Simplifying the forecasting and business planning process brings rewards

Summary

A dramatic reduction in forecast complexity lead to much stronger focus on the short term future rather than the short term past. The greatest risk was loss of ownership for results, but the organisation surprised by greatly welcoming a focus on business drivers rather than unnecessary detail and complex data gathering.

Situation

Forecasts evey quarter were checked and consolidated at next level, and then consolidated again. The final result accumulated several layers of conservatism, so the outcome was disappointing. Top management deployed corrections to next level, who deployed corrections down, and so on. 

The entire process took several weeks each quarter. Detailed P&L accounts were made at each level, which helped bring strong understanding and ownership of costs and the contribution to the bigger picture, but external developments, such as unexpected changes in sales, nearly always made the individual, unit-level results significantly different from reality. On top of the time spend making the forecast, a great deal of time was spent explaining the deviations between forecast and actual at the level of small factories, even though those deviations were out of the control of local management. A great deal of time and effort was used to explain how actual results could be adjusted to return to the forecast assumptions, then comparing those adjusted results to actuals.

Implementation

The forecast was changed from being a consolidated, detailed P&L and balance sheet to a simple model based on a few key business drivers, mainly externally focused.

The input from each factory was reduced to one A4 page. Key assumptions were deployed at the start of the forecast process, with no lengthy iterations. 

Monthly business reviews were reduced to 30 minutes, from 90 minutes, with only ten slides. Only ten minutes was spent looking into the results of the previous month: previously, almost the entire review was focused on reviewing the past month.

Unforeseen development 

The change management requirements for this project was greatly overstated. We expected a lot of resistance from local management teams who we thought would be very negative about the de-emphasis on their EBIT and local P&L. In fact, management was delighted to focus on what they could influence. They also appreciated the simple and fast view of the market that the simplified key drivers gave. Above all, the dramatic savings in time and the shift to a forward-looking monthly review process were seen as a huge win.

Results

Many precious hours of management and finance time was freed up to focus on improving business results. A much sharper and clearer understanding of the key drivers. A much better link between the Balanced Scorecard and business planning and reviewing.