© 2010 ibm corporation business analytics software transforming finance through forecasting &...
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© 2010 IBM Corporation
Business Analytics software
Transforming Finance through Forecasting & Analytics
Christoph Kaderli
Marketing & Strategic Initiatives Executive, IBM Business Analytics
Bratislava October 13th, 2011
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© 2010 IBM Corporation2
Business Analytics software
Volatility & uncertainty are here to stay
Years to reach 50M users:
Radio38 years
Radio38 years
TV13 years
TV13 years
Internet4 yearsInternet4 years
Facebook2 years
Facebook2 years
Supplier lead time is 62% faster than just two years agoSupplier lead time is 62% faster than just two years ago
© 2010 IBM Corporation3
Business Analytics software
CFO Agenda: Improve Effectiveness & Beyond Finance
Introduction
N = 1,834 Note: Executives asked: How important to your Finance organization are each of following areas of responsibility? and How effectively do you think your Finance organization is performing in each of those areas? And Please rank your top 3. Importance defined as enterprises selecting [5] Critical and [4] on a 5-point scale where [5] Critical and [1] Unimportant. Effectiveness defined as enterprises selecting [5] Very Effective Critical and [4] on a 5-point scale where [5] Very Effective and [1] IneffectiveSource: IBM Institute for Business Value, The Global CFO Study 2010
34%
28%
26%
21%
16%
9%
28%
35%
23%
Core Finance
Enterprise Focused
2
Gap
1
3
Importance
Effectiveness
Driving integration of information across the enterprise
Providing inputs into enterprise strategy
Supporting / managing / mitigating enterprise risk
Driving enterprise cost reduction
Strengthening compliance programs and internal controls
Driving Finance function cost reduction
Executing continuous Finance process improvements
Developing your people in the Finance organization
Measuring / monitoring business performance
Rank
52% 61%
55% 83%
49% 84%
59% 75%
62% 85%
52% 80%
59% 80%
39% 73%
51% 77%
0% 20% 40% 60% 80% 100%
© 2010 IBM Corporation4
Business Analytics software
Analytics-driven organizations outperform Efficiency & business insight contributes to better financial performance
Sources: IBM Institute for Business Value; 2010 IBM Global CFO Study.
One year: 2008–2009Five years: 2005–2009
Value Integrators All other enterprises
7.7%
12.0%
10.3%
3.8%
8.8% 9.0%
105% better
36% better
15% better
EBITDA5-year CAGR, 2005-2009
Revenue5-year CAGR, 2005-2009
ROIC5-year average, 2005-2009
32.2%
-0.3%
7.2%
2.5%
-4.1%
6.0%
12 x better
15 x better
20% better
EBITDA1-year change, 2008-2009
Revenue1-year change, 2008-2009
ROIC2009
© 2010 IBM Corporation5
Business Analytics software
Why?
How are we doing?
What should we be doing?
…
Analysis, Ad Hoc Query, Text Analysis,
Reporting Dashboarding,Scorecarding,
Real time
Planning &Predictive Analysis,
Budgeting, Forecasting
Actionable Insights enable everyone to answer 3 Key Questions
CUSTOMERSERVICE
SALES
MARKETING
FINANCEHR
OPERATIONS
ITPRODUCT
DEV.
Social / External
Internal Data
© 2010 IBM Corporation6
Business Analytics software
Lessons from the LeadersThe “Best” Rely on Advanced Analytics
Source: IBM Institute for Business Value, 2010 IBM Global CFO Study (Adapted)
© 2010 IBM Corporation7
Business Analytics software
Forward Looking
Flexible
Focused on Risks & Opportunities
Fact-based
Rolling Forecast – a modern approach
© 2010 IBM Corporation8
Business Analytics software
Plans/ Budgets detail how you think the future should look
Forecasts describe what the futurewill most likely look like
Difference from Budget and Plans
“Using Rolling Forecasts allows companies to incorporate the most recent information and insights about the marketplace.”
Kaplan/ Norton, Authors, Management Gurus
“..it is speeding up the budgeting process.”
Hackett Group 2008
© 2010 IBM Corporation9
Business Analytics software
There are several success factors
Time Horizon Participation Modeling
Risk & Uncertainty
CultureProcess
Measurement
© 2010 IBM Corporation10
Business Analytics software
There are several success factors
Time Horizon Participation Modeling
Risk & Uncertainty
CultureProcess
Measurement
© 2010 IBM Corporation11
Business Analytics software
What is a Rolling Forecast?
J F M A M J J A S O N D J F M A M J
Q1 Forecast
Q2
Q3
Traditionalforecast
Q1 Forecast
Rollingforecast
© 2010 IBM Corporation12
Business Analytics software
Rolling Forecast = 12 month quarterly?
No. It depends on your business!
© 2010 IBM Corporation13
Business Analytics software
Match the time horizon to the rhythm of your business
Short cycles
Consumer electronics
Retailing
Investment banking
Advertising
Cash flow
Overtime
Long cycles
Oil exploration
Pharma development
Infrastructure investment
Plant construction
Infrastructure investment
Research & development
Indu
stry
Fun
ctio
n
© 2010 IBM Corporation14
Business Analytics software
Common Time Horizon decisions*
Airline: Rolling 2 quarters; monthly
Semiconductor: Rolling 2 quarters; twice per quarter
Automotive: Rolling 2 quarters; quarterly
Chemical: Rolling 2 quarters; monthly
Telecom: Rolling 4 quarters; monthly
Technology: Rolling 4 quarters; quarterly
Engineering: Rolling 6 quarters; quarterly
Consumer goods Rolling 6 quarters; monthly
Pharmaceutical Rolling 6 quarters; quarterly
© 2010 IBM Corporation15
Business Analytics software
There are several success factors
Time Horizon Participation
Culture
Modeling
Process Measurement
Risk & Uncertainty
© 2010 IBM Corporation16
Business Analytics software
High participation creates value.
Sales
Marketing
HR
© 2010 IBM Corporation17
Business Analytics software
....and drives
ownership & insight
© 2010 IBM Corporation18
Business Analytics software
There are several success factors
Time Horizon
Culture
Participation Modeling
Process Measurement
Risk & Uncertainty
© 2010 IBM Corporation19
Business Analytics software
Remember this traditional template?
o Risk?
o Opportunities?
o Customers?
© 2010 IBM Corporation20
Business Analytics software
A simple test for selecting the right items
„Simplicity is the ultimate
sophistication.“Leonardo da Vinci
© 2010 IBM Corporation21
Business Analytics software
Jan Feb Mar Apr May Jun Q3 Q4 2010 Q1 Q2 Q3 Q4 2011RevenueCOGSMarginSalariesTravel ExpenseRentOther ExpensesNet Income
Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez 2010 Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez 2011RevenueCOGSMarginSalariesTravel ExpenseRentOther ExpensesNet Income
Agregate
© 2010 IBM Corporation22
Business Analytics software
Change Language, use Drivers
634172 – Revenue (New Accts)
665891 – Office Supplies (Paper)
665892 – Office Supplies (Pens)
677199 – Gifts, Misc.
Opportunities
Pipeline
Number of employees
Customer Satisfaction
© 2010 IBM Corporation23
Business Analytics software
Automate
Time
Cum
ulat
ive
Rev
enue
Calculation
• Goal• Average• Run rateData entry / Collection
Mathematical
Statistical
Or mixed „rules“
© 2010 IBM Corporation24
Business Analytics software
Start small and grow big
AUTOMATION
TRANSFORMATION(Optimization)
© 2010 IBM Corporation25
Business Analytics software
© 2010 IBM Corporation26
Business Analytics software
There are several success factors
Time Horizon
CultureProcess
Measurement
Participation Modeling
Risk & Uncertainty
© 2010 IBM Corporation27
Business Analytics software
Forecast multiple scenarios?
PlaceYour Bets
What if?
What if?
• Multiple scenarios• Floating assumptions• Data volumes
© 2010 IBM Corporation28
Business Analytics software
Consider a simpler approach
Upside Exceptions
Base Case (most likely)
Downside Exceptions
Q1 Q2 Q3 Q4 Total CommentsCustomer 123 100 50 0 0 150 New product introduction likelyCustomer 234 150 0 250 400 Customer anticipates new ordersCustomer 543 -100 -300 0 -50 -450 Main buyer at customer is leavingCustomer 673 0 0 -125 -10 -135 Rumors about economic issues
Total 150 -250 -125 190 -35
Upside
Downside
© 2010 IBM Corporation29
Business Analytics software
There are several success factors
Time Horizon
Culture
Participation Modeling
Process Measurement
Risk & Uncertainty
© 2010 IBM Corporation30
Business Analytics software
Some measures you should consider
Aim for repeatability
Measure the quality
Set strict goals
© 2010 IBM Corporation31
Business Analytics software
Forecast Accuracy - useful in different ways
Attention
Time
{ 5% gap
Model issues
-8
-6
-4
-2
0
2
4
6
Discover potential bias
-2
0
2
4
6
8
10
© 2010 IBM Corporation32
Business Analytics software
© 2010 IBM Corporation33
Business Analytics software
There are several success factors
Time Horizon
Culture
Participation Modeling
Process Measurement
Risk & Uncertainty
© 2010 IBM Corporation34
Business Analytics software
Management fosters culture
Forecast substantially lower than Actuals
“The forecast’s key role in management of the company means it must be brutally honest whether we like
what we see or not.” Bjarte Bogsnes, Project Manager, Statoil
© 2010 IBM Corporation35
Business Analytics software
Management sets the tone
“Okay, clearly things have changed.
• What are the drivers of the change?
• What is the impact on our business?
• What actions should we be taking?”
“Why didn’t we anticipate that in the budget? Who screwed up?”
© 2010 IBM Corporation36
Business Analytics software
Management owns, clarifies the purpose of rolling forecast
• Relationship to decision-making
• Relationship to budget
Purpose of the Forecast
Assessment of your processes
New Compensation
Approaches
© 2010 IBM Corporation37
Business Analytics software
There are several success factors
Time Horizon
Culture
Participation Modeling
Process Measurement
Risk & Uncertainty
© 2010 IBM Corporation38
Business Analytics software
Become smarter with Forecasting & Analytics
Define your approach
Forecast culture required
Changes to models required
Upgrade your technology
© 2010 IBM Corporation39
Business Analytics software
IBM Business Analytics
Analytics-basedResearch
Analytics-basedResearch
Workload Optimized Systems
Workload Optimized Systems
Global Business and Technical
Services
Global Business and Technical
Services
Smarter PlanetSolutions
Smarter PlanetSolutions
Information ManagementInformation Management
Cloud, Virtualization
Cloud, Virtualization
Channel and Partners
Channel and Partners• Smarter Commerce
• Social Business• Smarter Cities
• Watson• Massive stream analytics
• Smart Analytics System• Netezza
• Big Data• Data quality
• System z• Many Eyes
• 10,000+ certifications
• 27 certified business partner solutions
• Fraud and Abuse Management (FAMS)• Financial Integrated Risk Mgnt (FIRM)• CFO Dashboard
We can support you today
© 2010 IBM Corporation40
Business Analytics software
© Copyright IBM Corporation 2011 All rights reserved. The information contained in these materials is provided for informational purposes only, and is provided AS IS without warranty of any kind, express or implied. IBM shall not be responsible for any damages arising out of the use of, or otherwise related to, these materials. Nothing contained in these materials is intended to, nor shall have the effect of, creating any warranties or representations from IBM or its suppliers or licensors, or altering the terms and conditions of the applicable license agreement governing the use of IBM software. References in these materials to IBM products, programs, or services do not imply that they will be available in all countries in which IBM operates. Product release dates and/or capabilities referenced in these materials may change at any time at IBM’s sole discretion based on market opportunities or other factors, and are not intended to be a commitment to future product or feature availability in any way. IBM, the IBM logo, Cognos, the Cognos logo, and other IBM products and services are trademarks of the International Business Machines Corporation, in the United States, other countries or both. Other company, product, or service names may be trademarks or service marks of others.