In the last blog, we looked at the range of planning needs within a typical organization. This requires capabilities well beyond what Excel is able to support. Not because it is a bad product – in fact Excel is probably one of the best business productivity tools ever launched – but because it was never designed to support enterprise planning. In this blog we will look at what is required of such a system.
Enterprise Planning Applications
Specialist enterprise planning and reporting systems have also been available for many years. They were developed specifically to overcome the limitations of spreadsheets mentioned in the last blog, and possess a number of common capabilities:
Modern planning systems are set up in terms of the business dimensions in which the organisation being planned operates. This includes the organization structure; the accounts used to plan and report results; the time periods in which it reports – e.g. weekly, monthly, season; the versions of data to be held e.g. actual, budget, forecast; any line of business or major product grouping. It is the intersection of these ‘dimensions’ that define a particular value – for example, actual sales of product A by department North, in July 2012. Each underlined item is a member of a business dimension.
When it comes to reporting or the setting up of a data entry grid, the administrator simply states what dimension(s) are to form the column, row and ‘off grid’ member. For example, a report can be set up to show actual vs budget for each month as columns; the accounts making up the P&L as rows, and the ‘off-grid’ member can be department, which means the report will display each department on a new page.
As well as providing fixed reports, some users will be allowed to swap the rows and columns in the same way as Excel pivot tables. This enables them to view performance from a range of business perspectives but without having to duplicate the data or ask for new reports to be developed.
Dimension members can be arranged as one of more hierarchies. For example, the total company member can be defined as the aggregation of e.g. four divisions, which themselves can be defined as the aggregation of other departments. These hierarchies can then be used to consolidate data from those entities at the bottom of the structure to give intermediate consolidated results. Some of the more advanced systems can also store multiple hierarchies to hold, for example, this year and last year’s organization structure. This then enables results from last year to be consolidated according to this year’s structure while still preserving results in last year’s format.
Rules can also be defined for each member. This typically happens on the accounts dimension where rules can be set up to calculate sub-totals and ratios. They can even access members in other dimensions and at different hierarchy levels so allowing the creation of allocation rules that span multiple structures. What makes these rules different from a spreadsheet is that each rule uses specific member names, so users and administrators alike easily understand what is being calculated. It also means that as new members are added, existing rules don’t change and the integrity of results is preserved.
Multi-user, role based security
Enterprise planning systems recognize that multiple people will be accessing them, each with different roles and responsibilities. This means that a system can be used by many people from across the organization, but that each person is automatically controlled in terms of access to the data and features they are allowed to use.
Today’s planning systems have limits that are way greater than those found in Excel. It means that the design of the system need not be limited by the technology, although performance may be compromised if they are allowed to become too large.
In general, users like Excel. They like its formatting, charting and note making capabilities. Because of this most planning systems allow access via Excel, however the link is usually secure that limits users to what they are allowed to see as defined in the application security system
Many of the above capabilities are found in a range of general BI applications. However to support financial planning and reporting, these BI tools have additional capabilities that bring them into the category of Performance Management. These additional capabilities include:
Financial intelligence refers to the ability to deal with financial numbers. That includes dealing with different currencies; performing currency conversion at multiple rate types, e.g. average, opening, closing rate; detecting and posting exchange gain/losses, as well as the recognition of different account types, e.g. Balance Sheet, P&L and Statistical types. This greatly simplifies the setting up of calculation rules as these then automatically deal with data in the right way – e.g. whether accounts are summed over time, converted or consolidated.
The last capability is in the area of process control, i.e. when users are allowed to enter data, and who should then approve their submissions before it is consolidated with other results. For example, budgets may be required by a certain date. Performance Management systems automatically remind users and chase them up as deadlines approach. As they complete their submissions these systems validate their answers and then inform those involved in approval. Once submitted users are no longer allowed to enter or change data unless the approver rejects their submissions.
At all times administrators are able to see the status of the data – has data entry started, has it been approved, is the submission late, and so on. They can also see audit trails of how data has changed over time.
Dominant Planning Vendors
The market for Enterprise planning and reporting solutions is currently dominated by four major vendors – Oracle (with the product brand Hyperion), SAP (with the product brand Business Objects), IBM (with the product brand Cognos/TM1) and Infor (with the brand MPC). These vendors have around 75% of the market between them. However, most of the products available from these vendors are now quite old and have similar capabilities, although individual vendors would probably dispute this.
These systems are often sold as suites, although in reality they tend to be a collection of separate solutions covering planning, reporting and analysis. About the only thing they share is the branding. For example, most have distinct budgeting and dashboard solutions. This means to display data from the different planning and forecasting processes within reports/dashboards, requires organizations to buy multiple products incurring multiple setups and data transfers in order for them to operate as a single system.
They all have great references with thousands of users – but pricing is typically high. Most have an upfront fee of around £50,000+, which can be a lot higher if there are many users, and have administrator courses that can last multiple weeks. They also require the organization to have a range of installed technologies such as SQL Server, in which the application will store data. As a result it is estimated that companies should budget an implementation fee of around 1 to 1.5 times the cost of the software to cover things like training and implementation support.
However, things are changing. In my next blog I will talk about the latest developments in planning applications and the impact they will have on the software market.