IBM Cognos 8 Planning

Chapter 1. Planning with IBM Cognos

The objective of this book is to introduce you to IBM Cognos Planning and provide you with a guide to help you get started. If you are a beginner seeking to expand your basic knowledge about IBM Cognos Planning, or perhaps a power-user who would like to start developing a model, then this book is for you. We provide you with a conceptual framework and cut to the heart of the subject without the technical clutter. We have structured this book in a way that focuses on the key aspects of IBM Cognos Planning while at the same time giving you step-by-step instructions on how to build simple models from the ground up. Like any software, IBM Cognos gives you tools that enable you to create solutions to problems. Tools by themselves do not solve problems; you do through the use of these tools. A lot has to do with the understanding of how to leverage the features of IBM Cognos in order to create new capabilities within your enterprise. That is what we hope you will learn from this book.

Throughout this book, we will offer our advice on building effective and efficient models and will provide tips on overcoming or avoiding some of the pitfalls of modeling. As with any skill, the aspiration for mastery of IBM Cognos Planning must begin with the fundamentals. We hope that after you have gone through the book, you will have gained the fundamentals that will prepare you to take on the challenge of building more complex models and, by harnessing the power of this software, improve on how your enterprise plans and manages performance.

Planning in a dynamic business environment

Today's dynamic business environment demands more accurate projection about the future. Forces such as intense competition, changing regulatory requirements, disruptive technologies, demands for financial transparency, and more sophisticated customers and investors compel companies to develop a clearer picture of the future so that they can react faster, while at the same time lower the level of uncertainty with their business. We have seen over time how markets have responded to companies that fail to deliver expected results. Those that fail have seen their stock value diminish. On the other hand, companies that consistently deliver are rewarded with higher market capitalization. The key to gaining the confidence of the market is in reducing the level of uncertainty by setting the right expectations. To do this, companies must be in tune with the realities of their business so that they can project the future more accurately and manage performance towards their goals. Yet, despite advancements in technology, a great number of companies operate their business using inadequate planning systems, effectively hampering their ability to execute their strategy. No matter how great its products are, a company cannot realize its full potential with a flawed planning system.

Enterprise planning solutions enable a company to plan accurately so that it can allocate its most precious resources effectively and respond to a dynamic business environment. The goal of enterprise planning must be achieved through a comprehensive performance management framework consisting of planning, scorecarding, and business intelligence. By establishing the company's future state, enterprise planning provides the basis by which performance is measured. From the plan, the company generates its key metrics to monitor performance. Through business intelligence and analytics, it attempts to understand deviations from plan so that it can respond appropriately. Enterprise planning engages people, process, and technology to anticipate the future. It is a multi-faceted discipline that spans the whole enterprise, and not just the Finance department. When everyone is aligned in a unified forward-looking motion, in touch with every vital aspect of the business, the company becomes more proactive and adaptive to changes in its environment.

Common problems with the planning process

Problems with traditional planning processes are commonplace. The process can be time consuming, involving countless hours of activities that add little value. Changes in the business environment are seldom reflected in the plan. The integrity of data is questionable. The process of collecting and consolidating plans creates a lag that makes information obsolete by the time it reaches the decision maker. For non-financial managers, the task of preparing the budget seems to be more of an invasion of their time rather than a rather a meaningful, productive exercise. They feel overwhelmed by the demands for financial projections that have little connection to the realities of their business. Many of these problems are evident in companies that have inadequate planning systems.

Disconnect between operating reality and financial plan

Ideally, operational targets are linked to financial measures. When the link is severed, decisions by people on the ground are not reflected in the financial plan, and high-level corporate strategies do not translate into discrete operational plans.

Confrontational versus collaborative

Many financial plans are developed in silos by individuals whose perspectives do not go outside of departmental boundaries. In many cases, even individuals within the same department work in isolation, unaware of how their work affects others. In such a fragmented enterprise, planning likely becomes a win-lose proposition and managers tend to view planning as an opportunity to protect existing resources rather than a purposeful endeavor.

Cycle times

Planning cycles must be in sync with major milestones in the business so that the company can reposition itself in anticipation of change. When the time it takes to develop the plan is too long, the plan becomes obsolete before it is finalized. Because of the tremendous effort involved in starting and completing a planning cycle, traditional planning cannot keep up with the business dynamics and is often relegated to an annual or semi-annual ritual.

Ownership and accountability

When plans are imposed from the top down, or from the finance area, they will likely fail to receive buy-in if there is a lack of common understanding of the basis for the plan. The planning process must engage all lines of business managers in a collaborative approach in order to ensure ownership and accountability, and the plan must reflect the contributions of both upper and lower layers of management.

Spreadsheet-based planning

While today's business literature has placed considerable focus on sophisticated enterprise-wide planning systems, most companies still plan using spreadsheets, sending planning templates back and forth, and spending an inordinate amount of time collecting and consolidating plans. A survey by CFO Research Services asked finance executives about their efforts to transform their planning, budgeting, and forecasting processes. Of those who responded, 73% rely primarily on spreadsheets and manual processes. Only 16% use analytical applications, and only 11% extract the necessary numerical information from their accounting modules. Spreadsheet-based planning is littered with problems and is often a chaotic, frustrating, and ineffective process, causing managers to submit unrealistic budgets and senior executives to fudge the numbers at the top. This drives a wedge between senior executives and lower-level managers, and alienates people who are accountable for the plan but feel a certain distrust of the numbers by which they are now measured. Other problems are familiar.

Lack of control

Developing a model in a spreadsheet appeals to many users because of its flexibility. You can develop a model without the need for a preliminary blueprint or prototype, because the spreadsheet imposes no rules or structure for designing or laying out your model. While this is all well and good for a simple model, you will soon realize that a spreadsheet-based planning process can quickly degenerate into "spreadsheet hell". A simple insertion of a row or column can be a daunting task when numerous worksheets are involved. Macros that execute routines must be recoded, retested, and redeployed to account for the change. The fact is that the spreadsheet, while a powerful personal tool, lacks the structure that is so vital in enforcing the discipline necessary to support and maintain any process on an enterprise scale.

Spreadsheet error

Even the most carefully-crafted spreadsheet carries the risk of formula errors. In a spreadsheet, formulas are embedded in cells and then copied across many rows, columns, worksheets, and workbooks. This method may not seem initially onerous, but when you have to make a change in formula to multiple spreadsheets, it is easy to make a mistake, especially when there is no central place where calculations reside. Errors come in many forms, from a simple typographical mistake to completely overlooking a critical component. Because the calculations are scattered and mixed with data, finding a formula error is like searching for a needle in a haystack.

Lack of transparency

All too often, spreadsheets are developed by individuals in finance and so are designed to be user-friendly to the designer. To a non-financial person, it could be the opposite. A spreadsheet that contains complex formulas that refer to multiple cells across several worksheets can be intimidating. When users do not understand how their numbers are arrived at, the planning process loses its integrity.

Consolidation and version control

When spreadsheets are distributed across the organization, the task of collecting and consolidating them can be extremely time-consuming. No wonder that in some companies the task of consolidating is a full-time job. Not only must the plan be submitted on time, it must be the correct version, and it must roll-up the latest organizational hierarchy.

How technology enables planning best practices

In recent years, many companies have migrated from spreadsheet-based processes toward more sophisticated enterprise planning tools. These tools promise a greater level of operational detail for analytical purposes, more robust financial reporting, real-time aggregation of data, and higher participation from users. The tools also liberate finance departments from the demands of collecting and consolidating data so that they can focus on analysis, and understand real business drivers. As software technology improves, companies are tasked with enabling planning best practices by adopting new tools. Some of the new capabilities but these tools provide can have far-reaching effects on the accuracy and timeliness of the plans, and have an almost immediate impact on the productivity of the users.

Real-time updates: The business environment is so dynamic that relying on annual or quarterly financial updates may no longer be sufficient. A company's forecast must be based on events and conditions that can change over time. Because information is updated instantaneously, it maintains its relevance when it reaches the decision maker.
Ability to integrate with enterprise data: Companies need to be able to tap into various ERP systems to extract data that impacts their planning and budgeting. Data such as labor rates, material costs, interest rates, and currency rates can directly affect profitability. The planning system must provide interfaces to disparate data sources so that the changes to the operational data can cascade into the financial plans when conditions change.
Hierarchical aggregation and granularity: Planning takes place at many levels, so the ability to provide consolidated information as well as drill-down capabilities to a granular level of information in order to discover underlying issues, is critical to a planning system. Advances in technology have allowed data to be linked across all organizational levels, creating a unified platform for information.
Ability to translate between financial and non-financial metrics: Planning engages multitudes of planners who think in terms of non-financial metrics. Planning templates must be customized to the planners' view using terms that are familiar to them. Because many planners deal with non-financial operational measures, the planning system must be able to translate operational measures into financial information.
Collaborative: The Web enables the interactive participation of planners anytime, anywhere. New technologies enable people to work in real-time across geographies so that decisions can be made faster, with all of the decision makers interacting simultaneously.

Finance organizations that adopt dedicated planning tools are better able to support strategic Performance Management initiatives. Ventana Research believes that planning and budgeting will be transformed over the next five years by nearly universal use of software tools dedicated to this purpose.
Ventana Research

Introducing IBM Cognos Planning

IBM Cognos, a leading performance management software company brings together technology, analytical applications, and best practices to give companies an open, adaptive, and complete performance management platform. It offers solutions that deliver the integrated planning, consolidation, querying and reporting, analysis, and metrics management capabilities that enable better decision-making across the enterprise. IBM Cognos Planning is the cornerstone of the corporate performance management platform. It is developed for companies that possess even the most complex business planning models. It is a state-of-the-art, scalable planning and forecasting solution that gives managers real-time visibility into operational and financial plans. Its also gives financial analysts powerful modeling tools that enable the design of complex models, and allows the financial analysts to perform what-ifs and scenario planning using latest version of the plan. Its distributed administration architecture provides localized ownership and responsibility for the preparation, control, and maintenance of plans across functional, geographic, and organizational boundaries while still keeping a unified and secure planning environment.

Corporate Performance Management

Corporate Performance Management (CPM) is a term that describes the practices, processes, technologies, and metrics that are used to measure and manage a company's performance. There are a host of similar terms in business literature, such as Business Performance Management (BPM), Enterprise Performance Management (EPM), and Financial Performance Management (FPM). Notwithstanding the differences in terminologies, the concept is the same: companies need a way to manage performance within a complete and comprehensive framework. CPM provides answers to three fundamental questions: "How are we doing?", "Why?", and "What should we be doing?" Leading organizations are succeeding through an integrated CPM approach that encompasses planning, scorecarding, and business intelligence. This approach enables companies to define strategic goals and then measure and manage performance against these goals. Such organizations establish performance expectations through planning, monitor performance by using scorecards, and understand what drives performance by reporting and analyzing information.

The following figure shows the various steps in the CPM approach:

Benefits of IBM Cognos Planning

IBM Cognos Planning helps to improve financial and operational planning by giving companies the ability to transform a high-level strategy into discrete plans. It encompasses the entire company yet it enables the finance department to own and manage the process. It supports dynamic planning and provides the cornerstone for enterprise-scale performance management. Some of the benefits are:

Centrally managed system to be used to produce budget, estimates, and forecasting reports
Generation of reports through an iterative process that ensures data integrity
Ability to support the generation of bottom-up budgets while enabling top-down adjustments
Ability to capture commentary at all levels
Ability to generate and retain "what-if" scenarios
Drill-down capability
Ease of use of the system with little requirement for technical proficiency
Ability to deliver reports electronically
User access security defined within the system
Ability to provide user audit trail
Model documentation and maintenance
Ability to effectively store multiple time periods and iterations
Ease of access to the system for management, accounting staff, and business users
Ability to perform allocations within the system
Ability to integrate with underlying data sources