measuring the roi of planning software boston june 2012
DESCRIPTION
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.TRANSCRIPT
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June 21, 2012 IE GroupBen Lamorte, VP MarketingFollow us! @AlightPlanning
Measuring the ROI of Planning Software
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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?
The Subtle Message
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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?
The Subtle Message
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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?
The Subtle Message
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Last Month’s Webinar Survey Results
74%
13%
13%
UnsureGood ROIBad ROI
Of those purchasing dedicated planning software solution, 74% report “Unsure of ROI” (approx 100 on webinar)
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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
Rand Heer (He’s “Heer” In Spirit)
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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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
Ben Lamorte
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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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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1980sSpreadsheet
Era
1990s“Pillar Era”
1st Planning App
1990s/2000sMany Planning Apps Available
2010Alight Wins Overall
Business Performance & Analytics Award**
2011Planning
Maturity Curve Introduced
Agile Planning Trademarked
History: Getting to Planning Maturity Curve
*BPM Partners** Ventana Research
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Planning Maturity Curve: Business Value!
Insights Understanding things we didn’t see before
Actionable Knowledge
Understanding impacts of our actions
Financially-Sound DecisionsScenario analysis gives us
the financial impact of choices
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Planning Maturity Curve: 2 Types of Benefits
Business Value
Effort
Budgeting Type 1: Streamline Existing ProcessesReduce Effort
Type 2: Introduce New Processes to Add Value
Reporting
Forecasting
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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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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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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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Big ROI: 33x More ROI with Agile Planning?
Traditional Planning Agile PlanningType 1 Type 1 & 2
Deployment Web-Based Forms On-Premise#Seats Purchased 10 5Costs 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 timeAgile Planning: Ray Wolfe at Pittsburgh Mercy Health Case StudyNo Surprise that more than 80% report management prioritizes type 2 over type 1
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Planning Maturity—Agile Planning
Planning Maturity Curve (PMC)
Budgeting
Forecasting
Seat of Pants
Reporting
Effort
Business Value
Forecasting/Agile Planning
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The 4 Steps to Agile PlanningTM
1. Reduce Level of Detail
2. Implement Driver-Based Planning
3. Integrate (Don’t Just Import) Actuals
4. Implement Scenario Analysis
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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
Big ROI: Pittsburgh Mercy – The Leader
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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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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
Big ROI: Pittsburgh Mercy Before
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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!
Big ROI: Pittsburgh Mercy After
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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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Big ROI: Actuals “Rates” Drive Plan “Rates”
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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
Big ROI: Pittsburgh Mercy - Results
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What is Agile Planning?
3-Minute Overview
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The Value of Traditional Planning Over Time
Source: The Agile Planner Blog
TIME
VALUE
High ROI at the early stages of planning…
But ROI diminishes quickly over time.
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The Value of Agile PlanningTM Over Time
Source: The Agile Planner Blog
ROI remains high in the early stages of planning…
Long-term value from planning increases significantly
TIME
VALUE
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.
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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=AC2FB205C027E8CF17646BAE071ECC91 (Register and then click Launch Presentation)
Follow up with Kevin Pellegrino, VP Sales & Marketing [email protected]
Next Steps: Who wants to go Agile?
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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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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
Examples of Type 2 Benefits
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Planning Maturity—Agile Planning
Planning Maturity Curve (PMC)
Budgeting
Forecasting
Seat of Pants
Reporting
Effort
Business Value
Forecasting/Agile Planning
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Types of ModelsDoing 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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Planning Maturity Curve with Optimization
Budgeting
Forecasting
Seat of Pants
Reporting
Effort
Business Value
Move out of ExcelReduce level of detail
Forecasting/Agile Planning
•Implement unit-based planning•Integrate (don’t just import) actuals•Implement scenario analysis
Optimized Forecasting/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•Implement supply chain optimization