Best practices

Best Practice Approaches toPlanning, Budgeting, and Forecasting

AN IBM COGNOS

WHITE PAPER

AUTHOR:

STEVE PLAYER

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This edition published September 2008

Copyright © 1989-2008 Cognos, an IBM company.

3Best Practice Approaches to Planning, Budgeting, and Forecasting

As part of an ongoing research program, the Beyond Budgeting Round Table (BBRT) teamed with the

American Productivity & Quality Center (APQC) to conduct a study entitled “Planning, Budgeting, and

Forecasting: A Best Practices Snapshot.” The study examined five industry-leading companies that each

used markedly different approaches to planning, budgeting, and forecasting. While each of the companies

approach was different, the study identified ten best practices that were continued in and vital to the

overall success of these best in class organizations. This white paper will outline these best practices and

illustrate each lesson learned.

Identified Best Practices

1. Planning, budgeting, and forecasting processes must fityour organizational culture.

2. Comprehensive planning, budgeting, and forecastingprocesses ensure that strategy effectively translates intoaction.

3. Exercise caution when providing earnings guidance.

4. Use relative targets to avoid the pitfalls created by fixedtargets.

5. Align incentives for optimal performance.

6. Effective planning, budgeting, and forecasting processesprovide ways to continuously update operational plansto adapt to changing conditions.

7. Effective planning, budgeting, and forecasting processesshould facilitate easy redeployment of resources topursue high-value initiatives versus fixed assignmentsdriven by an annual budgeting process.

8. Use your financial performance management systems tounderstand facts as well as cause-and-effectrelationships.

9. Use continuous rolling forecasts to gain forwardvisibility and coordination aligned with operatingcycles.

10. Communication and understanding—vital toachieving success.

This paper illustrates how these best practices are appliedto improve planning and control by high performingorganizations globally. Consider how these practicesmight significantly improve your company’s currentplanning, budgeting, and forecasting processes.

Planning, budgeting and forecasting processes must fit your organizational culture.

The most successful companies are founded on a strong,distinctive, thoroughly ingrained corporate culture thatserves as the bedrock of organizational strategic planning.Best-practice companies reinforce this culture in the designof their planning, budgeting and forecasting processes.These processes tend to reflect linkages between culture,strategic focus, and unique management skill sets resultingin a highly competitive and efficient organization.

This is illustrated in Andrew Campbell’s 1999 Harvard

Business Review article, “Tailored, Not Benchmarked,”which describes the planning approaches for three greatcompanies: Emerson Electric, Dow Chemical, andGranda. Emerson creates value by concentrating oncontinuous incremental improvement. The companyregularly conducts rigorous detailed reviews in which theyanalyze both their processes and the competition. DowChemical uses its hard engineering culture to keep thefocus on cost reduction, while Granda takes a softerapproach, using its hotel and entertainment venues tofocus on customer intimacy and achieve dramatic profitincreases. Each of these companies provides an excellentexample of using the planning, budgeting, and forecastingprocesses to take advantage of their culture and achieveoutstanding results.

Campbell’s article also points out the pitfalls of borrowingpractices from other enterprises that do not fit acompany’s own culture and management skills. If anorganization like Emerson has a strategic focus on beingthe low-cost provider, its planning system must focus oncost leadership. However, if the focus is on customerintimacy, the company will need different measures and adifferent management review process. Likewise, thecorporate culture supporting a product leadership strategymight include tracking new product development andproduct innovation rather than focusing only on being thelow-cost provider.

Solutions from Cognos, an IBM company, provide uniquecapabilities to support diverse corporate cultures.

For example, to be successful, insurance companies mustprovide rapid assessment of their markets and related riskprofiles. The tools they use for spotting trends requirereal-time analysis, based on up-to-the-minute information,rather than stale data that may be quarters old.

UK-based Equity Insurance is a leading retail insuranceprovider operating an award- winning syndicate in theLloyd’s of London insurance market. Equity met itsfinancial performance management needs byimplementing IBM Cognos TM1 for a streamlinedbudgeting system across all of its companies. Processesthat formerly took 24 hours to update are now refreshedevery five minutes. Equity’s Finance Systems Manager,Richard Smith, notes, “TM1 has allowed us to increaseour reporting capability, streamline group reporting,implement a simple and easy to use management reportingmethod, and alternatively improve our overallaccountability. We can now perform complex businessmodeling and identify key performance indicators.”

Equity uses a central database to store its multi-dimensional data that is constantly updated, providingevery user with the most recent information. Thisfacilitates future business planning and allows TM1 to beused for complex business modeling. Smith explains,“With all this data at the touch of a button, we can betterplan for our customer needs.”

The Philadelphia Care Foundation is one of the largestDutch organizations for people in need of care, support,and networking, regardless of cause, disability, or age.The Foundation, helping approximately 10,000individuals live as independently as possible, employs theservice of 9300 and is distributed across approximately900-small scale locations across 23 regions in theNetherlands.

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Faced with rapid growth, regional distribution, and anincreasingly complex regulations, Philadelphia needed aninformation structure that would support the corporateculture by helping them maintain high levels of client care,while responding to regulatory pressure. Using IBMCognos 8 Planning, Philadelphia developed a model thatallows regional managers to easily budget and report oncosts and revenues per location per client. The Web-basedsolution gives them access to a data warehouse withinformation from financial, client, personnel, and salaryadministration systems. A budget calculator developed in-house by Philadelphia handles the translation of the datain the source systems to complement the IBM Cognos 8Planning solution. “This had to be done in a very specificway, adapted to our organization,” says the company’sInformation Manager Jacob Remijnse. “It is important tous, for example, that you can review personnel costs perlocation, and the system should also allow for thedistinction in funding for the different types of careprovided to our clients. Each year, the system of fundingresults in many changes.”

IBM Cognos 8 Planning provides Philadelphia with theflexibility and support of corporate culture they werelooking for. “You can easily change data and immediatelysee the consequences for all levels of financial planning,”says Remijnse. “This allows you, for example, to pass onthe consequences of a government measure or work withmulti-year budgets.”

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Closely linked to organizational culture are a firm’sstrategic plans. Once overall strategy objectives aredetermined, each organization has some process, whetherformalized or not, that focuses on tactics to carry outaction plans. Planning, budgeting, and forecastingactivities can be the cornerstone of such plans, helpingensure that actions achieve strategic goals by: preciselycompiling and analyzing vast amounts of data on keyperformance drivers, enabling the company to track realfacts, and then compare them with strategic goals.Financial performance management technology fromCognos readily facilitates planning, budgeting, andforecasting. It helps companies to allocate resources,evaluate which products and services are most profitable,reduce waste and costs, and create shareholder value. AndCognos solutions enable managers to create managementreports, scrutinize operating costs, support frontlinemanagers, and plan future activities with ease.

A common pitfall in many organizations is trying to focusplanning solely on achieving a financial objective. Acomprehensive, successful planning, budgeting, andforecasting process requires operational details of thetactics and activities to be deployed or improved. Suchnon-financial aspects of planning are often ignored,making it extremely difficult for businesses to see howtheir strategy is being deployed. It takes both financialand operational planning, budgeting, and forecastingprocesses to turn strategy into effective action.

Cadbury Schweppes Americas Beverages, one of thelargest international beverage and confectionarycompanies in the world, used IBM Cognos TM1 to createa single performance management platform thateliminated manual planning, budgeting, and forecastingprocesses and provided more time for sophisticatedfinancial analysis. The system provides a centralizedapproach to performance management activities, fromdetailed budgeting and planning to reporting and analysis.

Cadbury’s solution also allows it to save money andreview strategy by performing what-if scenarios to teststrategic decisions—such as supply chain commitmentsand marketing assumptions—before investing largeamounts of time and resources. Cadbury has alsosignificantly decreased labor costs by automatingplanning, budgeting, and forecasting functions andeliminating manual input: Average savings amount to 10worker hours per month, which in turn saves thousandsof dollars every year.

GTC Biotherapeutics, Inc. is a biotechnology company.GTC applies transgenic animal technology in thedevelopment, production, and commercialization oftherapeutic proteins. The transgenic animals, typicallygoats, carry DNA designed to produce therapeuticproteins during lactation. The milk is then purified intothe final product, which meets all the requirements forany biologic drug.

GTC uses IBM Cognos TM1 to convert strategy intodetailed action plans. Used for both in-house and third-party development projects, plans indicate how GTCdevelopment activities convert into financial results. TM1helps evaluate alternative approaches by examiningdiffering yield scenarios. GTC’s Senior Director ofFinancial Planning and Analysis Jim Kneece notes that,“IBM Cognos TM1 allows us to integrate activity plansfrom Microsoft Project directly into our forecastingsystem, which allows us to model in exactly the same waywe do our work. We can clearly see what is driving ourbusiness and the potential effects of different strategies.”He also notes that, “this planning tool has created mutualvalue by linking the operational lines and finance.”

Comprehensive planning, budgeting, and forecasting processes ensure that strategyeffectively translates into action.


Exercise caution when providing earnings guidance.

While current trends are moving away from providingearning guidance, more than half of all publicly heldorganizations still provide guidance in some form. In fact,an argument in favor of using traditional budgeting is thatit supports provision of guidance. However, providingearnings guidance has become much riskier due toincreased government oversight from legislation such asSarbanes-Oxley and related regulatory pressures.

Some organizations like Coca-Cola and Wachovia simplydo not provide earnings guidance, while others provide arange of guidance instead of point estimates. Others offeronly either an annual or quarterly estimate. No matter theapproach, the key question becomes, “How does thisearnings guidance affect strategic decisions in yourorganization?”

A common complaint of traditional budgeting systems isthat providing earnings guidance creates a performancetrap that leads companies to focus on reaching quarterlytargets at the expense of long-term success. A traditionalbudget is the tool used to allocate targets throughout theorganization (often accompanied by both cushions andsand-bagging). Any attempts to provide guidance requirenumerous assumptions about the economy, customerbehavior, and competitor actions. Such assumptions areoften false, making one wonder why executives imply theycan control the future, and therefore, provide reliableguidance.

In cases such as World Com and Enron, the pressure to“meet the numbers” led to outright fraud and criminalbehavior. A much more prudent practice is to simply notoffer earnings guidance and let your actions relative to thecompetition speak for itself.

Southwest Airlines does not provide earningscommitments to Wall Street. Like an increasing number ofUS companies including Gillette, Coca Cola, andBerkshire Hathaway, and a number of Europeancompanies like Nokia and UBS, Southwest providesanalysts with information, but not specific forecasts orpromises. This means there is no cascading of fixedperformance targets down through the organization.Instead, key elements of business intelligence are sharedopenly, goals are set by each business unit within broad-based and well-known parameters, and performance isevaluated against Southwest’s rivals.

Use relative targets to avoid pitfalls created by fixed targets.

Traditional budgeting typically establishes inflexibletargets for each operational unit. These targets arenegotiated between varying levels of management who areusually focused on protecting their turf and earning abonus rather than looking out for the welfare of theoverall organization. Common practices include inflatingbudget expense requests and deflating revenue goals in aneffort to set expectations low enough to be easilyachieved. Meanwhile, corporate staffs seek to counteractsuch “sandbagging” with efforts to force targets upwards.The result is a negotiation game that favors those with themost information. Consequently, performance, growthand profits are sub-optimized. Jack Welch, noted authorand former General Electric CEO, called such behavior“an exercise in minimalization.”1

Best-in-class organizations set relative targets based onhigh-level key performance indicators (KPIs) such asreturn-on-equity, free cash flows, or cost-to-income ratios.Stretch goals are then set and aimed at maximizing profitpotential and creating value, both in the short- and longterm. Managers can then be evaluated and ranked using arange of relative indicators rather than managers’ ownnumbers. Such indicators provide a much more adaptivemethod of determining a manager’s contribution to theorganization. These relative indicators include comparisonto historical performance data such as prior-year results,internal peer group performance comparisons, externalevaluations to direct competitors, and externalbenchmarks against world-class performers. Relativetargets are self-adjusting, in that environmentalfluctuations automatically impact everyone’s performance.

Under such an approach, managers are more willing toaccept stretch goals because their performance is notevaluated or rewarded by simply “meeting the numbers.”Instead, emphasis is placed on performance in relation tothe competition and on creating additional shareholdervalue. This process transforms goals from arbitraryfinancial numbers to more operational objectives. Relativemeasures are closer to how the organization is viewed inrelation to the marketplace, which places the emphasis onfactual competitive measures rather than an arbitraryfixed number.

Traditionally, fixed targets have stifled creativity andworked against maximizing profit. Welch decriestraditional budgeting, along with its use of hard fixedtargets, by commenting that, “... [I]t sucks the energy,time, fun and big dreams out of an organization. It hidesopportunity and stunts growth.”2 Clearly, the use of hardfixed targets is not the way to achieve optimum efficiencyor profits.

TV Guide Online also examines relative targets toevaluate its performance. Vice President of Finance andResearch Jonathan Kahan explains, “By analyzing thehistorical data for TV Guide Online and our competition,not only were we able to increase our users, but wefocused on increasing our market share, whichcontributed to our revenue growth.” TV Guide Onlineuses IBM Cognos TM1 to look at their year-over-yeargrowth and the competition. TV Guide Online used theservices of Revelwood, Inc., an IBM Cognos TM1Platinum Reseller, to implement the solution company-wide to enable comparison of relative targets acrossindividual business units.

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1 Jack Welch, John A. Byrne. Straight from the Gut (Warner Books, Inc, 2001) p385.

2 Jack Welch, Suzy Welch. Winning (Harper Business, 2005) p189.


Align incentives for optimal performance.

A common criticism of the traditional budgeting process isthat it results in negotiated targets that provide incentivesto minimize goals to more easily reach incentive bonuses.The conflict of interest between goal setting andindividual rewards often results in dysfunctional behaviorthat can destroy an organization. Fixed targets arenegotiated in a game of liar’s poker where managers areincented to minimize goals and projections. As a result,the various levels of the organization constantly try tominimize expectations instead of stretching to achievemaximum results.

To avoid the problem, organizations should decoupleincentives from the budgeting process. Instead, rewardsshould be based on the value created, with a focus onoptimizing performance. This shift eliminates most of thegame-playing that is so prevalent in traditionalapproaches.

The debate on incentive plans was triggered by AlfieKohn’s 1993 Harvard Business Review article titled “WhyIncentive Plans Cannot Work.” Kohn concludes that whenit comes to producing lasting change in attitudes andbehavior, rewards are like punishment in that they arestriking and ineffective. Once rewards run out, peoplerevert to their former behaviors. They do not create anenduring commitment to any value or action. It is a movefrom extrinsic motivation to intrinsic motivation: Themind shifts rewards to evaluation and recognition of valuecreated, along with a sharing of that value with those whocreated it.

Effective planning, budgeting, and forecasting processes provide ways to continuouslyupdate operational plans to adapt to changing conditions.

Action plans are used to bridge the gulf between strategicobjectives (with their accompanying performance targets)and the current state of the business. The plans tell thecompany at large what must be achieved and when. Plansare more effective when they are continuously updated toadapt to changing business conditions.

Cumberland Packing Corporation is a family-ownedcompany with a long record of innovation and safety. Thecompany was the first to package sugar in smallindividual packets. This was followed by the firmbecoming the inventor, manufacturer, and marketer ofSweet N’ Low.

Cumberland uses IBM Cognos TM1 as a primary businessperformance application. TM1 enables Cumberland tobetter understand its revenue and performance bydivision, geography, product, distribution channel, andcustomer. These varied views help the company makealterations to trade promotions and packaging formats asneeded to boost sales and revenues. Data is collected andanalyzed so that logical informed decisions can be madequickly. Rapid decision-making enables Cumberland toseize opportunities for growth and to prevent customerissues. The ability to assimilate information quicklyprovides Cumberland with a strong advantage overcompetitors who lack this capability.

Kansas City Southern Railroad (KCS) uses IBM CognosTM1 to provide quick reviews of operating results. Intheir monthly reports, KCS color-codes accounts toindicate whether results are on target, more than 10percent ahead, or more than 10 percent behind. Byclicking on any color-coded account, managers can drillback through each layer of detail all the way to sourcedata. This rapid analysis leads to deeper understandingand faster response to changing conditions.

Oranta, formerly The National Joint Stock InsuranceCompany (NJSIC), is a leader in the Ukraine insurancemarket, with the most developed agent network in thecountry: 7,000 employees, 27 regional offices, and 508affiliate, agencies and branches. Due to its multi-divisionalstructure, the company’s budgeting process was labor- andresource-intensive, as were its analysis and reportingprocesses. Because of the large number of branches andretail sales agents, process efficiency and timelinesssuffered.

Using IBM Cognos 8 Planning, Oranta is able to createvarious budget models and versions, and can forecastprofits, losses, and cash flow company-wide and forindividual regional directorates and branches. As a result,NIJSC Oranta managers now have uninterrupted access tobudget information and are able to control the fulfillmentof financial targets on across the organization. TheCognos solution’s drill-down feature enables users toperform comparative analyses of planned and actualindicators, and evaluate performance by financialaccountability centers quickly and easily. Such flexibilitygives Oranta the ability to respond rapidly and effectivelyto changing business conditions.

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Effective planning, budgeting, and forecasting processes should facilitate easyredeployment of resources to pursue high-value initiatives versus fixed assignmentsdriven by an annual budgeting process.

Many organizations use the budget process to pre-determine a level of resources for each business unit. Butthis requires assumptions about output levels and futuremarket conditions. When actual demand is less, resourcesare underutilized. When actual demand is greater,additional costs are required or service to customers isdiminished.

Today’s marketplace is rapidly changing. The volatility ofthe stock, bond, and currency markets, as well as globalcompetition, environmental concerns, and scientificinnovations make successfully managing a corporationdifficult in the extreme.

In the face of change, an initial reaction is to try toimprove forecasting. While some techniques will yieldmore accurate results, the fact is that businessenvironment change is very difficult to predict, especiallyso when forecasting is performed annually. The underlyingquestion: Should you even try build a management systembased on the need to predict the future? As an alternative,we find organizations maintaining flexibility by makingresources available as required.

Suggested ways to achieve flexibility in resource allocationare using guidelines and establishing an internal marketfor operational resources. If the organization establishesbroad financial guidelines based on key performanceindicators, operational managers have discretion tocommit and utilize resources as needed. Another viableapproach is to establish an internal market for operationalresources. This process allows operational mangers todecide their own needs based on the frontline’s inputwithout the red tape associated with most budgetprocesses. Many organizations are beginning to useexpense ratio analysis to enhance flexibility andresponsiveness. Such a shift focuses on how quickly anorganization can adapt to change. Speed and agility thenbecome the keys to success in an uncertain world.

CiCi’s Enterprise recently implemented IBM Cognos TM1to improve its visibility to resources. CiCi’s is a highlydifferentiated pizza company. It is a leader in the UnitedStates, offering an “all-you-can-eat” format that providesguests with food and service at an extremely low price.TM1 was implemented to provide a single repository forall data with daily and intra-day updates. This allowsmultiple what-if scenarios as well as multiple planningiterations in a short period of time. Financial andOperations Analyst Jessica White notes that TM1,“[P]rovides an integrated model for store sales analysiscomparison with store purchases,” enabling real-timereview of resource utilization and adjustment.

Use your financial performance management systems to understand facts as well ascause-and-effect relationships.

Leading companies use their financial performancemanagement systems to analyze large amounts of factualdata, which in turn is used to evaluate cause-and-effectrelationships, which enables the assessment of actionplans and the extent to which the overall organization ismeeting strategic goals.

An example of this approach is P&M Healthcare (asubsidiary of Complete Healthcare Resources), which runs35 nursing homes in Texas. P&M has been able toconvert massive amounts of operational detail into ahandful of key drivers. Vice President of FinancialManagement, Crawford Milling, notes:

“When I go out to individual facility operators, all I askfor is two or three basic assumptions. We look at thenumber of patients and staffing. In a nursing homebusiness, we’re putting nurses on the floor to take care ofthose patients, so we use a formula to link the number ofpatients that we have to the staffing levels we need. Andthat’s basically all I get from those guys (in the field), butwhen they get a budget back from me, it tells themeverything they need as far as how much they’ve got tospend in every GL account, what their staffing numbersought to be in terms of hiring people by level of expertise,how many patients they are going to have, and exactlywhat their level of payment would be. So when they get itback, it tells them basically what their business plan is forthe next year.”

This cause-and-effect algorithm was built over time,initially in a spreadsheet format. P&M converted to IBMCognos TM1 to provide greater ease and conveniencewhen updating. The current process also enables splittingrevenue into different types of payments between third-party payers such as Medicare and Medicaid.

A similar approach is taken at Blue Mountain Resort,Ontario, Canada’s largest mountain resort, which employs350 fulltime employees annually and adds 1400 seasonalemployees during the winter and 350 during the summer.

The resort contains 13 different lines of business includingrestaurants, ticketing outlets, call centers, and lodgingsites. IBM Cognos TM1 gives frontline managers theinformation needed to make timely strategic decisions.TM1 analyzes data from numerous sources such ascustomer usage, equipment rentals, and occupancy.

In the case of sales forecasting, Blue Mountain frontlinemanagers can determine whether or not sales expectationsare being achieved, gauge the effectiveness of marketingcampaigns, and modify room rates by examining actualperformance against historical data, climate conditions,and competitors’ results. TM1 lets users accuratelyevaluate the sales impacts of multiple factors such as anew marketing campaign’s effectiveness, advertisingreturn-on-investment, and capacity loads for each businessunit. Blue Mountain’s TM1 financial performancemanagement system provides a view of factual data andsophisticated analytical capabilities to determine whetheror not strategic goals are being met.

Using cutting-edge solutions to more fully understandcause-and-affect relationships can be found in leadingcorporations in every category. Methodological detailsmay differ, but the desire to truly know and understandwhat drives success is constant.

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Use continuous rolling forecasts to gain visibility and coordination aligned withoperating cycles.

Many organizations claim to forecast, but they are oftenunclear why they do so. It is typical to assume that aforecast is to provide visibility to plans, but in actualpractice, the exercise is typically an interim performanceevaluation with the objective of merely confirming thatoriginal targets will be achieved—just another opportunityfor sandbagging and shading the truth.

A related problem with forecasts is that organizationsoften only forecast to period end. This approach, called“forecasting to the wall,” is only concerned with theperiod-end numbers (as if a wall stopped the organizationat period end)—more sandbagging, more shading thetruth.

Organizations can overcome such problems by moving toa continuous rolling forecast to provide visibility andcoordination. The approach is characterized by aconsistent look-forward period, a planning strategy thatfrees senior management from the constant questioning ofperiod-end numbers. The objectives must be visibility andcoordination, with both being well-separated fromperformance evaluation. This separation is necessary tomake sure forecasts provide the best estimates of likelyoutcomes (performance evaluations should be reserved forthe actual results delivered).

GTC’s IBM Cognos TM1 planning application describedabove is successful because it is continuously updated withreal-time facts, results, and activities. GTC’s Jim Kneecenotes that the forecast process “refreshes in a fraction ofthe time previously required. Using the real-timecalculations, we typically perform several interim forecaststhroughout the cycle.” This is compared to formersystems which required significant time and manual laborbefore delivering outcomes which might have becomeobsolete before being published. The current processenables GTC to evaluate the potential impacts ofdeveloping a new market, contemplating a merger oracquisition, or evaluating different market scenariosbefore investing large amounts of capital, worker-hours,or resources.

Rolling forecasts have found favor in both public- andprivate sectors because they provide a more accuratepicture of where the organization stands in comparison tocompetitors and the marketplace in general. However, it isvital that an organization use continuous forecasting as anon-going process for keeping a vigil on market changes,challenges, innovation breakthroughs, and profitopportunities. This simply cannot be achieved by merelyforecasting to the end of a fiscal period.

Communication and understanding—vital to achieving success.

Achieving success depends on an organization’s ability tocommunicate corporate culture, action plans, resourceallocation, and worker commitment. To be truly effective,all managers within an organization need to be operatingwith a common purpose, and using the same information.The information must be action-based, real-time, andrapidly disseminable throughout the entire organization.

Successful organizations use planning, budgeting, andforecasting processes to communicate and strengthencritical components of their business such as corporateculture and overall organizational goals. The use of acommon set of plans can create thoroughgoingtransparency, which in turn promotes trust, employeeempowerment, and unity of purpose.

Examples vary across the corporations mentioned here.Many use rolling forecasts to communicate; continuousforecasting requires all levels of the organization tointeract and participate in established action plans. It alsoallows all functions to operate with a common set offinancial numbers and principals, which creates completeorganizational integrity.

In addition to traditional methods of organizationalcommunication, firms such as Huntsman Chemical haveperformance management platforms that enable text notesto be added to their budgets. Notes can be essential tounderstanding the reasoning behind the numbers and tocreating a commitment of purpose. Huntsman Director ofFinancial Systems, Jim Bell, explained it by saying, “Whilebudgeting is by nature a numbers-oriented activity, thereis also a certain amount of explanation that needs tooccur. Since IBM Cognos TM1 enhances Microsoft Excel,not only are budgeting managers able to work in familiarapplications, but they are also able to use TM1 to addtextual notes explaining variances.” Other leading energyfirms are using a similar approach to append notes onlocal customs or weather anomalies to the budgetinformation so that all necessary decision-makers in theorganization have a better understanding of themarketplace and the factors related to operationalexcellence.

Fortum is one of the leading energy companies in theNordic and Baltic regions. Its activities include electricityand heat products, sales and distribution, power plantoperation and maintenance services, as well as otherenergy-related services. Fortum is also the largest Nordiccompany in electricity transfer, sales, and district heating,and is the second largest in electricity production.

The company’s operations are divided into seven businessunits that at one time prepared their own annual budgetsusing a spreadsheet-based approach. Looking for a moremodern alternative to ensure vital planning, budgeting,and forecasting data was available throughout the entireorganization, Fortum turned to IBM Cognos 8 Planningfor a faster, more effective planning process. The businessunits now use Planning to support the monthly reportingprocess and to collect data for the entire year’s forecast.According to the company’s controller Mika Sappinen,extending its use has gone very smoothly. “The biggestbenefits have been attained by speeding up processes andincreasing their effectiveness,” he says, “and having up-to-date information readily available is a major step forward.Data is immediately available to everyone. Everyone hasaccess to the same information and structures. We cannow easily compare actual results and forecasts to theprevious year and the budget.”

Other organizations may use alternatives such as aBalanced Scorecard or Six Sigma to create and linkstrategic objectives throughout the workforce. Softwaretools such as a performance scorecard can help todrastically facilitate system-wide communication. Anotherfactor to consider is that repeating a message—such asone related to corporate culture or strategic objectives—helps to ingrain it in the workforce: The more deeplyperformance keys are disseminated and understood, themore accepted and solidified the message becomes.

Clear messages become stronger when they are frequentlyrepeated. The method of communication may vary, butthe message itself should be sent and reinforced often.

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About Cognos, an IBM company

Cognos, an IBM company, is the world leader in businessintelligence and performance management solutions. Itprovides world-class enterprise planning and BI softwareand services to help companies plan, understand andmanage financial and operational performance. Cognoswas acquired by IBM in January 2008. For moreinformation, visit http://www.ibm.com/software/data/and http://www.cognos.com..

16Reporting and scorecarding in primary and secondary education

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Best practices