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World-Class Planning and Decision-Making.

What takes nine months annually, on average, to complete and produces results that many regard as suspect? Unfortunately, for most companies it is the process of strategic, tactical and financial planning.

Planning is likely the most-detested corporate process, consuming an astonishing 25,000 person-days annually at the typical billion-dollar company. On average, five months are spent revisiting the strategic plan. Financial planning consumes the other four months, leaving only 12 weeks a year when the typical company isn't actively planning.

The problem is that more than two-thirds of companies worldwide fail to integrate strategic planning with tactical and financial planning processes. This divide is affecting planning cycle times, as well as the quality and speed of decision-making.

One explanation for the disconnection is that strategic planning is too often viewed as only a senior management activity, causing executives to divorce it from operations planning. The average company gives plan access to only 38 percent of its managers and less than 10 percent of its employees, according to Hackett research. (Hackett has surveyed more than 1,500 organizations with operations in the Americas, Africa, Asia and Europe as part of its ongoing studies. The typical company in the database averages $4 billion in annual revenues, and finance staffs range from as small as five to as large as 14,000.)

Making matters worse, most companies fail to tie incentives and rewards to strategic goals. Bonus pay is linked to financial plans for 97 percent of the companies, yet only 58 percent of the same companies also tie incentives to strategic plans. The result is that far too few companies have truly aligned business goals with their strategic focus.

This disconnection is also complicating and prolonging the process of planning and forecasting for most companies, resulting in extraneous and often obsolete information that cannot be effectively applied to managing the business. The top-performing companies ranked in the study's first quartile dedicate six months or less to planning, evenly dividing time between strategic and financial plans. Those defined as "world-class" complete all their planning in two months.

More than three-quarters of the companies report that their management information systems are inadequately integrated with transactional and operational systems. Even worse, fewer than half of these companies produce reports automatically. Most companies continue to use the general ledger as their key information source, so management reporting cycle time and decision-making information depend largely on the closing of accounting books.

The average company takes 5.5 days to close. First-quartile companies close in about two days, while the poorest performers take as long as three weeks. By leveraging technological investments to automate routine processes, world-class companies such as Cisco Systems are achieving a "virtual close," in which their books are reconciled in a day.

Cycle times for producing and distributing reports at most companies are about the same as closing times. World-class companies can turn around reports in about a day, while the poorest performers are taking as long as two weeks. The average company produces management reports in 3.5 days, taking nearly two weeks to close and report. Considering that most companies close on a monthly basis, a problem can exist for 40 days before it shows up on a manager's radar screen. World-class companies facing the same problem are working on a solution after only two days.

Complexity is also the enemy of every company, regardless of size. The typical company budgets for 230 line items, compared with 40 at first-quartile companies and as few as 15 at world-class companies. Too much detail not only slows down the process but increases the probability for error, impacting the speed and quality of managerial decision-making.

A traditional focus on operational processes, combined with the low degree of automation for consolidation or rolling up of books, makes management reporting a manually intensive and costly process that limits staff availability for insightful analysis. Top performers are able to turn plans around faster by including only what is material to a specific manager's area of responsibility.

Research shows that the majority of executives recognize that e-business will soon revolutionize corporate processes. However, it also indicates that most companies are locked into an archaic annual planning process. This isn't true for world-class companies, however: They are ready to embrace the opportunities offered in an e-business environment. Key to their success is the fact that they are already leveraging a combination of organization, process and technology to provide just-in-time -- rather than just-in-case -- delivery of critical information to decision-makers.

The global economy is punishing companies that continue to use only traditional measurements like revenue, profit and expenses for evaluating their operations. As the world of e-business takes hold, agile decision-making by employees will drive an even greater competitive wedge between world-class companies and those resisting business transformations.

David Paul is a director at answerthink. All of the above statistics are from Hackett Benchmarking & Research answerthink's best-practices research arm. Visit www.answerthink.com/hackett for more information about the study.
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Author:Paul, David
Publication:Financial Executive
Article Type:Brief Article
Date:Nov 1, 2000
Words:828
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