Budgeting and financial forecasting are critical planning and management disciplines that provide invaluable aid to business managers in the decision-making process. Most companies have business plans in varying forms of sophistication and use, that provide points of comparison to gauge success. Capital and operational funding, whether by personal capital investment, financial loans or some combination of the two is required to drive a company’s plan. No matter what the source of funding, a return on investment is what will dictate a business plan’s viability.
Forecasting empowers management in two ways. First, it enables managers and owners to make the initial determination to fund the venture. If you are going to invest your money in an enterprise, or hope to attract some form of outside investment, you must be able to provide some credible evidence that your monetary investment, or your investor’s money will be safe, and return sufficient profit to make it a better investment than simply putting it into a savings account or some other form of safe monetary instrument. Second, as a business manager or investor, you need to have a reliable tool for comparative reporting to enable the measurement of success in relation to the company’s goals to: (1) make on-going adjustments to the company’s plan to stay on target or improve it, and (2) provide information to investors that will let them decide if they want to continue to fund this enterprise. Regardless of the use of the forecast, it can only be useful if it is accurate and used to optimize the performance of the company.
A forecast needs to be a representation of the company’s business plan. It will be a combination of historical data, current results and future expectations. It must be developed by people with intimate knowledge of the company’s operation, its business strategy and its ongoing plans for the future. By definition, a forecast is a look into the future to reflect the company’s estimate of future success. The more often a forecast is reviewed and adjusted, the more reliable it will be as those responsible for creating it gain experience at recognizing trends and their effect on the business’ performance. Comparison to actual results on a regular basis in the shortest delay possible will allow management to make required adjustments to operations to maximize performance and ultimate profitability. The more efficient and speedy the process, the greater value it will provide.
Enter IBM Planning Analytics. Formerly known as TM1, this forecasting and comparative analysis software provides the enterprise with, among many other things, four crucial required elements: (1) accuracy, (2) speed, (3) reliability and (4) ease of use.
Planning Analytics provides the analyst with the most current actual performance information through its direct link to the company’s financial database. Based on a scheduled update, (daily, weekly, at will or whatever management chooses) it allows management the ability to automatically update all reports with the latest available performance information. The ability to create, use and re-use sophisticated user-designed reports, means managers are always looking at the most current, personalized, balanced, vetted information available without concern that others may have different versions of the data. This eliminates any confusion that can occur when individual managers create their own Excel-type reports by transposing information from different sources. We refer to this as ‘One Version of the Truth’.
The forecasting tools provided by this exceptional solution allow upper management to offload the responsibility of creating the forecast to those managers responsible for the operation of the business units or corporate areas they are charged with managing. Through a common portal, protected by a sophisticated security system, forecasting reports can be remotely prepared, submitted, reviewed and re-worked, if necessary, before they are finally approved. Once approved they are automatically combined with other approved divisional forecasts into a single detailed corporate projection. Forecasts that are created by those with the most intimate knowledge of each particular aspect of the operation have proven to be the fastest and most accurate forecasting methodology.
Since all users are viewing ‘One Version of the Truth’ there is no concern that different individuals are looking at different results. New tools have been added to allow the users to easily combine actual performance for periods already completed with the forecast period, allowing a consistent look at the revised forecasted period-ending results. Drill-down and especially drill-through ability enable managers to review the very lowest level of account detail to perform in-depth analyses of the company at all levels of the operation. Beyond its obvious benefit during the forecasting cycle, it has always been a most valuable management tool for maintaining overhead and operating expenses as well as sales and cost-of-sales-analysis.
(4) Ease of Use
Tools such as sandboxing allow managers and approvers to perform ‘what if’ analyses on each segment and then on the overall prior to submission for final approval. Accompanying notes, emails and notices provide complete control of the entire process on both the sending and receiving ends to ensure the best possible forecast is provided while respecting timing requirements at each stage of the process. Embedded forecasting calculation tools allow managers to utilize reliable mathematical and variance analytical formulas (i.e. straight-line, percent of actual and/or budget, etc.) to efficiently drive the process using the most effective methodology to populate figures for the forecast period.
There is only value in forecasting if the creation of and comparison to actual performance does not consume so much time as to render its value useless. Management must be able to create the forecast quickly and easily, and then use it to reliably measure past success and set future goals in a fast, efficient and accurate manner that minimizes production time while maximizing analytical time to drive the company’s growth and profitability forward. IBM Planning Analytics delivers as advertised in all critical ways, making it an indispensable management optimization tool.
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