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It was a very difficult financial year – 2009, right from the new year songs, CFOs and finance were on their toes to get costs down. With completely unpredictable demand, it was a major issue for supply demand planners to plan anything. Overall it was a difficult year with all round cost cuts in travel spends, constant negotiations with suppliers to reduce rates, little or no increases on new R&D spends etc etc. Most of the company hated finance for all the controls, and finance on their own did not enjoy all the controlling, though they did not have a choice.

The lessons learned from this year is very helpful but it exposes the preparedness every corporation has been through, to adapt themselves in both sunny and rainy days.

What are the key things here:

Adoption of Adaptive Planning – The annual budgeting (AOP) exercise should be an exercise that brings in real life events and external facing issues to the table. It should not be a futile number exercise that becomes un-useful as soon as the year arrives.Often companies spend days and nights getting into extensive details during the AOP exercise which often completely changes and also in the process the focus is completely lost.

AOP must be used more from deciding the one year objectives and the high level initiatives that are required to achieve those objectives, and the effective Performance Indicators (KPIs) that needs to be tracked. Another important aspect that needs to be considered in the AOP is assessment of risk and managing them well.  Managing Risk alongwith Objectives and KPIs are critical. So the AOP should focus on strategy and risk, and pushing those targets downwards. So the question arises if detailed planning is not required? Detailed planning is required, but the frequency should be more near term say for  next quarter, with more rigor to immediate next month. The framework should be adapted in such a way that the annual exercise is more a strategy exercise while the monthly/quarterly is more a detailed rolling forecast planning exercise.  This would make it more adaptive. Every organization should think Beyond Budgeting – A concept that best run business are adopting.

Cost and Profitability – As part of every business strategy session, cost and profitability discussed as key performance indicators. How do we manage costs and look at cost optimization without affecting the business. Few of the areas that can be explored are:

  1. Supplier cost optimization
  2. Supply chain cost optimization
  3. Sustainability cost optimization

Profitability is often looked and analyzed at higher levels – business unit level or regional levels. This does not result in optimization. A framework using comprehensive allocation mechanism is essential to get into more detailed analysis of profitability. This would help focusing or let go top and bottom customers, top and bottom products, top and bottom projects etc. Profitability analysis is a very important aspect of any business.

Therefore preparedness on the above two areas will see through organizations going through cycles.

How can technology help

 In this age of complex global organizations, managing many of the above in silos, without appropriate technology is difficult. This is where SAP BusinessObjects has been investing significantly and creating a framework of Enterprise Performance management  solutions that would solve the above challenges.  SAP BusinessObjects Strategy Management (SSM) provides a great framework to manage the annual budgeting exercise very effective, with clear focus on the key objectives, initiatives and KPIs that management cares. With clear integration to SAP BusinessObjects Risk Management, the risk appetite and management is also taken care very effectively during the annual budgeting exercise. For the more frequent adaptive planning, where spreadsheets have been extensively used but not orchestrated well, SAP BusinessObjects Business Planning (BPC) is very effective.  On the cost and profitability areas – solutions such as Supply Chain Performance Management, Spend Performance Management and Sustainability Performance Management were introduced to effectively focus on cost optimization initiatives, in addition to being a performance and risk manager for they key functions in the organization. The Profitability and Cost Management solution solves the problem customer, product or project profitability with a comprehensive cost allocation engine that supports activity based cost management concepts. As highlighted in the earlier Content and Container concepts in the context of SAP BusinessObjects, the content is being constantly enriched for best run businesses to be more adaptive, responsive to external and management needs and drive value to all its stakeholders.

Wishing you all a very happy and prosperous New Year 2010 !!!

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