DSS News
D. J. Power, Editor
June 23, 2002 -- Vol. 3, No. 13
A Bi-Weekly Publication of DSSResources.COM
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Check the Pennzoil-Quaker State case at DSSResources.COM
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Featured:
* DSS Wisdom
* Ask Dan! - What is active enterprise financial planning?
* What's New at DSSResources.COM
* DSS News Releases
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Find out about Dan Power's new book, Decision Support Systems:
Concepts and Resources for Managers. Get information at
http://www.dssresources.com/dssbookstore/power02.html .
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DSS Wisdom
According to Alvin Brown in a 1957 pamphlet prepared by the Society for
Advancement of Management, "...an industrial enterprise exists for the
sole purpose of earning money for its owners. All of its actions,
therefore, and all of the decisions that prompt those actions, are
directed toward earning money. All decisions are financial decisions.
"All decisions are financial, either because they directly affect the
expenditure of money, or because they indirectly affect expenditures by
consuming or disposing of effort, facilities, or material, all of which
cost money. ... All decisions are financial because you cannot conceive
of one that does not affect, in one way or another, and in some degree,
the earnings of the enterprise." (p. 101)
from Brown, A., "All Decisions are Financial," in Shull, F., Jr.,
Selected Readings in Management, Homewood, IL: Richard D. Irwin, Inc.,
1958, pp. 100-102.
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Ask Dan!
by Daniel J. Power
What is active enterprise financial planning?
Active enterprise financial planning is a collaborative, participative,
real-time, web-based approach for budgeting, performance management and
financial planning. It is the latest buzzword and "must have"
application. Why the sudden interest in improving budgeting and
forecasting? Duh! Bad results! The weak economy since April 2001 has
decreased financial performance "visibility" in many companies. In these
companies, the profit forecasts have been very inaccurate. The resulting
embarassment (or anticipation of such embarassment) for the company's
CEOs and CFOs from revising forecasts downward has sent many of them
scrambling for new forecasting and decision support capabilities.
Managers want better performance "visibility going forward". Some
software vendors argue active financial planning supported by web-based
software is the answer to poor performance management and budgeting
woes. This Ask Dan! briefly examines decision support for budgeting and
financial planning.
According to a survey of 165 European Chief Financial Officers (CFOs) at
the PwC Consulting (http://www.pwcconsulting.com/) website, the "role of
the CFO is evolving from merely transactional activities to encompass
decision support." The survey from May 2001 indicated a greater interest
among CFOs in decision-support activities such as performance
management, budgeting, reporting, profit and cost management and
shareholder value analysis. CFOs in large companies in the U.S. and
Europe may be a little bit ahead of the curve, but the new attention to
financial decision support seems widespread.
Let's review the basics (cf., Stedry, 1967). A budget proposes
expenditures for specific items and specific purposes for a future time
period. Also, a budget is a set of goals with "price tags attached".
Budgeting is a goal setting process in which managers need to actively
and meaningfully participate. Managers who will be expected to meet a
part of the overall budget should participate in establishing that part
of the budget. The amounts in the budget need to be challenging and the
targets must be accepted and perceived as attainable by those charged
with acheiving them. Budget processes do not always improve financial
performance because of estimating and behavioral problems like
overestimating needed expenditures and then spending that amount whether
needed or not and underestimating receipts and then not working very
hard to exceed the estimate. From an "accounting perspective" budgets
are tracked against actual receipts and expenditures so that "corrective
action" can be taken. A good tracking system should provide managers
timely reporting of where the budget is NOT being met. Creating and
tracking a budget can be supported by a computerized system and in large
companies computerized support is probably necessary. Budgeting can be
time-consuming and tracking expenditures against a budget can be
tedious, delayed and difficult.
Today web technologies are enabling companies to redesign and improve
their budget development and performance management processes. So what
works? Budgeting has been a popular topic in recent months at
darwinmag.com and I have tried to follow the arguments and discussion
related to the latest buzzword -- "active financial planning". The
website is an extension of Darwin Magazine (which I don't receive). In a
series of articles at darwinmag.com, Alice Dragoon (May 2002) has
discussed budgeting and active financial planning. Her series started
out with some Excel bashing, discussed some process issues, and then she
summarized some vendor success stories. She quotes Steve McMinn, a
partner at Accenture, as claiming the recent lack of financial foresight
has occurred because most companies’ financial planning processes are
mired in "Excel hell".
Ms. Dragoon cites the following "facts" from her interviews and from
principals at consulting firm Answerthink:
-- "some 80 percent of global companies use Excel almost exclusively as
a planning tool"
-- "finance folks spend weeks attempting to consolidate hundreds of
spreadsheets with inconsistent data definitions, altered formulas and
extra rows added by creative managers"
-- "the typical billion-dollar company’s finance staff alone spends some
35,000 hours a year supporting the planning, forecasting and reporting
process"
The above statements definitely identify some problems. So what is the
solution? Should companies stop using Excel for budgeting and move
exclusively to what AMR Research (www.amrresearch.com) calls "active
enterprise financial planning" tools? Yes and No. CFOs definitely need
to investigate purchasing web-based budgeting and financial planning
software. Also, Excel definitely is a poor tool for data collection and
data aggregation. Web-based software can help to speed up budget data
collection, management and monitoring, but Excel can be used to build
powerful planning, budget analysis and decision support tools.
Excel "hell" occurs when managers use Excel for data collection tasks it
was never intended to perform. An Excel budget tool can help unit
managers develop a budget using "what if?" capabilities and then the
proposed budget can be submitted using a web form. Budget tracking can
also occur using a web-based application. Senior managers may also want
to use Excel to analyze budget data from multiple business units. Budget
data can and should be centralized on a company intranet and everyone
involved in the process should use the same data definitions.
The days of consolidating budgets from Excel spreadsheets completed by
managers of business units that are sent by "snail" mail or emailed to
headquarters should be over. Companies do NOT need to use an Excel
application for data collection and aggregation. Managers can focus on
using Excel applications for data analysis and decision support (when
Excel is the best development tool). New web-based tools can fit into
and support a more sophisticated budgeting and financial planning
process.
So who are some of the budget decision support vendors to check out?
What vendors should be investigated? First, Comshare (www.comshare.com)
has always been a favorite of mine. Dragoon doesn't mention Comshare,
but she does mention three excellent vendors, Adaytum, Hyperion, and
OutlookSoft. The OutlookSoft product may be particularly interesting for
Excel users because marketing materials claim it "leverages the power of
Microsoft Excel". Another new vendor in this product space is Elevon,
Inc. (www.elevon.cc). Elevon received the Best Product Launch award at
the recent Budget Masters Conference (see 06/03/2002 Elevon press
release). These five vendors provide a starting point for finding new tools.
I've visited their websites and read the promotional materials, but I
have not used their products.
What can we conclude? Active financial planning is possible and using
web-based support is better than manual, bureaucratic planning
processes, but it doesn't solve all problems. For example, technology
company Cisco has been identified for a few years as a leader in using
the web for financial consolidation and planning, but even Cisco CEO
John Chambers has been troubled recently by poor financial performance
forecasts. The vendor success stories indicate web-based budgeting
decision support tools can be useful, but short-run forecasting is and
will remain difficult in turbulent environmental conditions. All we can
do is reduce the budget process cycle time -- we can get the financial
performance news faster; we can take corrective action sooner. Also,
despite the inappropriate use of Excel for gathering budget data in some
companies, a spreadsheet-based DSS can be part of a redesigned active
financial planning process.
Finally, in a classic paper, Andrew Stedry (1967) wrote "The success of
a budgetary control system then may be measured in terms of its ability
to induce the formulation of plans which contribute to organizational
goals, at lower levels in the hierarchy (p. 415)." Improving the overall
control system and budget process is the key; web-based budget decision
support is intended to faciliate and support the overall budgeting and
performance management process.
References
Dragoon, A. "Escaping Excel Hell", May 2002,
http://www.darwinmag.com/read/0502/budget_content.html
Dragoon, A. "Putting Active Financial Planning to Work", May 2002,
http://www.darwinmag.com/read/0502/budget3.html
Kirk, E. "Elevon receives prestigious award for Elevon Active Financial
Planning", Elevon Press Release June 3, 2002.
PwC Consulting, "Evolving Role of CFOs in Belgium, France and
Luxembourg", CFOSurvey2001, May 2001,
http://www.pwcconsulting.com/us/pwccons.nsf/viewwebpages/CFOSurvey2001
Stedry, A. "Budgetary Control: A Behavioral Approach", in Alexis, M. and
C. Z. Wilson, Organizational Decision Making, Englewood Cliffs, N.J.:
Prentice-Hall, Inc., 1967.
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What's New at DSSResources.COM
06/17/2002 Posted case by Microsoft Staff, "Pennzoil-Quaker State Select
SQL Server 2000 Analysis Services for Comprehensive Business
Intelligence Solution", Microsoft, Inc., January 2002, URL
DSSResources.COM/cases/.
06/15/2002 Posted version 4.2 of the DSS Web Tour.
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DSS News - June 9, 2002 to June 21, 2002
Complete news releases can be found at DSSResources.COM.
06/20/2002 First Trade Union Bank picks Decision Support's data mart to
enhance marketing, customer support.
06/19/2002 MicroStrategy® announced its Solutions Gallery, a collection
of industry-specific analytical applications.
06/19/2002 SAS strengthens financial transparency capabilities.
06/18/2002 D&B introduces new Supply Management System.
06/17/2002 ProClarity wins 2002 Microsoft Retail Application Developer
Award for best Business Intelligence solution.
06/14/2002 Petris introduced Plan-IT Web-based workflow collaboration
application.
06/13/2002 Pacific Edge Software ships Project Office connector for
Microsoft Project 2002.
06/12/2002 Toyota Financial Services analyzes business performance with
Hyperion.
06/12/2002 GeoDecisions recognized as the Intergraph Transportation
Partner of the Year.
06/11/2002 Intergraph and Keigan Systems team to produce GeoMedia Grid.
06/10/2002 Informatica unveils vision and products for the real-time
enterprise.
06/10/2002 Sagent added data access components from Datadirect
Technologies to its BI Platform.
06/10/2002 eOptimize announces pilot agreement with UNC's Kenan-Flagler
Business School.
06/10/2002 Information Analysis wins major Air Force modernization
contract.
06/10/2002 EDS selects HNC Software's payment optimizer for fraud and
abuse detection in Kansas and Oklahoma state Medicaid programs.
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DSS News is copyrighted (c) 2002 by D. J. Power. Please send your questions to
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