Video Transcript:

"Hello. My name is Larry Williams and I've been on the structure and consultant, and management accounting, and integrative planning for the last three years. Before that I worked over 30 years in the manufacturing sector in accounting, financial planning, controllership, production planning, sales forecasting, and sales planning. Today, we're going to discuss the emerging techniques in integrative planning. This course will discuss the emerging techniques at a high level that are used to assure alignment across the organization to the company's strategic plan and goals.

In the past, budgets have grown outdated for financial control purposes because the environment company companies operate in today are just too volatile. Companies must now be more agile in their planning and control to properly face growing risk and competition. Budgets were more of an internal tool and agility requirements today require more of an external view as well as better to assure growth and long-term viability. Economic volatility today requires more continuous planning based on these business objectives.

Budgets have been used as a mainstay of financial control and administration, and they were effective in their time. Their purpose was to set out to control all cost, set targets by department, align incentives, develop action plans, allocate resources, monitor and control finances, but they're not without inherent problems. They are short-term focused usually for just the current fiscal year. The preparation takes too long in most cases, at least a couple of months.

They have a narrow timeline in that they abruptly end at the end of the current fiscal year. They can be prone to gaming the managers that love to continuously make themselves look good by management. They have their limits in relation to the collaboration and consensus due to the methods used to prepare them. Many activities within a function impact activities and other functions that are difficult to plan and budget for financially, but can impact performance and overall profitability.

In his book entitled Winning, Jack Welch discussed his view of budgets. The budgeting process of all companies has to be the most ineffective practice in management and it hides opportunity and stunts growth. In fact, when companies win in most cases is to spite their budgets not because of them.

Every well managed company should have a strategic plan. It is like a game plan for a football or a basketball team. After assessing your own abilities as a team or as a company versus those of your key competitors. You then must develop a strategy over the long-term in how you can grow both in revenue and profit to remain more viable. It should result in a vision for the organization to strive to be. After we have a vision of what the organization wants to be we must have an operator strategy on how to achieve it. Some people call this an action plan. It would be an action plan for the organization which establishes along the integrated processes to effectively manage it.

In order to properly bridge between our long-term plans and our day to day activities we must actively engage the people directly involved in maintaining control and driving them forward. This may require considerable change management that will be a challenge in and of itself. But to properly gain in collaboration across the organization to make this process work is absolutely necessary.

A good strategic planning process requires that it be reviewed and updated on a regular basis usually end in appropriate adjustments being made. This process should be communicated to the appropriate levels of the organization for a proper review and input. This is not only to gain support but to also assure team members are receiving proper messaging from their own leadership. Normally a strategic plan will examine more long-term projections like five years, but it can be more if it's appropriate for your company and or industry.

Identified gaps between what your company's intentions are and what you project them to actually be must be examined and decisions made on how those gaps can be properly eliminated. By reviewing your strategic plan across all the core functional areas of the company, key objectives and gaps can be addressed on a collaborative basis in detail with knowledgeable managers within those areas.

By regularly reviewing the future plans that are reconciled with external metrics and actual performance to date to assure plans are still feasible, the organization can better anticipate unplanned events, adjust for them, and eliminate them or minimize in a negative impact. Events are not always negative. There can be events that will have a positive impact on the company as well and unless the organization recognizes opportunities far enough in advance, the organization may not be able to maximize possible returns they offer.

Increasing production or inventory to take advantage of possible increased sales may require months of prior preparation and or planning. If an industry suffers from a lot of unplanned events whether positive or negative, the company maybe having to do a lot of firefighting to attempt to adjust for them. A company can be considered ineffective or inefficient if it is constantly trying to put out fires.

Financial control is also very difficult in such chaotic situations as well. Extensive firefighting can be very costly to the organization as well stressful for management to constantly deal with. A well run company that maintains better financial reporting, internal control, and efficient operations has usually been better able to plan for and adapt to change so that their operations are performing more routinely.

There are many factors that negatively impact our business climate today. From all over the globe static plans and budgets are just not capable in monitoring and controlling revenue and expenses in the environment as they once did. These changes have created a much greater need for the organization to focus on agility in their daily decisions and regular financial planning. The market volatility that results demands the analysis for decision making across all the core functions of the organization be dynamic and adaptable to the many changes that occur. By making our planning systems more agile for change we provide the ability to move forward quickly as well as think, analyze key data, draw more intelligent conclusions, and make better, more informed decisions to better compete.

In an annual survey conducted by the Aberdeen Group in 2010, they covered budgeting and financial planning by comparing organizations ranked as lagert [SP], average performers, and best in class. They consisted finding from the survey was that companies considered best in class were much more apt to have planning systems that allowed more adaptability and agility in their continuous forecasting in supply planning. This included abilities to reforecast as market conditions dictate, abilities to perform what if scenarios and change analysis to improve their decision making abilities, and the abilities to incorporate multiple business drivers to properly analyze their dynamic impact on all the core functions, and allow each of them to adjust their respective plans accordingly.

This survey also revealed that the financial planning area cannot work in isolation to properly manage the finances of the organization. They must collaboratively integrate into all facets of the business and become more actively involved in all important day to day decision making.

As financial managers, two of our main concerns are risk management and internal control. The primary objective of financial executives in integrative planning management is to balance risk and return. Minimizing risk while at the same time maximizing return involves monitoring the investment of capital within certain risk constraints to achieve an adequate return. This process allows more collaborative approaches to managing this risk.

The basic components shared as part of managing risk and integrated planning are the same and they're shared across both applications. The first one is the most important. It is the internal environment. It's one at the top set by management can be better conveyed through the organization to become the tone of the entire organization.

Next is setting objectives. They must be mission driven. Where do you want the company to head? What mission are you after? Third is event identification. Whether these events are negative or positive, internal or external, they must be identified and properly adjusted for. So it must be a collaborative assessment and response to risk. There has to be control over primary activities of an organization so they can be improved.

The information and communication across the organization is more readily available and review it on a regular basis. And monitoring and reporting deficiences is key to successful performance of the organization's strategic goals and the most important part of integrative planning.

As financial managers we have all used volume times price formulas in comparing financial analyses. This is very common practice in spreadsheet planning models. Similar techniques are used in driver based planning systems, but only on a much larger and dynamic scale. Modern technology has now allowed this capability for organizations willing to invest and reap its potential returns. For the financial area to become more actively involved in decision making, these driver based planning systems are necessary across functional basis.

The dynamics of this kind of integration is much more sophisticated in complex spreadsheet models. It requires dynamic modeling with the capability of interactively monitoring, tracking, and analyzing several results from even a single change in just one activity or several activities at the same time. These analyses are based on the assumption that key business drivers impact many more facets of the organization than just volume, pricing, and direct cost. Activities that occur in one part of the organization often cause changes or results in other sub-activities within different functions.

Although you may never be able to track and monitor the impact of every possible change in a driver, the important thing is to capture those that have the most significant impacts and better plan for them based on the 80/20 rule if you can. This is all important for the maturity phases of the organization to grow as it gains knowledge and perfects its processes. The process will always continue to be a learning and growing one.

Integrated planning is a coordinated management process to run the core functions of the business. These core functions include product development, sales and or marketing, operations, and finance. It utilizes consensus and collaboration to enable key decisions within the appropriate levels of risk to be made based on information and facts about planning managers upon the details of the organization. Also important to this process is regularly monitoring and the accountability of key performance indicators that are tied directly to the organization's overall goals and objectives.

Integrated planning also involves having multiple functional plans all based on one set of numbers. This set of numbers is based on what we call a consensus sales plan. A consensus sales plan starts with an unconstrained sales forecast that is reviewed for reasonableness and achievability, and this is done by all functional planning personnel within the organization, and they come to consensus of what they want their final demand plan to be.

Using the consensus sales plan as a basis, all functions collaboratively plan for future needs and unforeseen events over a rolling 24 month period. This method is used to avoid what we call hitting the wall. A business operates on a continual basis. Although financial reporting is done on a fiscal year basis the business operates on a continuous basis. It does not stop operating at the end of a fiscal year.

Integrated planning is a continuous rolling process that does not end with the fiscal year, but continuously rolls on from one period to the next. Man powered products and capital requirements usually require more lee time than one year and must all be planned for accordingly. Twenty-four month continuous planning allows the organization more adequate time to make more strategic decisions as opposed to being more short-term focused."

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