Normally, integrating actuals into the planning cycle is not an easy task. Often financial and operating results are spread across multiple databases and actual results and plan detail are at different levels. All of this makes meaningful Performance Evaluation difficult.
If you do not have a dynamic driver-based model that is implemented through a good quality FP&A system, the following tasks will consume a lot of resources:
- reporting on actuals and plan line items below natural class accounts;
- getting a handle on activity driver relationships with units, rates and amounts;
- capturing volume and rate impacts underlying plan variances;
- calculating actual/plan operational metrics for conversion rates.
The excel-based planning process will not deliver consistency to the performance management process. In contrast, the dedicated planning solutions will let you build and maintain a solid infrastructure for fully integrating actuals and plan data through driver-based planning model. They will also help you to overcome the following FP&A problems:
1. Financial and operating results are spread across multiple databases.
Excel is typically the focal point for integration and reporting. Nonetheless, managing imports to Excel and normalizing data structures consume major FP&A and IT resources and can even increase the risk of producing incorrect data.
2. Actual and plan detail are at different levels.
Actuals financial data is readily available from the GL at the natural class account level; lower level actual detail is typically a one-off research project. By contrast, budgets and rolling forecasts are usually developed with line items below the natural class account level, e.g., Travel Asia Customers, Travel Conference, etc.
3. Lack of underlying activity drivers.
It‘s not just about the dollars. Meaningful planning and analysis require digging into the underlying drivers and rates that cause dollars to be spent. For example, call center headcount and salaries are substantially driven by call levels. Too often the driver data for either or both actual and plan are not available or too difficult to pull together from disparate databases.
4. Actual and plan structures get out of sync.
New products, cost centres and, accounts are frequently added to the chart of accounts. Rolling forecasts result in new line items being added to the planning application. Maintaining actual and plan structures to keep data in sync is the job that everyone hates and a resource sinkhole. It’s also the root of most data integrity issues—bad maintenance means bad numbers and incompatible comparisons.
5. Actual and plan line items below natural class accounts.
How people think is how people should be able to plan. Invariably, that means planning structures need to include the capability for any user to add line items below natural class accounts. Letting managers plan below the account level encourages more detailed and relevant data, more meaningful and logical thinking, and capture of information that would otherwise be lost in non-linked spreadsheets or scratch notes.
The same mentality should carry over to reporting of actuals. For the most important items, for example, detail of product sales and headcount, actuals reports should be set up to capture the relevant line item detail from the CRM, personnel or other databases.
For the financially sensitive items, the GL alone should not drive the level of detail for planning or be the only source for actuals reporting.
Driver-Based Planning Processes implemented through dedicated FP&A systems will help to create a solid basis for better Corporate Performance Management and to overcome the above problems.
A good quality Variance Analysis that is delivered through this holistic process will help to improve organisational Corporate Performance Management process.
As a result, the following three fundamental performance management questions will be answered easily and quickly:
1) What are the targets that are missed or achieved?
Do we need to change behaviours and refocus current resources?
2) What are important assumptions underlying future plans being proved or disproved by current experience? For example, product mix, utilization rates, efficiencies, etc.
3) What problems do we have in our accounting and/or planning systems that are generating bad or false information?
For example, CRM sales statistics are not tying with the GL, expense budget errors and omissions, etc.