Dynamic Planning and Analysis for Optimal Decisions: An Infographic
Gone are the days of a single annual planning cycle. Or at least – those days should be gone.
Planning processes have certainly evolved. Many companies formerly began their planning process in September (assuming a December fiscal year-end), and spent a large part of the fourth quarter on planning iterations. Once the plan was approved, there were few adjustments; however, a significant amount of time would be spent on explaining plan/actual differences throughout the year.
As changes in the business environment began to accelerate, companies evolved to a rolling forecast. Instead of waiting until the end of the fiscal year to begin a new planning cycle, companies began to plan and adjust their budgets based on actual data that came in during a financial period, giving them a rolling 12-month forecast.
And today we see a need for real-time planning, with disruptive business models and sudden changes in demand, requiring organizations to act on a dime, and making changes to the plan, potentially moving funds due to changes in a business model, or customer demand.
Levels of Planning
Planning is not isolated to only finance, each part of the organization engages in planning:
- Finance: There are many ways to plan financial information. Of course, there is balance sheet and P&L financial planning. Plus management accounting planning: cost center planning, internal order planning, profit center planning, project planning, and planning on dimensions of profitability which includes logistics information, such as customers, products and regions.
- Operations: Finance is not the only department that conducts planning. HR plans for headcount, salary, benefits and training costs. Sales and marketing estimate customer demand, plan for expenses to ensure closed deals, and evaluate product pricing. Meanwhile, manufacturing plans their capacity and product mix, as well as any materials they need to procure. And hopefully the sales and manufacturing planning complement each other, instead of focusing on different product lines.
- Organizational hierarchies: Especially in large organizations, business units and subsidiaries also plan, meaning that these plans need to roll up to the corporate level. Potentially, similar to intercompany reconciliation of actuals, cross-business adjustments may need to be made.
The challenge has always been the siloed nature of planning, both for financial planning as well as the influence of operational planning on finance. In many companies, each type of planning is performed in a different system or spreadsheet, requiring manual consolidation. And each time there is a change, the reconciliation starts from scratch.
Now enter SAP S/4HANA Finance.
Instead of relying on different systems and manual processes, SAP S/4HANA Finance enables a single, consolidated view of all planning and forecasting information, across all financial, operational and organizational levels. This includes a roll-up of planning information from subsidiaries into corporate planning, as well as automatically including operational plans into financial plans, to measure the impact of operational plans on both the financial and management controlling plans.
And since the same information is used for transactional processing, analytics as well as planning, there is no lag-time, ensuring that the most up-to-date information is available at any time. Simulations, what-if analyses, and predictive capabilities allow for the modeling of all planning options.
Before and After SAP S/4HANA Finance
Let’s take a look, in parallel, at the planning process in two organizations. On the left, we see the challenges of a company who has the many disparate planning systems discussed above. On the right, the organization has implemented SAP S/4HANA Finance, and is able to not only consolidate and update planning information in real time, the team is also able to use sophisticated dynamic planning tools in order to evaluate the financial impact of all strategic options available.
Consider a merger and acquisition (M&A) scenario. On the right, our character Mary spends so much time in manual consolidations that she cannot possibly evaluate each M&A scenarios, so she must pre-select only a few options, meaning that not every scenario is considered. On the left, Stephanie, using dynamic planning and predictive tools, can evaluate each and every option, even tweaking individual parameters in the model, to determine the most profitable and sustainable scenario for her organization.
As you can see, using the manual processes described previously, our character Mary spends most of her time doing manual consolidation and reconciliation of planning data – a task that repeats itself, every time a source plan changes, to ensure that the financial planning reflects any changes in sales, operational, and HR planning. Instead, with the dynamic planning and forecasting capabilities in SAP S/4HANA Finance, our character Stephanie can add value to the organization by spending the majority of her time in analysis of all potential scenarios, making her a valuable member of the executive team who can provide answers to “what if” questions immediately, even in an executive boardroom situation.
For more information about our solutions that support planning processes, please visit:
- SAP S/4HANA: sap.com/S4hana
- Finance: sap.com/finance
- Enterprise Performance Management: sap.com/epm
Thank you for the update on Rolling Forecast.
SAP HANA has brought in real time planning possible with facilities for What Ifs & also debating on multiple scenarios.
However, the challenge is outside the IT Environment to shift to multiple iterations of planning from the legacy annual / quarterly planning which many companies are used. The challenging Market conditions may force these planners to shift.