Year after year the hype surrounding data analytics becomes louder. Thought leaders and research organizations have sung the praises of analytics as a means for generating much-needed insight into business operations, and companies that have embraced analytics have been able to translate insight to better operational productivity and faster, more accurate decision-making. In a competitive business environment where your competition is just as hungry as you are to reach and secure new customers and where business leaders need to make accurate, fact-based decisions about the company’s future, analytics can be the game-changer that makes the difference between success and failure. Here’s how:
The beauty of analytics is that it can serve as a guideline for transforming sub-par business performance to one that is efficient and profitable. Whereas reports provide a historical view of what transpired, analytic output is forward-looking, and plays an integral role in helping executives plan for the future.
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In past articles I’ve written here on arcplan’s BI Blog, I explored the role of spreadsheets in the planning, budgeting, and forecasting process and the importance of agility and accuracy. Today I would like to talk about the benefits of business analytics in the planning process when it comes to providing agility and accuracy.
When forecasts are consistently accurate, business leaders can have more confidence when making decisions and investments to guide the organization, as they have a good idea of how the organization will perform in the coming months. Agility is essential because volatile markets make it difficult for forecasts to reflect current business conditions. Therefore, Best-in-Class organizations are more likely than All Others to implement technology to enable both data access and the ability to utilize data to make predictive decisions (Figure 1). Fifty percent (50%) of Best-in-Class organizations have implemented an enterprise-level BI solution in comparison to 28% of All Others. These tools provide data in an easily consumable format so employees can find and utilize the data they need to make decisions. The Best-in-Class are also over twice as likely as All Others to have implemented predictive analytics. This technology helps to convert BI data into forward-looking forecasts.
Figure 1: Best-in-Class Technology Adoption
Source: Aberdeen Group, January 2013
Providing Visibility & Agility: The Key Components of Success in Planning, Budgeting, and Forecastingby Nick Castellina
In my previous post, I discussed the role of spreadsheets in financial planning, budgeting, and forecasting. My key conclusion was that organizations need more substantial technology to facilitate these processes through automation. What I did not discuss was how these technologies provide greater visibility into the data that is essential for successful decision-making as well as the importance of utilizing this data to create forecasts that constantly reflect current business conditions. Today I would like to discuss these themes, but let’s first take a step back to why they are important.
Aberdeen’s 2013 Financial Planning, Budgeting, and Forecasting survey illustrated the top pressures hindering planning processes (Figure 1).
Figure 1: Pressures in Planning, Budgeting, and Forecasting
Source: Aberdeen Group, January 2013
Highlighting the importance of agility, organizations are pressured with volatile markets that make it extremely difficult to forecast effectively. This is compounded by the fact that 25% of organizations reported that their current budgeting process is too long and resource intensive. So organizations are spending all this time and effort, and by the time the planning process is complete, the output is already based on old data.
In my role as the Senior Research Analyst in the Aberdeen Group’s Business Planning and Execution research practice, I spend a significant amount of time studying the key pressures facing organizations in their planning processes as well as the key technologies that top performing organizations use. Unsurprisingly, I often get questions on the role of spreadsheets in the planning process. Spreadsheets continue to be a popular tool used in financial planning, budgeting, and forecasting processes. In fact, Aberdeen’s 2013 Financial Planning, Budgeting, and Forecasting Benchmark survey found that 89% of organizations use spreadsheets in the planning, budgeting, and forecasting processes. Employees are comfortable with spreadsheets because many of them use them in both their professional and personal lives. This familiarity makes it unsurprising that both top performing and Laggard organizations are employing them in some aspect of their financial planning process. This reliance may stay the norm for the foreseeable future and spreadsheets are likely to continue to be an integral part of the planning process.
Yet while the Best-in-Class may be using spreadsheets as a part of the planning process, they are less reliant on them as the sole means of communication and interaction, preferring to combine them with the use of applications (Figure 1). Being a repository of exported data is in fact the leading role spreadsheets play in top performing companies. As the methods in which spreadsheets are used become more manual, the Best-in-Class and the Laggards switch rankings…
My series on planning visualizations has so far explained how to use the right chart types to tell your plan’s story. Today I’ll wrap up with a focus on using visualizations to show how your plan will hold up as the fiscal year progresses. The charts below display forecasts that are based off of 12-24 months of historical data used to predict future results.
Plan vs. Actual Spend: Bullet Visualization with Linear Regression
Good planners know that a plan shouldn’t simply be created, approved and then left to rot on a shelf somewhere. Plans should be managed and updated throughout the year. Even the best plans require changes, especially when it looks like you might be getting off track.
Say you’re a marketing director for a retailer and your fiscal year begins in January. In March, you’re starting to wonder if there will be enough funds in the budget by September to do your holiday season advertising. There’s a way to predict this information, even if you’re only a few months into the fiscal year. A finance professional might run a linear regression and stick a table in Excel to show the progressions of the budget over time. But as a marketer, you’re a visual person and might better understand a bullet chart. Plotting the actual data (in yellow) against the plan data (in gray), it’s easy to see that marketing expenses were understated in the plan from the beginning, or you simply overspent early on and won’t recover without making adjustments to spending. The red bars show just how far off spending will be vs. the plan if you don’t take corrective action: