Social Commentator, Will Rogers famously stated, “Even if you’re on the right track, you’ll get run over if you just sit there.”
The once predictable & stable world of business has transformed into an unpredictable jungle that’s no place for the complacent finance organization. Our new normal environment requires finance to maneuver obstacles on an increasing basis. Yet with all of this volatility, many finance teams are still spending months – up to six — developing what they perceive to be the most replete, well-honed, spanking-new plans and budgets in their industries, only to find current business conditions filling the best laid plans with holes by the first day of the new reporting year.
Meanwhile other finance organizations have been shifting rather quickly some of their planning energies into rolling forecasts to stay ahead of the pace of change and end the yearly finance pain cycles. While they aren’t abandoning the traditional budget/plan cycles as general guidelines for the coming year, forward-thinking finance leaders are emphasizing a more dynamic finance organization, with on-going decision-making. They are practicing some known but less common principles in planning and rolling forecasting such as:
- Paring analysis and forecasts down to key drivers
- Forecasting out on a continuous basis, well beyond the reporting year
- Running what-if analysis and developing contingency plans in order to reduce risk and anticipate and shape better business outcomes
- Setting different forecasting timelines and frequencies for various measures or aspects of the business to stagger the load
Configuring the office of finance as such allows organizations to adjust their business month-by-month, shifting resources as quickly as possible to anticipate changes. For example; lets look at how Del Monte practices rolling forecasting and how they deploy the process at various levels and in various departments to guide them through this new age of volatility.
Del Monte Foods is one of the largest and most well-known producers, distributors, and marketers of, branded food and pet products in the U.S. market. Their brands including Del Monte, S&W, Contadina, College Inn, Meow Mix, Kibbles ‘n Bits, 9Lives, Milk-Bone, Pup-Peroni, Meaty Bone, Snausages and Pounce. All familiar household names. With such a broad mix of brands and products Del Monte’s finance organization needs a complete picture of the organization to gain consensus on their forecasts. Getting planning and forecast input from such a diverse and widely distributed organization can be challenging for both the Operations and Finance teams. Each plan and forecast, requires the team to manually input data and tackle reconciliations and then generate reports. Such a time-consuming process prevents staff from focusing on the performance of the business unit. I suspect this is a ritual familiar to many.
Rather than continue with this joyous finance process Del Monte decided to make their new finance year a more efficient and merry one by giving the gift of a driver-based, 18-month rolling forecast. In one aspect of this plan the Operations and Finance team focused its attention on the key drivers of warehousing and transportation costs. With the help of Perficient’s Finance Performance Management team , Del Monte has gained deeper insight into the costs of warehousing and transportation, especially with the ability to perform analysis and what-if scenarios to optimize resources as well as to share financial information across the organization. This new perspective leads to improved corporate performance by assisting the company in understanding cash flow and responding dynamically to external influences such as customer activity and commodity price fluctuations. Del Monte’s planning process includes workflow to streamline the forecasting process and improve collaboration. Functional controllers develop the financial forecasts and report variances to plan and prior year and other relevant financial data.
In order to understand financial performance, Del Monte looks at transportation costs by lane as well as operating costs by distribution centers. Within the transportation plan model, key drivers include the monthly diesel fuel prices, line haul rates for each transportation lane, inflation of contracted line haul rates, and the transportation mode (for example, railcar or truck). With focus on these dimensions of the business and the ability to rapidly pose what-ifs for different scenarios, analysts can evaluate the effectiveness of different lane/mode mixes and determine the most cost-effective combinations.
So what did Del Monte learn from their efforts to improve the planning and forecasting process?
Don’t attempt to execute a perfect forecast. The forecasting process takes too long because companies try to “get it right”. Instead learn to live with a greater amount of uncertainty and variability. To address this run shorter forecasts bursts more frequently to increase management visibility to trends and allow for quick course correction and scenario planning. The opportunity in this age of volatility is quickly reacting to change and adjusting plans dynamically.
Formerly the Del Monte planning teams poured their energies into gathering data. About sixty percent of their efforts in forecasting involved data mining. The team devoted thirty percent of their time to building and cleaning up reports, and ten percent to rushing through analysis. Today, time for analysis has increased four-fold, and they spend less time obtaining the data and manually assembling reports. Improved collaboration (thanks to workflow), dynamic scenario analysis and dashboarding capabilities provide further benefits and ultimately represent an important competitive advantage for Del Monte.
If you’d like to learn more details about what Del Monte Foods was able to achieve, you can hear directly from them by viewing their On-Demand webcast recording. When you watch the Del Monte case study, Perficient will send you the gift of a free eBook – “Financial Report Automation – for Dummies”