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Integrated Planning Part 2: Linking Up Disparate Data Streams

Oct 14, 2016

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Nilly Essaides, Director & Practice Lead, Financial Planning & Analysis, AFP

This is the second part of a two-part post on integrated planning. Part one focused on how integrated planning helps companies make smarter decisions. Part two focuses on the technology implications.

Integrated planning means synching the financial and operational planning processes. It’s a strategy that merges cross-functional information and allows finance to see and predict the financial implications of changing business drivers and how financial decisions may impact operational choices. By looking outside its own four walls, financial planning and analysis (FP&A) can provide better and data-driven decision support to business leaders and management to optimize enterprise performance.

Technology is the backbone of integrating two, once-disparate data streams—operational and financial. That’s something many legacy systems can’t do because they were built to work in silos. According to Meredith Hobik, product line leader, finance at vendor Anaplan, to be able to break the old barriers, companies need tools that provide users with a collaborative planning platform to share the same metadata, hierarchies, versions, and formulas. These tools “can pass the information between finance, HR, sales and marketing on the same cadence. Integrated planning means everyone speaks the same language, across finance and the business.”

Added Steve Elliott, director at The Hackett Group’s EPM Transformation Practice: “Now there’s a real opportunity to integrate the S&OP process with the finance process and create a strong linkage between the budget and the forecast and operational information flows in real time.”

Ultimately, all financial metrics relate to something that at its core is operational. The simple premise behind integrated planning is that every line in the P&L or the balance sheet is tied to real or virtual assets. “Production limits tie into marketing campaigns, which tie into working capital, which tie into what kinds of financing a company needs. “That’s why it doesn’t make sense to work in a silo,” said Nari Viswanathan, vice president of product management at River Logic.

What’s different?

There are several aspects to these new solutions that make them stand apart.

They democratize knowledge. The solution may sit in finance, but it must extend to other departments so that changes to business drivers are incorporated in real time into the financial plan and analysis. Ian Charles, CFO of Host Analytics, offers a simple example: “If you ask the head of sales what’s the impact of a growth of X percent in sales on EPS,” he or she can’t answer that question using traditional tools. “It’s only when you combine the financial and operational steams of data that you can ask and answer questions that require more complex calculations.” It’s very helpful to use tools that provide business partners with the capability to ask and answer some of their own questions. “It gives them a chance to have a deeper understanding of the overall business and have a richer conversation with FP&A,” he said.

They can get granular. According to Christian Gheorghe, CEO at Tidemark, while before, planning was done at the regional or corporate level, to be able to compete at the digital age, companies need to be able to analyze their business at the transaction level to uncover patterns, look at business drivers and accumulate per-customer information. “Before they were basically blind,” he said.

They’re hypothesis based. What distinguishes a system that enables integrated planning from a traditional financial planning application is that it’s hypothesis-driven. “You start with a problem,” said Nari Viswanathan, vice president, product management at River Logic. “Then you then look across the data sets to find the relationship.” Older systems first identify drivers and then look for what connects them. Once the model is validated, FP&A can enter new data. Based on this new data, FP&A can test how the model will respond. “The system can deliver recommendations on what you can do to change the outcomes,” he said.

They’re multidimensional. Even today’s driver-based models are based on simplistic assumption. They do not connect the relationship between multiple parameters and a number of combinations, but how a single driver affects a single financial result. “If FP&A is really trying to predict how the enterprise will perform, it can’t make simplistic assumptions or rely on averages. It needs to use granular data points all the way down to the cost of raw materials at the supply-chain level,” Viswanathan said.

Taking an integrated approach leads to measurable benefits. Viswanathan has seen companies realize actual top and bottom line improvements of 1-5 percent in annual revenue. “The integrated planning tool provides data-driven decision support,” he said. “It means the company can move away from making decisions based on the loudest voice in the room.”

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