ARTICLES
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August 2007 AICPA Article
AICPA Corporate Finance Insider, August 2007 Issue
Best Practices In Planning
by Gerald W. Argabrite
Even if you like your planning process, no one wants to spend more time
planning. On the contrary, most businesses want to spend less time, but
they are afraid they will lose quality if they do so. Today’s technology
offers opportunities to develop a more predictive and controlled plan
while trimming days, weeks, or even months from your planning process.
Before working with us, most of our clients used spreadsheet programs or
their general ledger budgeting modules for planning. The spreadsheets
were great for presenting the plan data, but it was difficult to consolidate
the plan and control versions. General ledger budgeting modules typically
consolidate and control versions well, but they are inflexible in the short
run for reporting and analysis of plan data. A hybrid of the two is the
best solution.
Luckily, such software exists. The technology goes by many different
names: OLAP (Online Analytic Processing), CPM (Corporate
Performance Management), Business Intelligence, etc. We will refer to it
as OLAP.
OLAP uses a powerful database to manage the data, but it can collect and
distribute the data using your spreadsheet software as the user interface.
Using OLAP, we are able to implement planning solutions that look
exactly like our spreadsheet-planners' spreadsheets but have all of the
power of the databases used by our budget-module-planners.
Some of the benefits of OLAP include: automatic consolidation, version
maintenance and control, what-if scenarios, flexibility, user-controlled
reporting and analysis, and cost.
Automatic Consolidation
The work of consolidating plans from multiple departments is a long and
tedious process. Done manually, it leaves lots of opportunity for error.
OLAP uses predefined rules to automatically consolidate plan data.
Business rules can be set up so a change to a department’s cost of goods
sold for January would automatically adjust the division and total
company amount for the department, the gross profit and net income
amount for the account, and the quarter and year for January. You can
see the results as quickly as the database can calculate (seconds or
fractions of a second).
Without OLAP, the week before plan reviews are probably spent
consolidating the plan. With OLAP, you can spend the week analyzing
the plan and preparing questions and comments. Analysts get to act as
analysts instead of consolidators of data.
Version Maintenance and Control
Many of our clients, particularly the spreadsheet clients, have problems
with maintaining a standard version of their plan. Some versions are
intentionally different. Other versions contain errors. OLAP offers the
opportunity to maintain the intentionally different versions and lock them
down so that they will not change, significantly reducing the chance for
perpetuating errors. Creating new versions of the plan for intentionally
different plans and locking them down take only a moment.
You can also create new versions pulling parts from other versions. For
instance, many of our clients will update their budget as the year
progresses. They usually create a new version that contains the year-to-
date actual and the remaining budget for the year. They use this as a
basis for developing an updated forecast for the remainder of the year.
Creating forecast versions also takes only a moment.
Although general ledger budget modules have some of these capabilities as
well, those systems are typically administered by an information
technology department. OLAP systems can be administered within the
finance department, so it enables finance to avoid any potential scheduling
conflicts from the information technology department that may delay the
creation and locking of versions.
What-if Scenario
You may want to see what your budget would look like if your revenue
was 10% higher than your current plan and you maintained the same
gross margin. You can use the powerful calculation engine within OLAP
to quickly generate a new version based on those parameters. The
calculations will run on any range of departments, time periods, or other
parameters you select. Within seconds you will have the adjusted results
stored in a new category available to be used side-by-side with the original
budget.
Flexibility
OLAP software has the ability to conform to your business needs. It
allows planning not only by account, department (business unit), and time
period, but it also allows planning by any other dimension that is practical
for your business such as product, region, customer, sales person,
employee, project, etc.
Reporting and Analysis
Because OLAP uses spreadsheet software as a user interface, the learning
curve is small. Spreadsheet users will have all of the capabilities they
already had plus additional tools and functions that interact with the
database. Users can learn to develop their own reports and do on-the-fly
analysis in just a few hours of training. They will be able to do most of
their reports on their own without assistance from their information
technology department.
Cost
OLAP software offers the power of the general ledger database budget
modules at a fraction of the cost. They are faster to implement and easier
to maintain, saving you money on both fronts. Because of the
spreadsheet interface, users become productive with the software very
quickly and reap the benefits of the software within days of starting the
implementation. You will not find a solution for planning, reporting, and
analysis that matches the capabilities of OLAP software that can compete
with the low cost of licenses, implementation, and maintenance expenses.
We haven’t yet figured out how to make a planning process that is
painless, but we can eliminate some of the biggest issues most commonly
faced by our clients. OLAP software addresses the most critical needs
for collecting and distributing planning information, and it does it quickly
and cost effectively. If you are struggling with any of the common issues
described above, it is probably time to explore what OLAP software can
do to help ease your planning woes.
Best Practices In Planning
by Gerald W. Argabrite
Even if you like your planning process, no one wants to spend more time
planning. On the contrary, most businesses want to spend less time, but
they are afraid they will lose quality if they do so. Today’s technology
offers opportunities to develop a more predictive and controlled plan
while trimming days, weeks, or even months from your planning process.
Before working with us, most of our clients used spreadsheet programs or
their general ledger budgeting modules for planning. The spreadsheets
were great for presenting the plan data, but it was difficult to consolidate
the plan and control versions. General ledger budgeting modules typically
consolidate and control versions well, but they are inflexible in the short
run for reporting and analysis of plan data. A hybrid of the two is the
best solution.
Luckily, such software exists. The technology goes by many different
names: OLAP (Online Analytic Processing), CPM (Corporate
Performance Management), Business Intelligence, etc. We will refer to it
as OLAP.
OLAP uses a powerful database to manage the data, but it can collect and
distribute the data using your spreadsheet software as the user interface.
Using OLAP, we are able to implement planning solutions that look
exactly like our spreadsheet-planners' spreadsheets but have all of the
power of the databases used by our budget-module-planners.
Some of the benefits of OLAP include: automatic consolidation, version
maintenance and control, what-if scenarios, flexibility, user-controlled
reporting and analysis, and cost.
Automatic Consolidation
The work of consolidating plans from multiple departments is a long and
tedious process. Done manually, it leaves lots of opportunity for error.
OLAP uses predefined rules to automatically consolidate plan data.
Business rules can be set up so a change to a department’s cost of goods
sold for January would automatically adjust the division and total
company amount for the department, the gross profit and net income
amount for the account, and the quarter and year for January. You can
see the results as quickly as the database can calculate (seconds or
fractions of a second).
Without OLAP, the week before plan reviews are probably spent
consolidating the plan. With OLAP, you can spend the week analyzing
the plan and preparing questions and comments. Analysts get to act as
analysts instead of consolidators of data.
Version Maintenance and Control
Many of our clients, particularly the spreadsheet clients, have problems
with maintaining a standard version of their plan. Some versions are
intentionally different. Other versions contain errors. OLAP offers the
opportunity to maintain the intentionally different versions and lock them
down so that they will not change, significantly reducing the chance for
perpetuating errors. Creating new versions of the plan for intentionally
different plans and locking them down take only a moment.
You can also create new versions pulling parts from other versions. For
instance, many of our clients will update their budget as the year
progresses. They usually create a new version that contains the year-to-
date actual and the remaining budget for the year. They use this as a
basis for developing an updated forecast for the remainder of the year.
Creating forecast versions also takes only a moment.
Although general ledger budget modules have some of these capabilities as
well, those systems are typically administered by an information
technology department. OLAP systems can be administered within the
finance department, so it enables finance to avoid any potential scheduling
conflicts from the information technology department that may delay the
creation and locking of versions.
What-if Scenario
You may want to see what your budget would look like if your revenue
was 10% higher than your current plan and you maintained the same
gross margin. You can use the powerful calculation engine within OLAP
to quickly generate a new version based on those parameters. The
calculations will run on any range of departments, time periods, or other
parameters you select. Within seconds you will have the adjusted results
stored in a new category available to be used side-by-side with the original
budget.
Flexibility
OLAP software has the ability to conform to your business needs. It
allows planning not only by account, department (business unit), and time
period, but it also allows planning by any other dimension that is practical
for your business such as product, region, customer, sales person,
employee, project, etc.
Reporting and Analysis
Because OLAP uses spreadsheet software as a user interface, the learning
curve is small. Spreadsheet users will have all of the capabilities they
already had plus additional tools and functions that interact with the
database. Users can learn to develop their own reports and do on-the-fly
analysis in just a few hours of training. They will be able to do most of
their reports on their own without assistance from their information
technology department.
Cost
OLAP software offers the power of the general ledger database budget
modules at a fraction of the cost. They are faster to implement and easier
to maintain, saving you money on both fronts. Because of the
spreadsheet interface, users become productive with the software very
quickly and reap the benefits of the software within days of starting the
implementation. You will not find a solution for planning, reporting, and
analysis that matches the capabilities of OLAP software that can compete
with the low cost of licenses, implementation, and maintenance expenses.
We haven’t yet figured out how to make a planning process that is
painless, but we can eliminate some of the biggest issues most commonly
faced by our clients. OLAP software addresses the most critical needs
for collecting and distributing planning information, and it does it quickly
and cost effectively. If you are struggling with any of the common issues
described above, it is probably time to explore what OLAP software can
do to help ease your planning woes.
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