© 2010 IBM Corporation Business Analytics software Transforming Finance through Forecasting &...

© 2010 IBM Corporation

Business Analytics software

Transforming Finance through Forecasting & Analytics

Christoph Kaderli

Marketing & Strategic Initiatives Executive, IBM Business Analytics

Bratislava October 13th, 2011

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© 2010 IBM Corporation2


Volatility & uncertainty are here to stay

Years to reach 50M users:

Radio38 years

Radio38 years

TV13 years

TV13 years

Internet4 yearsInternet4 years

Facebook2 years

Facebook2 years

Supplier lead time is 62% faster than just two years agoSupplier lead time is 62% faster than just two years ago



CFO Agenda: Improve Effectiveness & Beyond Finance

Introduction

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] IneffectiveSource: IBM Institute for Business Value, The Global CFO Study 2010

34%

28%

26%

21%

16%

9%

28%

35%

23%

Core Finance

Enterprise Focused

2

Gap

1

3

Importance

Effectiveness

Driving integration of information across the enterprise

Providing inputs into enterprise strategy

Supporting / managing / mitigating enterprise risk

Driving enterprise cost reduction

Strengthening compliance programs and internal controls

Driving Finance function cost reduction

Executing continuous Finance process improvements

Developing your people in the Finance organization

Measuring / monitoring business performance

Rank

52% 61%

55% 83%

49% 84%

59% 75%

62% 85%

52% 80%

59% 80%

39% 73%

51% 77%

0% 20% 40% 60% 80% 100%



Analytics-driven organizations outperform Efficiency & business insight contributes to better financial performance

Sources: IBM Institute for Business Value; 2010 IBM Global CFO Study.

One year: 2008–2009Five years: 2005–2009

Value Integrators All other enterprises

7.7%

12.0%

10.3%

3.8%

8.8% 9.0%

105% better

36% better

15% better

EBITDA5-year CAGR, 2005-2009

Revenue5-year CAGR, 2005-2009

ROIC5-year average, 2005-2009

32.2%

-0.3%

7.2%

2.5%

-4.1%

6.0%

12 x better

15 x better

20% better

EBITDA1-year change, 2008-2009

Revenue1-year change, 2008-2009

ROIC2009



Why?

How are we doing?

What should we be doing?

…

Analysis, Ad Hoc Query, Text Analysis,

Reporting Dashboarding,Scorecarding,

Real time

Planning &Predictive Analysis,

Budgeting, Forecasting

Actionable Insights enable everyone to answer 3 Key Questions

CUSTOMERSERVICE

SALES

MARKETING

FINANCEHR

OPERATIONS

ITPRODUCT

DEV.

Social / External

Internal Data



Lessons from the LeadersThe “Best” Rely on Advanced Analytics

Source: IBM Institute for Business Value, 2010 IBM Global CFO Study (Adapted)



Forward Looking

Flexible

Focused on Risks & Opportunities

Fact-based

Rolling Forecast – a modern approach



Plans/ Budgets detail how you think the future should look

Forecasts describe what the futurewill most likely look like

Difference from Budget and Plans

“Using Rolling Forecasts allows companies to incorporate the most recent information and insights about the marketplace.”

Kaplan/ Norton, Authors, Management Gurus

“..it is speeding up the budgeting process.”

Hackett Group 2008



There are several success factors

Time Horizon Participation Modeling

Risk & Uncertainty

CultureProcess

Measurement




Time Horizon Participation Modeling

Risk & Uncertainty

CultureProcess

Measurement



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

Q2

Q3

Traditionalforecast

Q1 Forecast

Rollingforecast



Rolling Forecast = 12 month quarterly?

No. It depends on your business!



Match the time horizon to the rhythm of your business

Short cycles

Consumer electronics

Retailing

Investment banking

Advertising

Cash flow

Overtime

Long cycles

Oil exploration

Pharma development

Infrastructure investment

Plant construction

Infrastructure investment

Research & development

Indu

stry

Fun

ctio

n



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




Time Horizon Participation

Culture

Modeling

Process Measurement

Risk & Uncertainty



High participation creates value.

Sales

Marketing

HR



....and drives

ownership & insight




Time Horizon

Culture

Participation Modeling

Process Measurement

Risk & Uncertainty



Remember this traditional template?

o Risk?

o Opportunities?

o Customers?



A simple test for selecting the right items

„Simplicity is the ultimate

sophistication.“Leonardo da Vinci



Jan Feb Mar Apr May Jun Q3 Q4 2010 Q1 Q2 Q3 Q4 2011RevenueCOGSMarginSalariesTravel ExpenseRentOther ExpensesNet 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 2011RevenueCOGSMarginSalariesTravel ExpenseRentOther ExpensesNet Income

Agregate



Change Language, use Drivers

634172 – Revenue (New Accts)

665891 – Office Supplies (Paper)

665892 – Office Supplies (Pens)

677199 – Gifts, Misc.

Opportunities

Pipeline

Number of employees

Customer Satisfaction



Automate

Time

Cum

ulat

ive

Rev

enue

Calculation

• Goal• Average• Run rateData entry / Collection

Mathematical

Statistical

Or mixed „rules“



Start small and grow big

AUTOMATION

TRANSFORMATION(Optimization)




Time Horizon

CultureProcess

Measurement


Risk & Uncertainty



Forecast multiple scenarios?

PlaceYour Bets

What if?

What if?

• Multiple scenarios• Floating assumptions• Data volumes



Consider a simpler approach

Upside Exceptions

Base Case (most likely)

Downside Exceptions

Q1 Q2 Q3 Q4 Total CommentsCustomer 123 100 50 0 0 150 New product introduction likelyCustomer 234 150 0 250 400 Customer anticipates new ordersCustomer 543 -100 -300 0 -50 -450 Main buyer at customer is leavingCustomer 673 0 0 -125 -10 -135 Rumors about economic issues

Total 150 -250 -125 190 -35

Upside

Downside




Time Horizon

Culture


Process Measurement

Risk & Uncertainty



Some measures you should consider

Aim for repeatability

Measure the quality

Set strict goals



Forecast Accuracy - useful in different ways

Attention

Time

{ 5% gap

Model issues

-8

-6

-4

-2

0

2

4

6

Discover potential bias

-2

0

2

4

6

8

10




Time Horizon

Culture


Process Measurement

Risk & Uncertainty



Management fosters culture

Forecast substantially lower than Actuals

“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



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?”



Management owns, clarifies the purpose of rolling forecast

• Relationship to decision-making

• Relationship to budget

Purpose of the Forecast

Assessment of your processes

New Compensation

Approaches




Time Horizon

Culture


Process Measurement

Risk & Uncertainty



Become smarter with Forecasting & Analytics

Define your approach

Forecast culture required

Changes to models required

Upgrade your technology



IBM Business Analytics

Analytics-basedResearch

Analytics-basedResearch

Workload Optimized Systems

Workload Optimized Systems

Global Business and Technical

Services

Global Business and Technical

Services

Smarter PlanetSolutions

Smarter PlanetSolutions

Information ManagementInformation Management

Cloud, Virtualization

Cloud, Virtualization

Channel and Partners

Channel and Partners• Smarter Commerce

• Social Business• Smarter Cities

• Watson• Massive stream analytics

• Smart Analytics System• Netezza

• Big Data• Data quality

• System z• Many Eyes

• 10,000+ certifications

• 27 certified business partner solutions

• Fraud and Abuse Management (FAMS)• Financial Integrated Risk Mgnt (FIRM)• CFO Dashboard

We can support you today



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© 2010 IBM Corporation Business Analytics software Transforming Finance through Forecasting &...

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