I’ve always been a fan of driver based planning and budgeting; in fact I wrote my only business book on the topic a few years ago. Needless to say it sank without making a ripple.
However the current uncertainty and the arrival of in-memory calculation engines such as SAP HANA means that planning departments can now run rapid driver based scenarios that span sales and operation planning with financial budgets.
In his latest blog, Steve Player picks up on this capability and goes further to suggest that planners can now build models that are based on Monte Carlo simulations to analyze risks and possible outcomes. As he points out thousands of calculations can be run and summarized to help management understand the range and probabilities of possible outcomes and suggests that in-memory processing could move Monte Carlo simulations to the mainstream of planning best practices as the calculations run thousands of times faster.
Personally, other than those industries such as oil & gas and insurance that Steve points out are already using probability modeling, I think it will be some time before planners will adopt sophisticated simulations that few of their peers understand. In fact, driver based planning may be a natural first step and with in-memory technology now making this ever easier, it could finally become more widely adopted.
Even then, I am perhaps far too optimistic and in-memory may simply be harnessed to speed up the calculation times of traditional budgeting models. Having spent a decade enthusing about driver based budgeting, I’m naturally somewhat cynical about this, but what’s your view?