It was a small group of about 15 FP&A pros gathering around the conference room at the Boston Hilton. We analyzed conditions that suggest it is better to stick with spreadsheets for budgeting and planning. Then we looked at cases where it is a "gray area" as well as "no brainer" cases for replacing spreadsheets based on estimating the ROI of implementing a dedicated planning application.
MEP Plans in Construction of Building and Industrial Projects 2024
Measuring the Roi of Planning Software Boston June 2012
1. Measuring the ROI of Planning Software
June 21, 2012 IE Group
Ben Lamorte, VP Marketing
Follow us! @AlightPlanning
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2. The Subtle Message
1: Is it EVEN worth it to replace
spreadsheets with a planning
tool?
2: If you already bought software,
was it worth it?
3: Either way, how do we make
planning ADD VALUE?
AGILE
3. The Subtle Message
1: Is it EVEN worth it to replace
spreadsheets with a planning
tool?
2: If you already bought software,
was it worth it?
3: Either way, how do we make
planning ADD VALUE?
AGILE
4. The Subtle Message
1: Is it EVEN worth it to replace
spreadsheets with a planning tool?
2: If you already bought software,
was it worth it?
3: Either way, how do we make
planning ADD VALUE?
AGILE
5. Last Month’s Webinar Survey Results
Of those purchasing dedicated planning software solution,
74% report ―Unsure of ROI‖ (approx 100 on webinar)
13%
Unsure
13% Good ROI
Bad ROI
74%
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6. Rand Heer (He’s ―Heer‖ In Spirit)
Business Activities
CEO, Alight Planning (Planning software)
Co-Founder, Aspirity (Microsoft BI consulting)
Founder, FP&A Train (Essbase training)
Founder, Pillar Corporation
CFO for 2 public companies
Rockwell Int’l, Business Unit CFO and Corporate
Publications
The Planning Maturity Curve: Where Are You? Where Do You Want to Be?
How Agile is Your Planning: Find out by Measuring the ROI of Your
Planning Software
Coauthor: “Business Intelligence: Making Better Decisions Faster”.
Published by Microsoft Press.
Education
MBA degree Harvard Business School
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7. Ben Lamorte
Business Activities
VP Marketing, Alight Planning
VP Business Development, Alight Planning
Principal, Decision Consulting (Adobe, Kaiser)
Manager, Business Intelligence, planetrx.com
Management Consultant, APM/CSC Healthcare
Editor of “The Agile Planner” Blog
Yes! Planning can be a Positive Experience
Why Financial Reporting Software Delivers No Value?
The Value of Agile Planning Over Time
Driver Based Planning: How is it Defined?
Education
MS Management Science & Engineering, Stanford University
BS Mechanical Engineering, UC Davis
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8. Agenda for Afternoon
Planning Maturity Curve Framework for ROI
Small ROI Example (1x)
Big ROI Example Agile Planning
33x – Pittsburgh Mercy Health
20-80x – SoftLayer
Bonus Item: Optimization – the BEST CASE SCENARIO
Lisa comes on for an Alight Demo focusing on
Driver-Based Planning
Rolling Forecasts
Scenario Analysis
Cocktails!
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9. History: Getting to Planning Maturity Curve
2011
Planning
Maturity Curve
Introduced
1980s 1990s/2000s
Agile Planning
Spreadsheet Many Planning Trademarked
Era Apps Available
1990s 2010
―Pillar Era‖ Alight Wins Overall
1st Planning App Business Performance &
Analytics Award**
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*BPM Partners
** Ventana Research
10. Planning Maturity Curve: Business Value!
Insights Actionable Financially-
Understanding things Knowledge Sound Decisions
we didn’t see before
Understanding Scenario analysis gives us
impacts of our actions the financial impact of choices
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11. Planning Maturity Curve: 2 Types of Benefits
Effort
Type 2: Introduce New
Forecasting Processes to Add Value
Reporting
Budgeting Type 1: Streamline
Existing Processes
Reduce Effort
Business Value
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12. Small ROI : Type 1 Benefits Insights
Key Question: Who’s ROI is this anyway?
Type 1 Benefits of Planning Software tend to be minimal for Line Managers
– known as “end users” by vendors
Key Drivers for Annual ROI for End Users
(Labor reduction/end user between $0-$800)
X (# active users)
Example
($400 reduction in labor per user)
X (10 users)
Bottom Line for End-User Example
$4,000 per year cost reduction for a 10-user system
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13. Small ROI : Type 1 Benefits Insights
Type 1 Benefits of Planning Software tend to be small to moderate for
Finance Departments
Key Drivers of Annual ROI for Finance Dept
(Time savings improvement between 20-40%)
x (Total Finance Dept Cost of budgeting in spreadsheets)
Example
(30% time savings improvement from planning software)
X ($80,000 Total Finance Dept Cost of budgeting in spreadsheets)
Bottom Line for Finance Dept Example
$24,000 per year cost reduction
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14. Small ROI: ROI Calculator Example
Example: 10-User System Type 1 Benefits of $19,504 per Year
$10,800 for Budgeting, $8,704 for Forecasting
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15. Big ROI: 33x More ROI with Agile Planning?
Traditional Planning Agile Planning
Type 1 Type 1 & 2
Deployment Web-Based Forms On-Premise
#Seats Purchased 10 5
Costs
Year 1 $30,000 $40,000
Year 2 $15,000 $5,000
Year 3 $15,000 $5,000
Total Costs $60,000 $50,000
Benefits
Year 1 $19,504 $450,000
Year 2 $19,504 $600,000
Year 3 $19,504 $600,000
Total Benefits $58,512 $1,650,000
ROI Multiple 0.98 33.00
Source:
Traditional Planning: Interview with web-based software user focused on saving time
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Agile Planning: Ray Wolfe at Pittsburgh Mercy Health Case Study
No Surprise that more than 80% report management prioritizes type 2 over type 1
16. Planning Maturity—Agile Planning
Planning Maturity Curve (PMC)
Effort
Forecasting
Reporting Forecasting/Agile Planning
Budgeting
Seat of Pants
AGILE Business Value
17. The 4 Steps to Agile PlanningTM
4. Implement
Scenario
Analysis
2. Implement
Driver-Based
Planning
3. Integrate
(Don’t Just
Import)
Actuals
1. Reduce
Level of Detail
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18. Big ROI: Pittsburgh Mercy – The Leader
Ray Wolfe, CEO (was CFO)
Business Activities
Chief Financial Officer, Pittsburgh Mercy Health
System 2006-2011, now CEO
Director of Fiscal and Information Systems– Mercy
Behavioral Health 1996-2006
Chief Fiscal Officer, Summit Center for Human
Development, 1988-1996
Awards: Overall Ventana Leadership 2010
Education
JD, West Virginia University 1977
BA, Marshall University, 1974
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19. Big ROI: Pittsburgh Mercy Overview
Community Mental Health and Health Care Related
Mental Health, Mental Retardation, Drug/Alcohol, Homeless
Prevention Services and a Private Foundation
Business Metrics
3 subsidiary corporations
60 community locations
27 major programs product lines
260 revenue/cost center
1,700 employees; 106 Managers & Supervisors
Funded through traditional insurance billing, government grants and
capitation contracts, Private Foundations
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20. Big ROI: Pittsburgh Mercy Before
Demographic Problems
Managers with only clinical backgrounds/ no business skills
60 sites yielded communication barriers and no common language
Excel based —
Overload mode of worksheets with link and formula errors
Too much time to maintain and no certainty of integrity
Budgeting became a ritual without meaning
Tops down budgets w/o manager buy in
No operational integration
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21. Big ROI: Pittsburgh Mercy After
Organization of Forecast Groups & Processes
Group managers by functional areas—e.g.
Community Treatment Teams
Child Services
15 Groups each meet once a quarter
3 to 12 managers per group
4 members from accounting/finance
Real time process elements
Alight Planning displayed on Overhead Projector with Smart Board
Ray is facilitator; Alight Admin on mouse & keyboard
Review / make changes in real time
Everyone sees everything!
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22. Big ROI: Reduce Detail 10k to 3k line items
Not Just a ―SOFTWARE ISSUE‖ - a ―SOLUTION ISSUE‖
Moved to a lower level of detail by reducing T&E accounts
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24. Big ROI: Pittsburgh Mercy - Results
Financial Results
$600K annual impact to bottom line
Combined revenue increase and costs cut
Process Results
No budgeting
Global updates twice a year – detailed updates quarterly
Forecast accuracy to 2%
Manager commitments based on demonstrated best practices
Model Status
Now on third model iteration built from scratch
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26. The Value of Traditional Planning Over Time
But ROI
diminishes
quickly
over time.
VALUE
High ROI at
the early
stages of
planning…
TIME
Source: The Agile Planner Blog
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27. The Value of Agile PlanningTM Over Time
Long-term
VALUE value from
planning
increases
significantly
ROI remains
high in the
early stages
of planning…
TIME
Agile Planning Defined: Impactful planning that addresses the right
business issues at the right time with the right people at the right
level of detail. Unlike budgeting, it is a continuous process that adds
increasing value over time.
AGILE Source: The Agile Planner Blog
28. Next Steps: Who wants to go Agile?
Free - if exploring rolling forecast or Agile Planning
Customized ROI Assessment
In-Depth Planning Model Review
Customized Planning Maturity Curve Report!
Recorded Webinars
IE Group Workshop: Application Requirements for Rolling Forecasts
www.AlightPlanning.com/Workshop/Requirements-for-Rolling-Forecasts/Video.html
Transforming Planning at Pittsburgh Mercy
www.Alightplanning.com/Webinars/PM/Video.html
IMA June 2012: Case Study: Measuring the ROI of Planning Software
http://event.on24.com/r.htm?e=463939&s=1&k=AC2FB205C027E8CF17646BAE071ECC9
1 (Register and then click Launch Presentation)
Follow up with Kevin Pellegrino, VP Sales & Marketing
kpellegrino@alightplanning.com
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29. Wrap-Up & Preliminary Implications
Small Companies looking only to streamline existing planning
processes will have marginal type 1 benefits; they may in fact be
better off sticking with spreadsheets!
While end-user licenses may benefit the finance department, there is
minimal (and even sometimes negative ROI) associated with
replacing spreadsheets as reported by end users; many of whom
prefer to stick with spreadsheets and only enter data in once a year
anyhow.
It is no surprise that management prioritizes type 2 benefits as this
is where one can experience the ―BIG ROI‖
To achieve type 2 benefits, ―software‖ alone is insufficient. We need
ongoing, iterative training & model building to cross the
planning maturity curve by:
optimizing ―level of detail‖ - ―implementing driver-based planning‖
―integrating (not just importing actuals)‖ - ―leveraging scenario analysis‖ to better
communicate the model and deliver actionable knowledge to inform better
business decision making
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30. Examples of Type 2 Benefits
Specialized Functionality
Roll the Forecast
BS/Cash Planning
Integrate Short/Long Range
Operations Integration
Integrate Drivers
Volume/Rate Causal Analysis
Capture/Calculate KPIs
Profitability Analysis
Complex Allocations
Analyze Customer Profitability
Analyze Product Profitability
Decision Support
Interactive Dashboards AND Real-Time Planning
Scenario Analysis On-the-Fly
Strategy Analysis
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31. Planning Maturity—Agile Planning
Planning Maturity Curve (PMC)
Effort
Forecasting
Reporting Forecasting/Agile Planning
Budgeting
Seat of Pants
AGILE Business Value
32. Types of Models
Doing the thing right vs. doing the right thing
Lilien and Rangaswamy, Marketing Engineering, (2001), page 11-13
“Descriptive decision models address the question, ―What will happen if we do X?‖
Normative decision models address the question, ―What is our best course of action
in a given situation?…explore the value of a decision option under different scenarios
(Note #1)…when there are only a few options..descriptive models may be
adequate…with many options to choose from, formal mathematical procedures are
needed.‖ (Note #1)
Shapiro, Modeling the Supply Chain, (2001), pages 10-11
“Descriptive models are used to better understand functional relationships, e.g.,
Cost relationships that describe how direct and indirect costs vary as a function of cost drivers
(Note #1)
Simulation / Forecasting models
Normative models..that practitioners develop to help make better decisions. Our view
is that normative and optimization models are synonyms.‖
Note #1: Descriptive models must evaluate alternative options or scenarios, one at a
time, to find the best one. Normative models evaluate huge numbers of alternative
scenarios, simultaneously, and chose the best.
Thanks to Alan Dybvig for Creating this Slide
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33. Planning Maturity Curve with Optimization
Effort
Forecasting •Implement unit-based planning
•Integrate (don’t just import) actuals
•Implement scenario analysis
Reporting
Forecasting/Agile Planning
Move out of Excel Optimized Forecasting/
Reduce level of detail
Budgeting Agile Planning
•Implement optimized unit-based planning to create the
maximally profitable projected income statement
•Implement cost function variance analysis with actuals
•Implement scenario analysis using profit, EVA and CLV
•Implement profitability analyses
•Implement analyses of broader range of constraints
Seat of Pants •Implement supply chain optimization
AGILE Business Value