STAYING AHEAD OF THE CURVE WITH AGILE FINANCIAL PLANNING, BUDGETING, AND FORECASTING

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1 STAYING AHEAD OF THE CURVE WITH AGILE FINANCIAL PLANNING, BUDGETING, AND FORECASTING September, 2014 Nick Castellina, Research Director, Business Planning and Execution Report Highlights p3 p4 p5 p6 43% of the Best-in- Class indicate that their top pressure is market volatility that creates a need for change. Agile organizations are 41% more likely to have implemented tools that help to automate financial planning, budgeting, and forecasting. Agile planners are 72% more likely to enable business users to create reports and charts in a self-service capacity. Agile planners saw a 13% decrease in the amount of time it takes to perform a forecast over the past year. This report defines the qualities of organizations that are agile planners and describes how these organizations utilize key technology to improve financial planning, budgeting, and forecasting.

2 2 In a volatile business environment, agility is essential for creating accurate forecasts, taking advantage of opportunities, and correcting course when adverse events happen. Those organizations that are able to react effectively are able to drive better decisions and more accurate forecasts. To compete in today's volatile business environment, organizations need to be able to think on their feet. The increasing speed of business leads to a greater frequency of events that necessitate quick decision making from business leaders in order to help the organization take advantage of the opportunity or minimize the impact of adversity. In the case of financial planning, budgeting, and forecasting, condition changes can quickly make previously-defined plans unrealistic. Top performing organizations understand that they must roll with the punches, but this does not mean that business leaders should simply abandon the keys to effective decision-making. Rather, organizations that are agile planners utilize advancements in technology to quickly access the information they need to make educated decisions. The results are more accurate budgets and forecasts, as well as improved performance because organizations that are agile planners combine quick reaction with improved intelligence. This report defines the qualities of organizations that are agile planners and describes how these organizations utilize key technology to improve financial planning, budgeting, and forecasting. The Need for Agility In Aberdeen's 2014 Financial Planning, Budgeting, and Forecasting and Enterprise Performance Management benchmark survey, Best-in-Class organizations selected their "top two" pressures that drive them to improve financial planning, budgeting, and forecasting (Figure 1). These pressures indicate that the Best-in-Class are aware of just how important agility is for these processes. On the one hand, market volatility means that business conditions change so quickly that any gap in action or decision-making can cost the organization either a missed opportunity or compromised forecast accuracy. This is compounded by long and resource intensive forecasting

3 3 processes. These areas for improvement mean that top performers must drive down the time it takes to access critical data and utilize it effectively. The result of this effort is more accurate forecasts that give business leaders the confidence to make decisions that will lead to growth. Figure I: Best-in-Class Understand the Need for Agility Market volatility creates the need to dynamically account for change Current budgeting and forecasting process is too long and resourceintensive Corporate mandate for growth Poor communication, coordination, and collaboration across departments or divisions Source: Aberdeen Group, August % 28% 35% 43% Best-in-Class 0% 20% 40% 60% Percentage of Respondents, n = 201 The Aberdeen maturity class is comprised of three groups of survey respondents. This data is used to determine overall company performance. Classified by their self-reported performance across several key metrics, each respondent falls into one of three categories: Best-in-Class: Top 20% of respondents based on performance Industry Average: Middle 50% of respondents based on performance Laggard: Bottom 30% of respondents based on performance Sometimes we refer to a fourth category, All Others, which is Industry Average and Laggard combined. Defining an Agile Planner So what makes an agile organization? In this report, survey respondents were divided into two groups: Not Agile: The survey respondents that reported a year over year increase in the amount of time it took to create forecasts or an increase in the cycle time of key business processes in the past 24 months. This means that they are becoming less efficient when altering forecasts and making decisions. Agile: The survey respondents that indicated they saw a year over year decrease in the amount of time it took to create forecasts and a decrease in the cycle time of key business processes in the past 24 months. But it is really

4 4 the capabilities and technologies that these organizations have implemented that enable improvements in these key processes and make them agile. In Aberdeen's 2014 Financial Planning, Budgeting, and Enterprise Performance Management benchmark survey, respondents were ranked on the following criteria: Percentage of financial reports delivered in the time needed for decision-making: o Best-in-Class - 94% o Industry Average - 72% o Laggard - 63% Variance between actual costs and budgeted costs: o Best-in-Class - 4% o Industry Average - 11% o Laggard - 35% Variance between actual revenue and forecasted revenue: o Best-in-Class - 3% o Industry Average - 12% o Laggard - 37% There are a number of key technologies that are more likely to be implemented in agile organizations than organizations that are not agile (Figure 2). Agile organizations are more likely to have implemented solutions like Corporate Performance Management (also known as Enterprise Performance Management because it contains performance data that stretches across the organization and is not limited to any specific function), which enables enhanced visibility into historical performance data. These solutions, which are built for companies of all sizes, can include functionality such as financial consolidation and reporting in order to ensure that data is accurate and comprehensive. Then query and reporting tools can enable users to play around with the data and apply formulas to aid in forecast accuracy. In addition, agile organizations are 41% more likely to have implemented tools that help to automate financial planning, budgeting, and forecasting, driving down the amount of time that it takes to complete these tasks. Lastly, agile organizations are among the first to have the ability to monitor performance on mobile devices. This removes a barrier to data access so that information can be referenced no matter where decision-makers are, for immediate action. Combined, these technologies can help organizations that are agile planners to better collect, find, understand, and use data, so that they can immediately make informed decisions when the time comes.

5 5 Figure 2: The Technology Environment of an Agile Planner Percentage of Respondents, n = % 80% 60% 40% 20% 0% 50% 40% Corporate / Enterprise Performance Management application 79% 56% Planning / budgeting / forecasting application Agile Not Agile 86% 86% 66% 48% Financial reporting and consolidation application Source: Aberdeen Group, August 2014 Query and reporting tools 29% 19% Ability to monitor performance on a mobile device Providing Visibility and Efficient Decision-Making As a result of the technology listed above, agile organizations provide their employees with easier access to the essential information that they need for decision-making (Figure 3). It's all about making it as easy as possible for employees to find the information they need in order to make agile decisions. For example, 93% of organizations that are agile planners have a centralized repository of financial or operational performance data. Therefore, employees know exactly where they need to go to find information. They can then utilize this information to determine where they currently stand in relation to budget and can immediately alter decisions. But not only do employees in agile organizations know where to find the data that they need; they can also explore that data more easily and consume and analyze it in ways that work for them. Agile organizations are 72% more likely to enable business users to create reports and charts in a self-service capacity. This improves understanding and can spark ideas for business improvement.

6 6 Figure 3: Instant Access to Data Enables Agility Percentage of Respondents, n = % 80% 60% 40% 20% 0% 93% 60% Centralized repository of financial or operational performance data Agile 86% 80% Not Agile Able to track actual performance against budget (variance reports) 62% 36% Business users are able to create reports / charts in a self-service capacity Source: Aberdeen Group, August 2014 Agility does not depend solely on visibility into historical performance data. Instead, it is important for agile organizations to predict and prepare for the future so that they can react immediately. To this end, organizations that are agile planners are 43% more likely to have financial modeling solutions, 30% more likely to have profitability analysis solutions, and 3% more likely to be able to incorporate business drivers into the forecasting process. So what are the features that make agile organizations effective (Figure 4)? First, they are simply better at gathering information and converting it to decisions efficiently. This may be because agile organizations are 33% more likely to have a standardized workflow for decision-making. Take, for example, the budgeting process: 86% of agile planners have budget templates that they use to manage input. Employees know exactly what information they need, where to find it, and what to do with it. Figure 4: Putting Agility to Use Percentage of Respondents, n = % 80% 60% 40% 20% 0% 57% 43% Standard workflow for decision-making Agile 86% 68% Budget templates are used to communicate and manage input 50% 45% Not Agile Ability to link performance to business processes 43% 32% Internal events can trigger an alert to adjust forecasts Source: Aberdeen Group, August % 44% Ability to reforecast as market conditions change

7 7 But really, the key to being an agile organization is enabling employees to find data, interpret it, and use it effectively. Organizations that are agile planners must be able to understand the impact of change and link financial and operational data to make decisions that can provide impact across the organization. Of course, with so many factors to consider, it would be very difficult for any human to be aware of everything that is happening that could influence performance on a real-time basis. For this reason, agile organizations are 34% more likely to have alerts that can trigger changes to the forecast. They can therefore react immediately in order to reforecast. This ensures that forecasts reflect realistic business conditions and can be useful for organization-wide planning. The Results As a result of their technology and capabilities, agile organizations perform better across a variety of performance metrics (Table 1). For example, organizations that are agile planners are able to provide their business leaders with the information they need for decision-making on time 80% of the time. This is why agile organizations saw over three times the decrease in time to decision over the past year and a 13% decrease in the amount of time it takes to perform a forecast over the past year. Ultimately, this has led to more accurate budgets and forecasts. With these accurate forecasts, agile organizations can then make decisions that will drive business improvement.

8 8 Table 1: The Results Average Performance Agile Not Agile Percentage of reports delivered in time needed by managers for decision-making 80% 76% Decrease in time to decision over the past year 28% 9% Decrease in the amount of time it takes to perform 13% -6% a forecast over the past year Variance between budgeted revenue and actual 10% 15% revenue Variance between budgeted costs and actual costs 10% 12% Variance between forecasted revenue and actual revenue 9% 15% Source: Aberdeen Group, August 2014 Key Takeaways In a volatile business environment, agility is essential for creating accurate forecasts, taking advantage of opportunities, and correcting course when adverse events happen. But as the speed of business increases, it becomes extremely difficult to identify when events happen that require action. It is even more difficult to make effective decisions in relation to those events. Organizations that are able to react effectively are able to drive better decisions and more accurate forecasts. To achieve these benefits, heed the following recommendations: Provide information to those that need it. Agile organizations provide 80% of business leaders with information in the time needed for decision-making, in comparison to 76% of the time for All Others. They are able to do this by providing centralized repositories of

9 9 performance data so that decision-makers can easily find it. Make it usable. Employees will make more informed decisions when they can actively investigate information, make hypotheses, and view the information as they prefer to. Agile organizations are 72% more likely to enable business users to create reports and charts in a self-service capacity. Facilitate decision-making through automation. Organizations that are agile planners are more likely to define the workflows that are essential for making fully informed decisions. On the one hand, this could mean creating templates and guidelines for composing budgets. On the other hand, this could mean providing automated alerts that can trigger business leaders to make immediate decisions. Identify and implement key technology. Automation and visibility is greatly aided by providing essential technology. Aberdeen's research has warned against relying solely on spreadsheets for these tasks. Agile organizations are more likely to implement solutions such as Corporate Performance Management or financial planning, budgeting, and forecasting applications. Agile planning is the key to making decisions that will keep you ahead of your competitors.

10 10 For more information on this or other research topics, please visit. Mobile EPM: Improving Decision-Making when Time is of the Essence; June 2014 Beyond Spreadsheets: The Next Level in Planning, Budgeting, ; May 2014 Related Research Author: Nick Castellina, Research Director, Business Planning and Execution About Aberdeen Group Beyond Budgeting : Organizational Improvement through EPM; March 2014 Become a Forecast Marksman with Best-in-Class Ammunition for Planning, Budgeting, and Forecasting; March 2014 For 26 years, Aberdeen Group has published research that helps businesses worldwide improve performance. We identify Best-in-Class organizations by conducting primary research with industry practitioners. Our team of analysts derives fact-based, vendor-agnostic insights from a proprietary analytical framework independent of outside influence. The resulting research content is used by hundreds of thousands of business professionals to drive smarter decision making and improve business strategy. Aberdeen's content marketing solutions help B2B organizations take control of the Hidden Sales Cycle through content licensing, speaking engagements, custom research, and content creation services. Located in Boston, MA, Aberdeen Group is a Harte Hanks Company.