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Enterprise Planning.
Financial Planning.
Collaborative Planning.
Workforce Planning.
Production Planning.
…Planning
…Planning
…Planning
What is this “Planning” we hear so often about from our colleagues across the company? A year ago, I had no idea. Despite having 15+ years of experience in Business Intelligence and Analytics, anybody who tried to talk to me about Planning and Analytics may as well have been trying to explain the encryption algorithms and technology behind a distributed blockchain ledger. Or how a plutonium-powered nuclear generator supplies 1.21 gigawatts of power to a flux capacitor enabling time travel. Unless you are actively involved in a Planning process, or help bring products to market to enable a Planning process, you are likely in a similar position as I was a year ago.
This is the first of a two-part blog series intended to rip the curtain down and explain Enterprise Planning for those of us new to the topic.
It is a few weeks after many people across the world celebrate the Easter holiday and spring has definitely arrived, at least here in my hometown of Atlanta. Flowers are blooming, birds are chirping, and the sun is shining! With all of this goodness surrounding me outside, I can’t help but start to think about summer vacations and have decided to leverage that backdrop for this blog post.
We are going to plan a road trip to the beach together. It will be a glorious time…pack some suitcases, throw the family in the car, and hit the road! But this isn’t just a short drive for a long weekend at the beach. This road trip is designed to maximize family time and build some great memories of an epic journey. With that goal in mind, we are going to drive to a beach that is far from home and requires a 3-day-long drive to get there. Now you may be thinking “Yikes! That is a long drive”. Not to worry, with proper planning, anything is possible 🙂
If you are like me, planning such a trip is very anxiety-inducing.
For our purposes here, I’m going to leave all of that vacation planning to you and your family, and just focus on the journey to get there. As previously mentioned, we will take a 3-day-long road trip. Let’s zoom in on three key cost drivers for this drive:
In order to determine how much money we need to save for this journey, let’s break these costs down into basic unit prices, and quantity needed in order to then calculate total costs.
Fuel prices can be quite volatile and sensitive to external factors. We will explore such volatility later. For now, let’s drive our plan assuming a unit price of $3.40 per gallon. Now we need to determine how many gallons we will need for our drive. If we know how many miles we need to drive, and how many miles our car can go per gallon of gasoline, then we can calculate the number of gallons we need.
For this journey, our beach is 1,800 miles away (I told you it was going to be far). And we will be driving our family SUV which is capable of achieving 19 miles per gallon. Plugging these numbers into our equation above, we determine that we need approximately 95 gallons of gasoline.
At a unit cost of $3.40 per gallon, that comes to a total fuel cost of $323.
One of the biggest risks of a long road-trip is falling asleep at the wheel. A good night rest is an absolute priority to keep the driver fresh and the passengers in good spirits. Of course, nightly lodging also comes at a cost, and there are many choices with varying prices. To keep our planning process moving along, we will assume a common 4-star name-brand hotel for $125 per night. Our drive is 3-days, 2-nights.
Thus our total lodging cost will be $250.
When we are driving long distances, I do not like taking 1+ hours off the road to eat in the middle of the day so we tend to plan quick lunches. To keep things economical, we also tend to seek out hotels that include free breakfast in the mornings. This approach allows us to spend a bit more money for a nice family dinner once we reach our destination for the evening. Adding up the three daily meals:
On our trip, I am traveling with my wife and my son. However my son is a teenager and treats each meal as if he might never see food again. So I will consider him the equivalent of 1.5 persons for the purposes of planning food costs.
This brings our total meal expenses for the 3-day journey to $294.
We have now completed a rudimentary, yet methodical, expense plan to determine how much we need to budget for each of our 3 primary cost drivers on our road trip. The last step is to add these costs together and arrive at our overall trip cost:
We will need $867 to execute the plan we have designed for our road trip. I reviewed this plan with my wife. While she wasn’t initially excited about a 3-day-long drive, I eventually convinced her of the invaluable family time and we agreed that $867 was a reasonable budget for such a trip.
After all this planning, the departure day has finally arrived! We now set out on our journey with $900 on-hand to cover our travel costs (I like to keep a little extra for unexpected disruptions). Let’s track our actual costs and see how they compare to our plan.
We had a late start and didn’t cover as many miles as we expected. We filled up the car before leaving with 18 gallons of gasoline at a cost of $3.30 per gallon. We had a quick stop for lunch that cost a total of $18. And hotel for the night rang up another $119 of expenses after a nice chicken dinner that cost $65 for the family.
Solid day on the road! Well rested after a great night of sleep and well fed at the hotel breakfast buffet 🙂 Made up the lost time from Day 1 and are back on schedule. Lots of driving today meant lots of fuel-ups. Stopped to refuel 3 times for a total fuel cost of $204 today. Lunch was a bit more expensive as well, costing us $28 for the family. We scaled back our dining option at dinner to try and offset the higher fuel and lunch costs on the day, and paid $54 for dinner. Lodging expense was fairly consistent costing $121 for the night.
Final day of driving, with the beautiful reward at the end of a beachfront sunset. Another hotel breakfast buffet for the win! Only 1 fuel-up today that cost $65. Lunch on the road was a cheap and quick one again costing $22. And a beachside dinner while watching the sunset was worth the $105 we splurged.
Before we jump into a direct comparison of our costs to our plan, let’s take a few minutes to review the basic elements of our exercise and how it relates to Enterprise Planning.
All plans start with a goal in mind. What is it we are trying to achieve? In our fun example, we set out on a long journey with the goal of creating family memories to cherish for years to come. In your enterprise, maybe it is reduced expenses, increased profits, or higher productivity.
As it turns out, Enterprise Planning in its most basic form is identical to a mantra my father used to teach us throughout our childhood:
So I would characterize Enterprise Planning in it's simplest form as this...
Set a goal, make a plan, and then measure your progress regularly so that you can adjust your execution to achieve the desired result.
The first thing we did after agreeing on a goal was identify the key cost drivers we wanted to analyze and plan for. In our case it was fuel cost, lodging cost, and food cost. In enterprise scenarios, it could be those plus many more. For example, payroll expenses, equipment expenses, maintenance costs, cost of goods, sales and marketing expenses, etc.
There are various dimensions across which we can plan our costs. In our example, if we simplify the expenses down to a single measure or variable called “cost”, we then have a category dimension for “fuel”, “lodging”, or “food”. We also have family members who will incur different food costs from one another. This could be another dimension by which we detail our expected costs.
There were also several attributes in our example that impact costs such as the category of hotel (4-star), the category of restaurant (fast food, family dining, fine dining), and the miles-per-gallon that our SUV can achieve.
In an enterprise scenario, you will also have different dimensions that you plan across. For example, into which locations will you sell your products? Which plants will you use to manufacture your goods and what quantity will you produce at each plant? How are employee costs different per job position?
Perhaps the most common dimension across all planning scenarios is “Time”. We were planning a 3-day journey for some amount of time in the future. After setting our forward-looking plan, or “budget”, we saved our funds until it was time to depart. Then as we executed our plan on each of the 3 days, we logged our costs incurred so that we could perform a rear-looking comparison of our planned costs to our actual costs either in aggregate or day-by-day. I think the parallels to an Enterprise scenario here are self-evident. Such a comparison allows us to evaluate our performance, learn from our experience, and make adjustments as we continue to execute in order to ensure that we can meet or exceed our goals. One important aspect to point out here is that we did not have to wait until our journey was complete to review performance and make adjustments. For example, on Day 2, we recognized that we had spent more on fuel and lunch than we expected by that point and thus we spent a bit less on dinner in order to stay on plan. The same principle applies in the Enterprise as well. When you have real-time analytics integrated with your planning platform, you are able to make more informed adjustments on-the-fly in order to increase likelihood of success.
The original planned expenses we estimated for our 3-day-long road trip amounted to $867. The sum total expenses we incurred over the 3-day-long road trip amount to $860.40, just about 1% better than the plan. For simplicity, I would characterize this trip as “according to plan”. Except for one major problem…my son was miserable by the end of the road trip and the rest of our vacation was not so enjoyable. It seems that 3-days in the car was indeed creating family memories, but not the kind that I hoped for! The payoff that my wife and I were expecting after spending $860 never came to fruition. In Enterprise terms, we executed according to our operating plan, but failed to achieve our goal regardless. It seems there were additional factors (e.g., morale and happiness) that we did not properly plan for, as we were so focused on finances.
In my next blog post, I will explore the concept of scenario-based planning and evaluate possible strategies to achieve a happier ending to our family beach trip. On my way to such a conclusion, I will define what a planning model is, and step through an illustration of a basic planning model for our 3-day road trip.
Enterprise Planning.
Financial Planning.
Collaborative Planning.
Workforce Planning.
Production Planning.
…Planning
…Planning
…Planning
Feeling overwhelmed and confused (Photo credit: Jose Luis Pelaez Inc, licensed from Getty Images)
What is this “Planning” we hear so often about from our colleagues across the company? A year ago, I had no idea. Despite having 15+ years of experience in Business Intelligence and Analytics, anybody who tried to talk to me about Planning and Analytics may as well have been trying to explain the encryption algorithms and technology behind a distributed blockchain ledger. Or how a plutonium-powered nuclear generator supplies 1.21 gigawatts of power to a flux capacitor enabling time travel. Unless you are actively involved in a Planning process, or help bring products to market to enable a Planning process, you are likely in a similar position as I was a year ago.
What to Expect From this Blog Post:
This is the first of a two-part blog series intended to rip the curtain down and explain Enterprise Planning for those of us new to the topic.
The Setup:
It is a few weeks after many people across the world celebrate the Easter holiday and spring has definitely arrived, at least here in my hometown of Atlanta. Flowers are blooming, birds are chirping, and the sun is shining! With all of this goodness surrounding me outside, I can’t help but start to think about summer vacations and have decided to leverage that backdrop for this blog post.
Road trip! (Photo credit: Bim, licensed from Getty Images)
We are going to plan a road trip to the beach together. It will be a glorious time…pack some suitcases, throw the family in the car, and hit the road! But this isn’t just a short drive for a long weekend at the beach. This road trip is designed to maximize family time and build some great memories of an epic journey. With that goal in mind, we are going to drive to a beach that is far from home and requires a 3-day-long drive to get there. Now you may be thinking “Yikes! That is a long drive”. Not to worry, with proper planning, anything is possible 🙂
Preparing the Plan:
If you are like me, planning such a trip is very anxiety-inducing.
What do we need to pack?
Where are we going to stay?
What will we eat?
Will there be enough activities and fun to keep my child entertained?
Will I find any time to relax and enjoy the vacation?
And the most dreaded topic, how much is this going to cost?
For our purposes here, I’m going to leave all of that vacation planning to you and your family, and just focus on the journey to get there. As previously mentioned, we will take a 3-day-long road trip. Let’s zoom in on three key cost drivers for this drive:
- Fuel Cost
- Lodging Cost
- Food Cost
In order to determine how much money we need to save for this journey, let’s break these costs down into basic unit prices, and quantity needed in order to then calculate total costs.
“Fill it up!”
Fuel prices can be quite volatile and sensitive to external factors. We will explore such volatility later. For now, let’s drive our plan assuming a unit price of $3.40 per gallon. Now we need to determine how many gallons we will need for our drive. If we know how many miles we need to drive, and how many miles our car can go per gallon of gasoline, then we can calculate the number of gallons we need.
Gallons Needed = Miles to Drive / Miles per Gallon
Gallons Needed = 1800 / 19 = 95 gallons
For this journey, our beach is 1,800 miles away (I told you it was going to be far). And we will be driving our family SUV which is capable of achieving 19 miles per gallon. Plugging these numbers into our equation above, we determine that we need approximately 95 gallons of gasoline.
95 gallons * $3.40 / gallon = $323
At a unit cost of $3.40 per gallon, that comes to a total fuel cost of $323.
“Sweet Dreams!”
One of the biggest risks of a long road-trip is falling asleep at the wheel. A good night rest is an absolute priority to keep the driver fresh and the passengers in good spirits. Of course, nightly lodging also comes at a cost, and there are many choices with varying prices. To keep our planning process moving along, we will assume a common 4-star name-brand hotel for $125 per night. Our drive is 3-days, 2-nights.
2 nights lodging * $125 / night = $250
Thus our total lodging cost will be $250.
“I’m Hungry! How much longer?!?”
- Breakfast Options
- Fast Food Breakfast - $5 per person
- Breakfast Buffet - $10 per person
- Free Breakfast included with Lodging - $0 **My favorite!
- Lunch Options
- Fast Food Lunch - $8 per person
- Full-Service Lunch Restaurant - $15 per person
- Dinner Options
- Fast Food Dinner - $8 per person
- Full-Service Family Dinner Restaurant - $20 per person
- Fine Dining Dinner Restaurant - $40 per person
When we are driving long distances, I do not like taking 1+ hours off the road to eat in the middle of the day so we tend to plan quick lunches. To keep things economical, we also tend to seek out hotels that include free breakfast in the mornings. This approach allows us to spend a bit more money for a nice family dinner once we reach our destination for the evening. Adding up the three daily meals:
Breakfast ($0) + Lunch ($8) + Dinner ($20) = $28 per person per day
On our trip, I am traveling with my wife and my son. However my son is a teenager and treats each meal as if he might never see food again. So I will consider him the equivalent of 1.5 persons for the purposes of planning food costs.
3.5 persons * 3 days * $28 per person per day = $294
This brings our total meal expenses for the 3-day journey to $294.
“It All Adds Up!”
We have now completed a rudimentary, yet methodical, expense plan to determine how much we need to budget for each of our 3 primary cost drivers on our road trip. The last step is to add these costs together and arrive at our overall trip cost:
Fuel Cost + Lodging Cost + Food Cost = $323 + $250 + $294 = $867
We will need $867 to execute the plan we have designed for our road trip. I reviewed this plan with my wife. While she wasn’t initially excited about a 3-day-long drive, I eventually convinced her of the invaluable family time and we agreed that $867 was a reasonable budget for such a trip.
Executing the Plan:
After all this planning, the departure day has finally arrived! We now set out on our journey with $900 on-hand to cover our travel costs (I like to keep a little extra for unexpected disruptions). Let’s track our actual costs and see how they compare to our plan.
Day 1:
We had a late start and didn’t cover as many miles as we expected. We filled up the car before leaving with 18 gallons of gasoline at a cost of $3.30 per gallon. We had a quick stop for lunch that cost a total of $18. And hotel for the night rang up another $119 of expenses after a nice chicken dinner that cost $65 for the family.
Total Day 1 Costs Incurred: $261.40
Day 2:
Solid day on the road! Well rested after a great night of sleep and well fed at the hotel breakfast buffet 🙂 Made up the lost time from Day 1 and are back on schedule. Lots of driving today meant lots of fuel-ups. Stopped to refuel 3 times for a total fuel cost of $204 today. Lunch was a bit more expensive as well, costing us $28 for the family. We scaled back our dining option at dinner to try and offset the higher fuel and lunch costs on the day, and paid $54 for dinner. Lodging expense was fairly consistent costing $121 for the night.
Total Day 2 Costs Incurred: $407
Day 3:
Final day of driving, with the beautiful reward at the end of a beachfront sunset. Another hotel breakfast buffet for the win! Only 1 fuel-up today that cost $65. Lunch on the road was a cheap and quick one again costing $22. And a beachside dinner while watching the sunset was worth the $105 we splurged.
Total Day 3 Costs Incurred: $192
Reviewing the Results:
Before we jump into a direct comparison of our costs to our plan, let’s take a few minutes to review the basic elements of our exercise and how it relates to Enterprise Planning.
Goal
All plans start with a goal in mind. What is it we are trying to achieve? In our fun example, we set out on a long journey with the goal of creating family memories to cherish for years to come. In your enterprise, maybe it is reduced expenses, increased profits, or higher productivity.
As it turns out, Enterprise Planning in its most basic form is identical to a mantra my father used to teach us throughout our childhood:
“Figure out what you want to achieve, and how you are going to do it!”
So I would characterize Enterprise Planning in it's simplest form as this...
Set a goal, make a plan, and then measure your progress regularly so that you can adjust your execution to achieve the desired result.
Cost Drivers
The first thing we did after agreeing on a goal was identify the key cost drivers we wanted to analyze and plan for. In our case it was fuel cost, lodging cost, and food cost. In enterprise scenarios, it could be those plus many more. For example, payroll expenses, equipment expenses, maintenance costs, cost of goods, sales and marketing expenses, etc.
Dimensions / Attributes
There are various dimensions across which we can plan our costs. In our example, if we simplify the expenses down to a single measure or variable called “cost”, we then have a category dimension for “fuel”, “lodging”, or “food”. We also have family members who will incur different food costs from one another. This could be another dimension by which we detail our expected costs.
There were also several attributes in our example that impact costs such as the category of hotel (4-star), the category of restaurant (fast food, family dining, fine dining), and the miles-per-gallon that our SUV can achieve.
In an enterprise scenario, you will also have different dimensions that you plan across. For example, into which locations will you sell your products? Which plants will you use to manufacture your goods and what quantity will you produce at each plant? How are employee costs different per job position?
Time Dimension
Perhaps the most common dimension across all planning scenarios is “Time”. We were planning a 3-day journey for some amount of time in the future. After setting our forward-looking plan, or “budget”, we saved our funds until it was time to depart. Then as we executed our plan on each of the 3 days, we logged our costs incurred so that we could perform a rear-looking comparison of our planned costs to our actual costs either in aggregate or day-by-day. I think the parallels to an Enterprise scenario here are self-evident. Such a comparison allows us to evaluate our performance, learn from our experience, and make adjustments as we continue to execute in order to ensure that we can meet or exceed our goals. One important aspect to point out here is that we did not have to wait until our journey was complete to review performance and make adjustments. For example, on Day 2, we recognized that we had spent more on fuel and lunch than we expected by that point and thus we spent a bit less on dinner in order to stay on plan. The same principle applies in the Enterprise as well. When you have real-time analytics integrated with your planning platform, you are able to make more informed adjustments on-the-fly in order to increase likelihood of success.
The original planned expenses we estimated for our 3-day-long road trip amounted to $867. The sum total expenses we incurred over the 3-day-long road trip amount to $860.40, just about 1% better than the plan. For simplicity, I would characterize this trip as “according to plan”. Except for one major problem…my son was miserable by the end of the road trip and the rest of our vacation was not so enjoyable. It seems that 3-days in the car was indeed creating family memories, but not the kind that I hoped for! The payoff that my wife and I were expecting after spending $860 never came to fruition. In Enterprise terms, we executed according to our operating plan, but failed to achieve our goal regardless. It seems there were additional factors (e.g., morale and happiness) that we did not properly plan for, as we were so focused on finances.
What to Expect From the Next Blog Post:
In my next blog post, I will explore the concept of scenario-based planning and evaluate possible strategies to achieve a happier ending to our family beach trip. On my way to such a conclusion, I will define what a planning model is, and step through an illustration of a basic planning model for our 3-day road trip.
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