Christoph Kaderli
Marketing & Strategic Initiatives Executive, IBM Business Analytics
Bratislava October 13th, 2011
Transforming Finance through
Forecasting & Analytics
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Business Analytics software
© 2010 IBM Corporation
Business Analytics software
Volatility & uncertainty are here to stay
Supplier lead time is 62% faster
than just two years ago
Years to reach
50M users:
2
Radio
38 years
TV
13 years
Internet
4 years
Facebook
2 years
© 2010 IBM Corporation
Business
Introduction Analytics software
CFO Agenda: Improve Effectiveness & Beyond Finance
Importance
Effectiveness
Rank
Gap
Developing your people in the Finance
organization
Executing continuous Finance process
improvements
Core
Finance
59%
Driving integration of information across
the enterprise
3
Driving enterprise cost reduction
51%
20%
40%
34%
77%
62%
0%
9%
80%
52%
Supporting / managing / mitigating
enterprise risk
Measuring / monitoring business
performance
28%
16%
75%
73%
39%
Providing inputs into enterprise
strategy
2
35%
52% 61%
Driving Finance function cost reduction
Enterprise
Focused
83%
55%
Strengthening compliance programs
and internal controls
1
84%
49%
28%
26%
85%
59%
80%
60%
80%
23%
21%
100%
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] Ineffective
Source: IBM Institute for Business Value, The Global CFO Study 2010
3
© 2010 IBM Corporation
Business Analytics software
Analytics-driven organizations outperform
Efficiency & business insight contributes to better financial performance
Five years: 2005–2009
One year: 2008–2009
105%
36%
15%
better
better
better
12.0%
12 x
better
10.3%
8.8%
32.2%
9.0%
7.7%
20%
3.8%
better
7.2%
2.5%
EBITDA
Revenue
ROIC
5-year CAGR, 2005-2009
5-year CAGR, 2005-2009
5-year average, 2005-2009
Value Integrators
4
Sources: IBM Institute for Business Value; 2010 IBM Global CFO Study.
15 x
6.0%
better
-0.3%
-4.1%
EBITDA
Revenue
ROIC
1-year change, 2008-2009
1-year change, 2008-2009
2009
All other enterprises
© 2010 IBM Corporation
Business Analytics software
Actionable Insights enable everyone to answer 3 Key Questions
Internal Data
FINANCE
Reporting
Dashboarding,
Scorecarding,
Real time
HR
How are
we doing?
MARKETING
Analysis,
Ad Hoc Query,
Text Analysis,
Why?
SALES
What should
we be doing?
Planning &
Predictive Analysis,
Budgeting, Forecasting
CUSTOMER
SERVICE
OPERATIONS
IT
5
PRODUCT
DEV.
Social / External
…
© 2010 IBM Corporation
Business Analytics software
Lessons from the Leaders
The “Best” Rely on Advanced Analytics
Common
reporting &
planning
Operational
planning &
forecasting
Scenario &
predictive
analytics
Trusted information and
analytic foundation
Source: IBM Institute for Business Value, 2010 IBM Global CFO Study (Adapted)
6
© 2010 IBM Corporation
Business Analytics software
Rolling Forecast – a modern approach
Forward Looking
Flexible
Fact-based
Focused on Risks & Opportunities
7
© 2010 IBM Corporation
Business Analytics software
Difference from Budget and Plans
Forecasts describe what the future
will most likely look like
“Using Rolling Forecasts
allows companies to
incorporate the most recent
information and insights
about the marketplace.”
Kaplan/ Norton,
Authors, Management Gurus
Plans/ Budgets detail how you
think the future should look
8
“..it is speeding up the
budgeting process.”
Hackett Group 2008
© 2010 IBM Corporation
Business Analytics software
There are several success factors
9
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
Business Analytics software
There are several success factors
10
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
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
Traditional
forecast
Q2
Q3
Q1 Forecast
Rolling
forecast
11
© 2010 IBM Corporation
Business Analytics software
Rolling Forecast = 12 month quarterly?
No. It depends on your business!
12
© 2010 IBM Corporation
Business Analytics software
13
Short cycles
Long cycles
Industry
 Consumer electronics
 Oil exploration
 Retailing
 Pharma development
 Investment banking
 Infrastructure investment
Function
Match the time horizon to the rhythm of your business
 Advertising
 Plant construction
 Cash flow
 Infrastructure investment
 Overtime
 Research & development
© 2010 IBM Corporation
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
14
© 2010 IBM Corporation
Business Analytics software
There are several success factors
15
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
Business Analytics software
High participation creates value.
Sales
Marketing
HR
16
© 2010 IBM Corporation
Business Analytics software
....and drives
ownership & insight
17
© 2010 IBM Corporation
Business Analytics software
There are several success factors
18
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
Business Analytics software
Remember this traditional template?
o Risk?
o Opportunities?
o Customers?
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© 2010 IBM Corporation
Business Analytics software
A simple test for selecting the right items
„Simplicity is the
ultimate
sophistication.“
Leonardo da Vinci
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© 2010 IBM Corporation
Business Analytics software
Agregate
Jan Feb Mar Apr May Jun Q3 Q4 2010 Q1 Q2 Q3 Q4 2011
Revenue
COGS
Margin
Salaries
Travel Expense
Rent
Other Expenses
Net 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
2011
Revenue
COGS
Margin
Salaries
Travel Expense
Rent
Other Expenses
Net Income
21
© 2010 IBM Corporation
Business Analytics software
Change Language, use Drivers
634172 – Revenue (New Accts)
22
Opportunities
665891 – Office Supplies (Paper)
Pipeline
665892 – Office Supplies (Pens)
Number of employees
677199 – Gifts, Misc.
Customer Satisfaction
© 2010 IBM Corporation
Business Analytics software
Automate
Calculation
Mathematical
Cumulative
Revenue
Or mixed „rules“
Statistical
Data entry / Collection
23
• Goal
• Average
• Run rate
Time
© 2010 IBM Corporation
Business Analytics software
Start small and grow big
AUTOMATION
24
TRANSFORMATION
(Optimization)
© 2010 IBM Corporation
Business Analytics software
25
© 2010 IBM Corporation
Business Analytics software
There are several success factors
26
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
Business Analytics software
Forecast multiple scenarios?
• Multiple scenarios
• Floating assumptions
• Data volumes
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Place
Your Bets
What if?
What if?
© 2010 IBM Corporation
Business Analytics software
Consider a simpler approach
Customer 123
Customer 234
Customer 543
Downside
Customer 673
Total
Upside
Q1 Q2 Q3 Q4
100 50
0
0
150
0
250
-100 -300 0
-50
0
0 -125 -10
150 -250 -125 190
Total
150
400
-450
-135
-35
Comments
New product introduction likely
Customer anticipates new orders
Main buyer at customer is leaving
Rumors about economic issues
Upside Exceptions
Base Case (most likely)
Downside Exceptions
28
© 2010 IBM Corporation
Business Analytics software
There are several success factors
29
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
Business Analytics software
Some measures you should consider
 Aim for repeatability
 Measure the quality
 Set strict goals
30
© 2010 IBM Corporation
Business Analytics software
Forecast Accuracy - useful in different ways
10
6
4
8
2
6
0
Attention
-2
4
2
-4
-6
0
-8
-2
{ 5% gap
Time
Model issues
31
Discover potential bias
© 2010 IBM Corporation
Business Analytics software
32
© 2010 IBM Corporation
Business Analytics software
There are several success factors
33
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
Business Analytics software
Management fosters culture
Forecast substantially
lower than Actuals
34
“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 Corporation
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?”
35
© 2010 IBM Corporation
Business Analytics software
Management owns, clarifies the purpose of rolling forecast
•
Relationship to
decision-making
•
Relationship to
budget
Purpose of the
Forecast
New
Compensation
Approaches
36
Assessment of
your processes
© 2010 IBM Corporation
Business Analytics software
There are several success factors
37
Time Horizon
Participation
Modeling
Risk &
Uncertainty
Process
Measurement
Culture
© 2010 IBM Corporation
Business Analytics software
Become smarter with Forecasting & Analytics
 Define your approach
 Forecast culture required
 Changes to models required
 Upgrade your technology
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© 2010 IBM Corporation
Business Analytics software
We can support you today
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39
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