IBM Vision 2012
IBM Vision 2012
Greetings from Orlando. I left Munich Saturday morning to attend the IBM Vision 2012 conference. This three day event for finance & risk management professionals will be exciting. There are fantastic keynotes lined up as well as a ton of awesome break-out sessions. I am really looking forward to it.
Keynotes
The keynotes at IBM Vision 2012 promise to be especially interesting this year. The list of external speakers includes John Hagerty from Gartner, book author Michael Mauboussin
Join the conversation
For those of you who will attend IBM Vision 2012, please do reach out to me (@cpapenfuss). I would love to connect. If you cannot attend the conference, you can still participate in the conversations. There are two main options:
- Join via Twitter. The official hashtag is #vision12 . Also, make sure to follow @ibmcognos for updates. I will try to tweet whenever possible.
- View the keynote sessions from your desk via Livestream. All keynote sessions will be broadcast and should be available for viewing after the event as well.
Stay tuned for updates!
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Why continuous forecasting is more enjoyable
The case for continuous forecasting
Time for a confession. I really hated forecasting back in my old job. Kind of crazy since I was working with clients on improving their planning, budgeting & forecasting processes. Yet, I absolutely hated doing my own forecast. What was wrong? First of all, the template was terrible. Way too much detail. It took me hours to get it done. Luckily, I only had to do this 2-4 times per year. But that was also part of the issue. Every time I received the updated template I had to start from scratch and enter a ton of data. Also, I had to re-orient myself and figure out how the template worked this time. And then there was the reconciliation between my project plans and the prior forecast. To sum it up: The ramp-up time was simply too long. It was awful. But there is a better approach: Continuous forecasting
Fire-drill
Indeed, the typical process for updating, distributing, collecting and aggregating forecasting templates can take up to a few weeks in many companies. Part of the issue is that the forecast templates are often unavailable to the user community. Analyst need to maintain and update hundreds of spreadsheet templates between forecasts (formula fixes, structural changes, data loads). The process looks something like this:
The traditional spreadsheet-driven process
At the start of a forecast cycle, templates are distributed. Many business people feel overwhelmed at that point. Starting from scratch is always tough. You have to orient yourself, your have to build numbers up etc.. As a result, business people feel that forecasting resembles a fire-drill.
Forecasting software
But there is a much better approach that many of my clients have implemented. Modern planning & forecasting software allows us to keep our forecasting templates online nearly 24*7. Forecasting software like IBM Cognos TM1 automates and significantly enhances all those manual tasks such as formula fixes, data loads, aggregations, etc.. Overall maintenance is a lot easier and the templates can be online allowing the users to work with their forecast data around the clock. Forecasters can therefore perform quick incremental changes to their forecast instead of performing time-consuming, infrequent larger data input exercises. But what is the advantage of doing that? Very simple: Incremental effort is always easier and faster than ramp-up tasks. Think about your personal life: If you spend ten minutes per day cleaning up for desk or office, everything will be in good shape. But if you let things slip for a week or two, cleaning up suddenly becomes a daunting task. This is what the process can look like:
The continuous forecasting process
Continuous Forecasting
Does this work? Absolutely. I have experienced this myself. After every client visit, I spent a few minutes updating my forecast. A lot of my clients have implemented this approach. Clients typically experience three main advantages:
- The more often you work with a system the more comfortable you become. Users tremendously benefit from that. Their efficiency increases.
- The actual forecast process is a lot faster for the business users. Finance is able to reduce cycle-time.
- Forecasts tend to be more complete. In the case of an urgent ad-hoc forecast (imagine something critical happened), the business is able to compile a near complete forecast in within a short period of time.
But the Finance department now has to carefully manage this process and clearly communicate timelines and expectations to the business. Submission deadlines need to be crystal clear.
Let me clarify one last thing: A continuous process does NOT mean I can simply aggregate my data every night and obtain an updated forecast. No, I need to communicate to the business WHEN I need the data. But due to the 99% availability I can collect my data very quickly.
Continuous forecasting can be a powerful approach! Would love to hear your thoughts and experiences. Good or bad. If you are interested in this topic, why don’t you join of our Rolling Forecast workshops or IBM Finance Forum?
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The other side of Cognos Insight – A powerful planning client for TM1 (Guestpost)
Cognos Insight and TM1
There is a lot of buzz about Cognos Insight. It is a great tool for analyzing and discovering data. There is also the ability to perform powerful what-if analysis through the use of write-back capabilities. But Cognos Insight is actually more than just a personal desktop analytics tool. You can use it to create visually appealing planning applications for IBM Cognos TM1.
An awesome planning client
Many business users literally hate the mandatory planning, budgeting and forecasting processes. Part of the issue are the cumbersome spreadsheet templates. Cognos Insight provides a radically new approach. You can develop visually appealing applications that connect directly to your TM1 model. Here are some of the great things you can do with Cognos Insight:
- Create detailed instructions for the planning or forecasting process
- Instructions can include images and hyperlinks
- Automate process steps by including action buttons
- Provide additional planning context by including dashboards that connect to your Cognos 10 models
To do that, you simply have to connect Cognos Insight to the workflow of a specific TM1 planning application.
Cognos Insight and TM1
Let’s take a look at a simple example – a sales forecasting model. It is a well-known best practice to include specific instructions in a planning template. That helps the business understand the model and to identify specific tasks that they need to focus on. Cognos Insight allows you to insert text boxes, images and hyperlinks. Action buttons make it easy for casual users to jump between different planning pages and cubes. The result is a clean-looking set of pages.
Planning and forecasting should go hand-in-hand with analysis. Cognos Insight allows you to include dashboards and reports from your Cognos 10 or TM1 environment. This makes it very easy and pleasant for the business people:
You can finally also include traffic lights and real-time charts right in your actual planning application. This provides users with instantaneous & visual feedback. We all know that a picture says more than a thousand words, right?
Last but not least, you can also leverage great short-cuts for entering data.
Cognos Insight & TM1
Cognos Insight is much more than just a personal analytics tool. Using it as a client for TM1-based planning or forecasting models offers up some fantastic opportunities. Business users love the visual and interactive applications you can build. Is it hard to create these applications? No, not really. All it takes is drag and drop.
About our guest blogger – Paul Bremhorst
Paul is currently working as a Solution Architect for the IBM Business Analytics Product Marketing team. He joined Cognos as a BI Consultant in 2007 from a background of developing sales reports in the banking and finance sector. He lives in beautiful Stuttgart, Germany and loves to ride his motorcycle.
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The reputation of business forecasting is not positive – Time for change!
Business Forecasting
The budgeting and business forecasting processes often have a poor reputation in many companies. Part of the issue is that the people involved in the process do not see a lot of value in it. Last year in November, two of my colleagues and I conducted a survey amongst 162 senior finance professionals in the UK. One section of the short questionnaire focused on the value and the perception of the business forecasting process.
Good is the enemy of great
The survey asked finance professionals two different questions:
- How do you rate the value that you get out of the forecasting process?
- How does the business rate the value they get out of the forecasting process?
Here is what we found:
Business Forecasting: Low satisfaction & value
The results are sad – not necessarily surprising, though. Only 37% of the finance people rate the value they receive from the forecast process as good or outstanding. The rest feel it is just adequate or poor. It gets worse when we look at the business users. Less than 27% feel they receive good value.
Some people might be tempted to say that the results are not that bad. Be careful, though. Business forecasting is a critical process in turbulent times. And it is time-consuming in many organizations. We should therefore not be satisfied with ‘adequate’ or ‘poor’. Imagine we would apply the same standard to our personal life? It would be a very sad life, indeed. Or think about professional athletes – they would not put up with ‘adequate’ materials or training plans. That would put them in the lower performance bracket.
Time for change
Take a look at your business forecasting processes. How satisfied is finance? What about the business? We should not accept ‘adequate’ or ‘poor’ for an answer. The stakes are too high. And we should not waste our valuable time managing low-value processes.
It’s time for change! In one of the upcoming posts, I will write about some of the reasons that lead to the poor perception of the business forecasting processes. In the meantime, you can find ideas for improving your processes on this blog. Alternatively, pick up the fantastic book Future Ready: How to Master Business Forecasting
Remember the words of management researcher Jim Collins: “Good is the enemy of great.”
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The Cognos Blueprints are back – for Cognos Insight
IBM Cognos Blueprints
Have you heard of the Cognos Blueprints? They are pre-configured planing and forecasting templates. You can download them from the IBM Cognos Innovation Center website. Each blueprint comes with a fully functional set of model definition files, model and business best practices documentation. There are over 50 different Cognos Blueprints available for functional and industry-specific processes. In the past, most models were available for either IBM Cognos TM1 or IBM Cognos Planning. Today, you can also download a few of the most popular Cognos Blueprints for the new Cognos Insight product. But let’s back up for a second.
A Cognos Blueprint
Ideas and inspiration
What’s the purpose of the Cognos Blueprints and how can you use them? Let me quickly tell you a story to highlight the value. A few years ago, my family and I moved to Europe. We rented a house that did not have a kitchen installed. Given that my wife and I love to cook, I thought it would be easy to walk over to the next kitchen store to pick something that we liked. Our enthusiasm quickly died. The available options were overwhelming. To make things worse, the first sales person immediately asked us for details that we were not prepared or qualified to answer (“Do you want the AW3-x series or the BT-4?”). It quickly became obvious that we had no clue how to best go about ordering a kitchen – despite our love for cooking. (Stop here for a second – think about your business analytics implementations!). The initial “requirements gathering session” was a disaster and waste of time. But a sales guy in another store recognized our problem. He asked us to read a few brochures and wonder around the store to look at various different model kitchens before sitting down with us. And that’s what we did. Reading about configuration options and touching sample kitchens helped us understand. The meeting with the advisor went well. We were able to ask the right questions and provide important input. The brochures and model kitchens were our proverbial blueprints. They helped us gain knowledge and they helped us with visualizing the future state.
Your projects
Think about your business analytics implementations? When you first sit down with users, they have a hard time articulating their requirements. It is also very difficult for them to visualize how their planning process could look like in the new system. This is where the Cognos Blueprints help. They are a fantastic tool for learning about common business issues, best practices and modeling techniques. Use them to either educate yourself or to help your customers in the business. But be careful, blueprints are not necessarily intended to be implemented. Most organizations use them to get ideas and to learn more about a particular process. And they do a great job with that. I have used them in many projects.
Analyticszone.com
A small library of Cognos Blueprints is now available for Cognos Insight. You can download them on analyticszone.com. You will get the cdd file and simply need to open it in Cognos Insight. I have not had time to play with them, yet. But they look very similar to the original ones. There is even a task bar that guides you through the process. So, take a look at the Cognos Blueprints today!
A sample dashboard from the Expense Planning blueprint
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How to improve your forecasting templates through initiatives
Forecasting concerns
Despite its tremendous importance, forecasting remains one of most disliked processes in many companies. Part of the problem are the forecasting templates themselves. They are extremely complex and cumbersome. Today, I want to look at a simple technique that can improve the usability of the forecasting templates while also increasing the ability to gain insights from them. A few months ago, I provided another technique that involved the time-horizon. Let’s take a look!
Forecasting templates
Typical forecasting templates follow a certain pattern: Across the columns we can find the different months of the fiscal year. The rows feature hundreds of G/L accounts:
Graphic 1: The traditional forecasting & budgeting template
Let’s be honest: this type of template is really difficult to use. First of all, there is an excruciating amount of detail. The structure also does nor provide a solid picture of our business. Think about it: Business managers do not think in terms of G/L accounts. You don’t believe me? Thought-leader David Axson
Graphic 2: The family forecast?
We can argue about this, but I doubt that our families would appreciate it. My wife Jen would certainly send me off to see a shrink…
Initiatives
Let’s stick to the example of the personal forecast. If you think about it, most of us intuitively follow a different approach. We use projects and initiatives to structure our thoughts. Many people typically start budgeting or forecasting by creating a list of initiatives they are planning to do. Then they figure out the associated amounts:
Graphic 3: Initiative planning at home. A better approach.
This forecasting template provides us with a mental framework that is easy to follow. The naked account list on the other hand does not provide us with any help. We simply think about amounts without being forced to ask ourselves more intricate questions like why, what, where, etc.. And this is what often makes the process so difficult, especially for non-financial people.
Revisions
The beautiful thing about using initiatives in forecasting templates is that it makes revisions a lot easier. Let’s say we want to cut our expenses by 5%. Using the traditional line item approach, this will become a difficult if not random exercise (how would you know in the first place?).
Where do you start? Most of us would probably be tempted to reduce a few numbers here and there. The data is just too complex. Contrast that to the approach in the next screen shot. This is a lot easier to deal with. The initiatives provide context. All expenses that are not related to a project have been captured in the ‘Sustain Operations’ bucket.
You can immediately sit down and review the different initiatives. Questions like: “Which initiatives are really critical?” come to mind. Ranking them provides additional context.
Next you could drill down on each initiative and review the different expense types. Notice that the use of initiatives speeds up the process while also providing better insights.
Your forecasting templates
Take a look at your corporate budget. Where can you incorporate initiatives and projects in your forecasting templates? Granted this approach does not work in all situations but it is a relatively simple thing to do. But most cost centers can probably benefit from this approach.
P.S.: The screenshots were created with Cognos Insight.
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Spotlight on Forecast Accuracy
Forecast accuracy in turbulent times
Forecast accuracy is one of those measures many finance professionals think and talk about. Turbulent times require companies to produce reliable and solid forecasts. Accuracy is a useful measure that helps finance managers assess the quality of the process (to a certain degree!).
In late 2011, my good colleagues Mark, David and I conducted a survey amongst 160 UK finance professionals. One of the things we wanted to find out was whether accuracy is being measured at all. And guess what – we were pleasantly surprised to see that the majority of all companies do measure and also communicate accuracy. Only a few organizations face difficulties doing so (they utilize spreadsheets as their main tool).
“We stand very little chance of forecasting successfully unless we measure our performance continuously and correct our forecasts accordingly.”, Steve Morlidge & Steve Player, authors of “Future Ready”
Accuracy Insights
About a year ago, I posted a series of articles that focused on forecast accuracy. If you are interested in this topic, I would like to invite you to read and share those entries.
The basics
There is a set of posts that cover the basics of this topic. You can find a bunch of examples in there as well.
- 3 things every controller should know about forecast accuracy
- 4 additional things you should know about forecast accuracy
- 3 ways to analyze and communicate forecast accuracy
- Poor forecast accuracy
- The case for forecast accuracy
Experiences
- A discussion about forecast errors – Interview with Uli Pilsl
- Future Ready? – Interview with Steve Morlidge
If you have any experiences with forecast measurement, please leave a comment. As solid as the above mentioned survey results look, experience shows that many finance professionals are looking for more information about this topic.
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Forecast Analysis – An Effective Dashboard
FORECAST ANALYSIS
Last week I argued that a detailed variance report is not very helpful before and during the forecasting and budgeting process. That post continues to be one of the most popular ones recently. But why not take the basic ideas a few steps forward and create a dedicated forecasting dashboard? A dashboard allows us to view the critical information that we need to get our job done (i.e. create the forecast or the budget) in a single place. Conducting forecast analysis with this dashboard becomes easy and is less time-consuming than analyzing hundreds of variances in a spreadsheet.
A COGNOS 10 DASHBOARD
My colleague Paul took the ideas from the last post and he created an awesome forecasting dashboard in Cognos 10. Take a look (click on the image to enlarge):
Forecast Analysis with IBM Cognos 10 - Business Insight
This forecasting dashboard is geared towards a revenue forecast. The widget in the upper left corner provides a quick overview of year-to-date product sales. You might notice the use of micro-charts: the sparklines display the sales trend for each region. The accompanying bullet charts show the current status against plan (YTD).
The other widgets provide a balanced mix of historical data (revenue, deal-size, expense ratio) and leading indicators (Win/ Loss Ratio, Customer Satisfaction). But there is also other important forward-looking information. Take a look at the lower left corner: We can view upcoming marketing events along with the anticipated number of participants and the expected sales pipeline. That is helpful for assessing future sales.
EFFECTIVE FORECAST ANALYSIS
This forecasting dashboard can help prepare for the actual forecasting process. It provides a better picture of the business than any detailed variance report can. And think about the time savings as well. The latter requires a lot of effort to be consumed. The dashboard on the other hand is efficient and effective. Last but not least, the dashboard can be utilized on a daily basis.
So, that is a forecasting dashboard built with Cognos 10. I love the look and feel. It is simple, clean and easy to interact with.
P.S.: The type of information to be included in such a dashboard obviously varies by company and industry.
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Better Forecasting And Budgeting Starts With Analysis – IBM Cognos 10 in Action
FORECAST ANALYSIS
Much has been written about developing better forecasting and budgeting templates or improving the overall process. But to my surprise there is hardly any focus on the role of analysis. I have seen many organizations where managers ‘survive’ the forecasting and budgeting cycle without ever spending time performing meaningful analysis of their data. They simply focus on getting the numbers in to satisfy finance and senior management.
This is a wasted opportunity. People should use that occasion to gain insights about their business. Lack thereof is likely to result in forecasts and budgets that are not meaningful. Some of you might say: ‘Wait a second! Managers do obtain some reports.’ True. They get the classic variance report with a ton of detail. But working with this is time-consuming and it is extremely difficult to identify critical trends and to see the big picture.
A traditional variance report. What does it tell us?
BETTER FORECASTING WITH ANALYSIS
Using a Business Analytics platform like IBM Cognos 10, you can make is easier for managers to gain critical insights. Here are a few ideas that you might find useful. Let’s look at the example of a sales manager for a European division of a global company. This manager has to forecast revenue and associated expense.
1. GO VISUAL
First of all, toss those detailed variance reports. Line of Business managers will most likely not obtain any information from them. Human beings do much better processing visual information. You can find a lot of information about this topic on this blog. So, try to swap out those hundreds of data points with a few meaningful charts. Your teams will be thankful.
2. CONSIDER EXTERNAL DATA
The variance report does not really tell us anything about our business potential. We could therefore consider looking at external data such as market trends. More and more of my clients do that. It helps them with assessing their overall position and it also helps them set realistic but ambitious targets. The example below shows that market growth in Europe is a bit limited compared to North America and Asia.
The situation in Europe is not looking good
3. STUDY HISTORY
History is not necessarily a predictor of the future. But we should not ignore it. We might be able to identify seasonality and to detect general trends. Pick the critical measures. Line charts are usually a great choice to display this type of data. The example below shows that revenue is cyclical and that the general trend is positive:
On the rise: Revenue trend for Europe
4. CHANGE YOUR PERSPECTIVE
One of the nice things about modern Business Analytics tools like Cognos 10 is that we can view data from multiple different angles. Use that capability to your advantage! Try to explore different perspectives. Look at the example above. Now, compare this to the view below. Same data. Just a simple change in Cognos 10:
A different perspective
Our biggest months used to be in summer time. But that has shifted towards year-end. Same data – different perspective. Explore!
5. BENCHMARK YOURSELF
It makes sense to learn from others as well. We could do some internal benchmarking as well. In our example, we could look at deal sizes (looks like Europe’s deals are growing nicely and they are above company average):
The average deal has grown bigger
Ok. That sounds good. But does the deal size come at a cost? Once again, let’s do some internal benchmarking and look at the ratio of expenses and the associated revenue. It looks like Europe is slightly higher which might explain the higher deal size.
Every penny that is earned in Europe requires higher expenses
That information is valuable. It also leads us to think further and to ask some critical questions (Does it make sense to review our spending? Does the higher spending lead to bigger deals?). We should obviously not stop right here.
6. LOOK AT LEADING INDICATORS
What about other non-financial data as well? For revenue budgeting, I might also want to look at a leading indicator like customer satisfaction. And I might also want to look at our track record of winning deals (win-loss-ratio). Take a look:
Customer satisfaction is rising again. A leading indicator for sales?
BETTER INSIGHTS
This is a simple example. The manager is now equipped with a few key insights:
- Market growth is low
- Our revenue trend is still positive
- Buying patterns have shifted
- Our strategy of investing in selling activities has increased the deal size
- Customer satisfaction is increasing which could lead to higher sales
These are valuable insights. And it did not take much time to obtain them. The old variance report would not have provided that insight and it would have consumed a lot of time.
Try to incorporate a few of those ideas in your forecasting and budgeting processes. Doing this with spreadsheets is obviously difficult and probably explains why so many organizations are stuck with the traditional approach. Business Analytics software like IBM Cognos 10 makes it a lot easier to do that.
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Budgeting – Your Northern Star (Guest Post)
A budget plants an iron rod of confidence and accountability into the spine of your business.
I recently blogged about Six Ideas for Setting Successful Budgets:
- Budgeting begins with assessing the current business environment
- Leave your optimism at the curb
- Budgeting must be driven by strategy
- Connect the dots
- A careless budget will cause more pain
- Don’t forget the smell test
Today, I expand on ideas 4 and 5, which deal more with the actual preparation of the budget; the practical challenges.
Connect the dots
Because we assemble budgets at the line item level, we risk believing the process is simply the aggregation of line item budget amounts. This fragmented approach will yield a fragmented result, with little value to you or the business.
Budgets are not forecasts or estimates of what could happen. The budget is your plan of what will happen. Accordingly, the budget process actually starts from the top. A quality budget will tell a complete and coherent story at the highest level – like a navigator’s map, reflecting your point of origin, your destination (goals), the terrain (environment), distance to travel (measure progress), direction, optional routes (when stuff happens) and landmarks (reference points).
The Budget - Your Northern Star?
Getting the big picture requires that you understand the correlation/interaction of its components – the line items. For example, if you are increasing your direct marketing budget, have you also considered?
- A possible corresponding reduction in display advertising
- Costs for crafting direct marketing campaigns (usually more work than display ads)
- Staffing costs for timely follow up on leads form direct marketing campaigns
- Costs incidental to the staffing increase (tax, benefit, training, etc)
- Effect of strategy on the fulfillment/sales/collection cycles
There are few items in your budget that truly stand alone. Make your budgeting process worth the effort you are putting into it by connecting all the dots to plot next year’s journey.
A careless budget will cause more pain
Understandably, the budgeting process can feel like a tedious, time consuming and futile effort. “Why set a budget? I can’t control what is going to happen to my business. We respond how we have to respond and spend what we have to spend anyway.”
This attitude will doom your efforts. The very purpose of budgeting is to gain control. As I noted, budgets are not just casual estimations of what might happen. A quality budget plants an iron rod of confidence and accountability into the spine of your business.
Sure, “stuff happens” to your business, but you control how it responds. Succumbing to the belief that budgeting is a pointless exercise will result in a careless effort to “just get it done.” The real pain will come the following year when stuff does happen and the maps (budget) you are using to navigate your business lack a Northern Star to guide you.
This was part 2 of the 2011 budgeting series on the Performance Ideas blog. More to follow soon.
About the author of this post:
Mike Duncan is Partner and co-founder of Bizzeness, LLC. Mike began his career with KPMG and Deloitte. He has been a business owner and advisor for over 30 years serving over 300 businesses in various capacities. Mike focuses on SMB’s with concept development, business modeling, start-up, market adaption, strategy and succession. Mike lives in the Kansas City area. You can contact Mike at mike@bizzeness.com.
Mike has written a prior guest post on this blog.
