The Ten Day Plan: When a 45 Day Planning Cycle just won’t do

By John Power
Vice President, Business Development, Longview Solutions

BPM pundits have been congratulating themselves on reducing the planning and budgeting cycle from 120 and 90 days to 45 days. But, is 45 days good enough? How many days constitute a responsive cycle time? Between 5 and 10. Why is cycle time reduction important? Because shorter planning and budgeting processes facilitate greater flexibility and responsiveness. As processes get longer, the probability that organizations will be able to execute against today’s strategic imperatives diminishes.
A ten day planning and budgeting cycle represents a drastic reduction for most organizations. Such a reduction calls for a fundamentally different approach – one that fully integrates strategy, finance, sales and operations into a “single plan of record”.
Integration provides the foundation for shorter processes. It enables a more continuous and dynamic management process that enables organizations to quickly adapt to change. Central to such a process is the ability to significantly improve organization communication by enabling people to get on the same page. Isn’t this what BPM does? Not exactly.

Dynamic BPM
Traditional BPM doesn’t fully support dynamic management processes. Budgeting processes are still long – an average of 75 days. Most aren’t well integrated with corporate strategy processes, making key assumptions and risks difficult to manage. The situation is compounded by the fact that, while organizations have access to volumes of data, they remain starved for information and insight.
Dynamic BPM enables operational mangers to develop plans and manage performance in terms that are meaningful and relevant to them, while also sharing such information in similar terms with others. Moreover, planning assumptions can be explicitly stated and monitored, enabling organizations to better manage risk.
Why is managing risk important? Because the one thing that is certain about any plan is that it’s wrong. What governs the ability to achieve the objectives that underlie a plan is how well uncertainty is managed. In other words, the key to executing strategy and optimizing performance lies in how organizations manage risk.
How can organizations more effectively expose and manage key risks? As illustrated below, by employing integrated business models and management processes.
(insert Exhibit 1).
Such integration provides the means to mange six important risks that are addressed below.
1. Revenue Risk
The foundation for any business plan is a single view of demand. To achieve this, organizations need to reconcile the perspectives of different departments, including marketing, sales, finance and inventory management. Accomplishing this requires the ability to make key assumptions explicit (e.g. total unit sales, product mix and average unit price) in order to achieve this reconciliation. The exhibit below illustrates of how such assumptions can be graphically illustrated to reveal risk.
Insert exhibit 2.1
In the example, the top right quadrant represents low risk because assumptions are strong and unit forecast accuracy for the product line is high. Circle A represents the opposite situation. In this case, product volume and mix variances reveal that the organization is at risk of not achieving its revenue plan.
What’s important to understand is that this assessment can’t be undertaken by any one department. It requires a collaborative effort between sales, marketing, operations, and finance.
2. Capacity Risk
Once demand is determined, business models can be used to translate demand into units of work for specific departments and processes. In a warehouse or call center, for example, this entails determining the number of labor hours required to meet the demand and comparing this to available capacity to meet it. In manufacturing, this would also include production and inventory plans. Provided below is an illustration of how capacity risk could be depicted for a warehouse.
Insert exhibit 2.2
The bars represent required man hours, broken down by major activity. The portion of the bar above the dotted line represents capacity shortfalls. The lines above the bars identify the difference between the current staffing plan and the proposed one to meet increased demand.
Such tools also provide the means identify demand risk. That being, the degree to which resource requirements vary with different product demand mixes. In the warehouse example, scenarios can be developed to quantify the impact of how changes in product demand mix can lead to different resource requirements because the time required to process orders can vary from one type of product to another.
These modeling capabilities provide the forward visibility needed to avoid unnecessary costs. Moreover, they provide a solid foundation for budget development by defining the amount of work required to meet both expected demand and business objectives.
3. KPI and Budget Risk
Once budgets and targets are set, it can be difficult to assess whether Key Performance Indicators (KPIs) remain realistic and adequately funded. The following graphic illustrated how such risk can be succinctly summarized.
Insert exhibit 2.3
Building on the warehouse example above, the change in product mix might mean that more resources are required in fulfillment to support the change. In this case, the KPIs would be aggressive without increasing resources / budgets. Hence its position on the graph.
The idea is for managers to assess the achievability of planned service levels, based on whether they think that they are passive or aggressive, given budgetary and operating constraints. The closer the circles are to the middle of the graph, the lower the risk. Outlying circles on the graph should prompt discussion and analysis.
Similar graphics can be developed for IT functions to help them manage the expectations of specific user groups about service levels that can be provided, given budgetary constraints.
The key point to note here is that there is an explicit link between budgets and service level and productivity targets. And this strategic linkage is maintained on an ongoing basis – not just once a year.
4. Performance Risk
One of the fundamental challenges in organizations is ensuring that resource allocation optimizes performance of the organization as a whole. To illustrate this, consider the order fulfillment example below. It shows how the performance of three KPIs could be measured over time
Insert exhibit 2.4
Traditional BPM doesn’t fully support such measurement. If you can’t measure this, you must consider who in your organization is responsible for:
? Optimizing the performance of these conflicting KPIs?
? Coordinating target setting and budgeting processes (across functions such as order entry, collection and fulfillment) to ensure that supporting KPI’s optimize these three higher level ones?
? Ensuring that projects affecting this process achieve their stated objectives and realize planned ROI?
In many organizations, no one person or team is accountable and rewarded for managing these KPIs. This is because BPM typically supports functionally based budgets. The issue is that if you can’t measure in this way, you’re probably not as aligned as you think. In this context, organizations are often exposed to performance risk.
This exhibit also illustrates how measuring process performance provides the means to measure “IT Value” in clear and simple terms. The inability to measure this way is one of the primary reasons why organizations have such difficulty managing IT investment portfolios.
One of the other challenges in measuring IT value lies in quantifying so called “soft benefits”, such as “Perfect Order Fulfillment”. In such cases, the key to assessing value lies in its impact on Customer Portfolio Risk.
5. Customer Portfolio Risk
Investing in existing customer relationships often has one of the highest rates of return, yet most organizations have difficulty measuring it. As illustrated below, two things are required to measure this: customer loyalty and (activity-based) margin / profitability.
(Insert Exhibit 2.5)
In this example, customer A represents the highest amount of risk. Following the example above, organizations need to understand how improving Perfect Order Fulfillment increases customer loyalty, thereby reducing this risk. The key point here is traditional BPM doesn’t fully support such measurement, thereby undermining the ability to manage investment portfolio risk.
6. Investment Portfolio Risk
Without the measurement capabilities described above, organizations often lack the information to effectively manage investment portfolios. Not only because traditional BPM provides limited capabilities, but because organizations don’t always manage investments in an integrated manner. As illustrated below, few have integrated portfolio measurement that summarize different types of investments in a single matrix
(Insert Exhibit 2.6)
In this example business process and information technology are represented by the circles, new products by the blue and other investments (e.g. capital equipment) by the green
Integration provides the means to achieve four objectives that are essential for optimizing the value from new products and capabilities, but which most organizations fail to achieve.
? Select the right investments by using a single process for screening, evaluating, approving and managing investment opportunities.
? Ensure that there is sufficient capacity to both develop, operate, and support new products and capabilities.
? Coordinate cross functional development activities. For example new products and information technology are becoming increasingly intertwined. This is especially true in banking and other service sectors.
? Manage risks that are common to multiple projects / investments.
By using an integrated approach to managing and coordinating investment and deployment activities, organizations can substantially reduce the number of new products, processes and technologies that fail to fully meet their objectives.

Redefining Strategy Integration
How do you fully integrate strategy with tactics / budgets? And how do you know when you’ve achieved it? In its simplest form, full integration is achieved when organizations are able to manage the above noted risks. At this point, strategic objectives, together with expected demand, can be translated into specific units of work that are adequately funded through the budgeting process.
This definition challenges the extent to which traditional BPM supports strategic integration. How do you know if BPM system supports such an approach? While the issues are many, you don’t have to look far beyond the planning model. It must support time-sensitive models that support an unlimited number of drivers, while also incorporating assumptions that can be shared across multiple scenarios in planning and budgeting applications.

Dynamic Management Processes
While such models play an essential role in managing risks, the ability to continuously manage them, while creating and updating plans more frequently, requires a shared, process-centric approach.
Such a process requires an event-driven and dynamic work flow that supports processes for identifying, collaborating and resolving performance, capacity, risk and internal control issues across multiple functions and applications. As decisions are taken, the process must ensure that they are quickly reflected in updated business plans and that supporting documents are available for audit.
Management tools must also be in place to ensure that things are getting done. Overdue issues and tasks must be identified. Cycle time must be managed, as well as other management process KPIs.
The combination of integrated models and processes creates important differences between traditional and dynamic BPM. And, if you want a more strategic management system, you need to understand those differences.

The Value Of Dynamic BPM
While these features and benefits are all very attractive, what business value do they really create? When the value of BPM is discussed, one typically talks about lower budgeting costs and better decision making. What you don’t hear about is how it actually improves business performance.
Dynamic BPM is different in that there is a track record of demonstrated business value. It builds upon “Sales & Operations Planning” (S&OP) processes currently employed in the manufacturing sector. What’s new is that it provides the financial and strategic integration that traditional S&OP processes typically lack.
Despite its shortcomings, the value of S&OP is indisputable and has been well documented. Depending on the research source, organizations have seen increases in customer service, productivity and gross margins of up to 25%, 20% and 4% respectively. At the same time, they’ve seen reductions in purchase costs, inventories and lost sales of up to 13%, 30% and 37% respectively.
These are compelling numbers. And these are the benchmarks to which strategically focused CFO’s should aspire.

Enabling The Strategic CFO
These capabilities represent a significant step-change in a CFOs ability to help organizations achieve strategic objectives. More effective risk management is central to this capability. Beyond this, however, lies the ability to fundamentally change the fabric of an organization, by enabling them to:
? Establish “effective accountability” for managing conflicting objectives that affect multiple functions, as illustrated in the aforementioned order fulfillment example After all, people can’t be held accountable for things that aren’t planned and measured. And if no one is accountable for specific outcomes, they, by definition, aren’t really being managed. In this context, key “governance gaps” can be addressed.
? Encourage more of a “Business Owner Mentality” by holding people accountable for managing conflicting objectives associated with specific outcomes. In so doing, people are essentially given a business to run. In turn, this provides the means to enrich employee work lives, making it easier to attract and retain quality people.
? “Manage expectations” of internal and external customers and suppliers about service and quality levels that can be achieved, in light of budgetary / cost constraints How? By enabling explicit dialogues about resources required to achieve objectives. As a result, stress associated with unrealistic targets is greatly reduced
? Promote more “market-like actions” that enable strategy and cost structures to naturally adapt, respond and self-correct to meet evolving customer needs and changing market conditions. In other words, improve organization agility
Ultimately these benefits arise from harnessing and focusing an organization’s collective experience on broader issues and objectives, rather than those of individual functions. In so doing, this new approach enables CFOs to help organizations overcome “functional silos” – ones that traditional budgeting approaches often reinforce, and that typically limit the value realized from BPM to more tactical sources.

Sir John Bond, Chairman of HSBC Holdings, said, “There are few original strategies. There’s only execution”. Superior execution calls for more dynamic management processes. By looking beyond the limitations of traditional BPM approaches, CFOs can become more effective and strategic business partners – ones that institutionalize flexibility and responsiveness into the fabric of their organizations.