called upon to suggest and evaluate enterprise-wide methodologies that impact the entire organization.

Nowhere is this quest for new solutions to old problems more urgent than in the search for better ways to achieve higher levels of financial performance. Spawned from the punishing climate of Wall Street and the relentless pace of economic change, new methods of planning and budgeting are available to corporate leaders who want to focus on the one and only true objective of financial planning: that is, positioning the company抯 assets ?its people and investments ?against the best market opportunities to generate profits.

Superior alignment between company resources and market opportunities is difficult to achieve and even more troublesome to maintain as market conditions change. Financial planning must be relied on as an instrument to collapse corporate reaction time. The goal is to get information that affects the bottom line from the right stakeholders to the right decision-maker to provide reliable, timely guidance to the front lines for business execution as quickly and effortlessly as possible.

Financial Planning is an Enterprise-Wide Concern

As the year 2001 comes to a close, we can all reflect on some of its lessons. One of the most valuable, albeit obvious, lessons is that surprises can happen. With that in mind, it抯 best to be prepared.

In today抯 environment, that means implementing strong financial controls and managing to the bottom line, day to day, rather than quarter by quarter or year over year. This "forward visibility" is a source of invaluable lead time and vital to profitably managing uncertainty and change. This is where technology can help business at its most basic level. Technology enables the collaboration of everyone involved in the bottom-line results to attain superior forward visibility that is so crucial to heading off damaging surprises.The senior finance team and mid-level business managers must find ways to maximize their forward visibility and accelerate organizational response to changes. By involving front-line people who are most closely in touch with changes as they occur, the decision-makers of a company can realign resources and people rapidly against the ever-changing business landscape.To achieve this, managers should address three key areas: continuous change capture (CCC), business alignment workflow (BAW) and activity pipeline management (APM).

Continuous Change Capture

It抯 important to capture the substantive changes that occur in business every day and enable coordinated responses to these changes.

When a marketing manager realizes she needs to exceed her travel budget in order to fund a media event or when an engineering manager learns that his requisition for a new engineer is unlikely to be filled until next quarter, this information must be reflected in the company抯 financial plan. It must also be communicated immediately to others so that adjustments elsewhere can be made.

To effectively implement continuous change capture, the following activities should occur:

• Business managers must review critical information before the next bottom- up planning cycle is initiated. Information should be rolled up for analysis and response before the next planning cycle.
• Business managers should be able to access and enter data into a financial planning system without a financial analyst as an intermediary.
• Business managers should view and report against individual department data and rolled-up multidepartment plan information created since the completion of the last planning cycle.
• Once an organizational change is announced, the financial plan should immediately reflect the new structure and should be rolled up and viewed within the system by all eligible users.
• Managers should be able to create an unlimited number of detailed line items as subcategories to accounts in order to capture, annotate and track planned expense capital and headcount assumptions through time without involving specialized IT administrators.
• Nontechnical finance managers should have the ability to configure major organizational or business hierarchy changes without involvement by IT personnel.

Business Alignment Workflow

Business alignment workflow is the systematic process of incorporating new information and making adjustments to plans. This ensures that material change ?whether initiated by a change in top-down targets or a business manager抯 recognition of a new opportunity ?is incorporated quickly and that realignment occurs quickly.

Planners should be able to continuously align workflow as top- down guidance and bottom- up requirements are given. If these two sources of information don抰 mesh, the appropriate adjustments and communications should be executed.

For example, corporate FP&A sets and adjusts profit and loss targets for each business unit. Each business unit sets and adjusts internal spending targets for major departments and each parent department manager distributes these spend targets among his reporting departments. Meanwhile, department managers plan, execute to and adjust headcount, spend and capital budgets in bottom-up fashion.

Data workflow and messaging capabilities are important to facilitate ongoing alignment of top-down targets with bottom-up plans both during and between planning cycles.

Other important steps in the BAW process include the following:

• New top- down spend targets should be pushed progressively through each layer of the organization to those departments (and only those departments) that are affected without initiation of a new planning cycle.
• Managers should evaluate and modify their department plans against new targets in a private planning area. Once a manager is satisfied with a modified plan, s/he should publish it for viewing and roll up to the appropriate up-line departments and distribute revised targets to all affected reporting departments.
• If a manager should publish or submit a plan that exceeds top-down targets for their department, workflow, messaging and an audit trail capability should exist for requests and approval/rejection for funds in excess of current plan.

Activity Pipeline Management

Activity pipeline management recognizes the varying degrees of firmness and specificity between business activities that represent pipelines of resource commitments (such as procurement and recruiting). For example, an offer letter to a prospective new employee is a short-term, concrete commitment whereas an open purchase requisition represents a longer term, big-picture commitment that impacts planned spending across broad account categories.

The most effective finance managers must be able distinguish between different levels of commitment in business activity pipelines:

• Managers should be able to distinguish between existing, committed and planned headcount in the planning system.
• Managers need the ability to easily perform analysis that reveals what percentage of planned headcount expense is attributable to existing employees versus committed or planned hires.
• Financial processes should be easily integrated and synchronized with recruiting and procurement processes to provide visibility to and reporting against specific commitments in the context of the plan.
• A business manager should record and maintain detailed, specific line items that make up the plan for specific accounts.
• Managers should have clear visibility into how much of an account plan is consumed by specific detailed line items as opposed to a yet unspecific bucket.

A Fundamental Shift in Perspective

Effective financial teams must maintain "dynamic financial control" on behalf of all stakeholders in a company. This requires a fundamental shift in perspective on the problem, supported by an equally important shift in the underlying technology used to create and manage financial plans. Tasks must extend beyond complex number crunching or simple collaborative data input. Instead, business managers must be connected with each other to share meaningful financial guidance, insight and data in real time.

In today抯 fast-changing, uncertain marketplace, financial managers must be able to implement and support:

• Significant productivity increases in finance and G&A functions in support of financial planning, analysis and reporting.
• Increased ownership by business managers of financial commitments and forecasts.
• Dramatic improvement in forward visibility as the leadership team is alerted to and can react very rapidly to material changes, even between planning cycles.
• Continuous visibility to requisitions and commitments made on hiring and purchases and controls to keep those in sync with the latest financial plan.
• Substantial reduction in IT deployment and maintenance cost and time relative to a custom tool deployments and older generation technologies.

These new processes put a premium on real-time visibility to existing operational commitments, speedy interpretation and synthesis of new information into action plans and instantaneous realignment of expense, capital and headcount plans to new guidance.

Doug Barton is vice president of marketing for Closedloop Solutions, Inc. of Redwood City, California (www.closedloopsolutions.com), which provides Internet-age financial planning solutions for senior managers in enterprises in high-velocity markets. Closedloop has delivered the first Web-enabled Dynamic Financial Coordination solutions that enable real-time, end-to-end financial plans that can be instantly updated as market conditions change.