Ventana Research Analyst Perspectives

Planview Does Initiative-Based Planning

Posted by Robert Kugel on Nov 28, 2010 12:17:58 PM

I’ve written quite a bit about integrated business planning (IBP), which is the process of connecting aspects of the planning function across an organization to improve its internal alignment and financial performance. IBP begins with operational – rather than financial – planning (that is, budgeting) because it’s about running the business and figuring out how to make the financial aspects work to support the business plan.  IBP is especially important for corporations in which projects can have a noticeable impact on expenses, revenue and cash flow. This is because of two key differences that set project-type businesses apart from process ones. Planning and managing the financial elements of discrete, high-value activities such as capital investments or important business projects can be time-consuming and problematic. Projects are irregular in both time sequence and use of resources whereas processes are routine and have well-defined inputs. Projects are planned as discrete efforts while processes are recurring and routine and so do not require definition before they are started. It’s really difficult to manage the project-related parts of a business that’s most process driven. To address this problem, Planview introduced an operational planning application earlier this year. Planview’s objective was to address an important gap in the planning software market: enabling companies to plan, manage and assess the both operational and financial performance of their business critical initiatives or (more formally “projects”). Most senior executives would say: “Sure, but can’t we can use our ERP system to do that?” The answer is, unfortunately, no.

Mainstream ERP, accounting and planning applications do not handle projects well because they lack the ability to orient and manipulate objects along a time dimension. By contrast, project orientation makes it easy to adapt a plan to reflect schedule changes such as a delay in one aspect of a project that creates delays elsewhere. It takes considerably more work to do this in general planning tools and spreadsheets. Moreover, project-oriented systems can automatically calculate the financial consequences of the delay on revenue, expenses and cash flow. The absence of a project orientation in core financial and performance management systems is not an issue for companies that are process-oriented, are not capital-intensive or do not have an important consultative services component. But organizations that have project-oriented business models, such as engineering and construction companies or aerospace contractors, often use project-oriented financial systems (such as Deltek) because they need to plan, record transactions and analyze their operations and finances in a project context.

As well, many businesses that are not project-driven need to manage capital projects, project-like processes or a project-driven high-value services organization. Some of these companies may not immediately seem to need project management software – for example, a rapidly expanding restaurant chain. Everything about its core operations is a process. Yet building out its restaurant sites is a key element driving future revenue, cash inflows and capital requirements. These organizations routinely adjust their capital programs to respond to economic or market conditions as well as unplanned developments in their projects, so they must continually adapt their revenue, expense and cash flow forecasts to reflect the evolving market demand and capacity supply elements of their business. Similarly, mature companies in capital-intensive businesses may build new facilities infrequently but need to plan and manage expansions as well as maintenance, repair and overhaul (MRO) activities, especially if they do not have MRO software that is capable of handling the planning and performance evaluation aspects of these processes well. Hotel chains, for example, are consistently performing upgrades to their physical plant that can take rooms out of inventory for a period and involve considerable costs.

The large majority of these companies are getting by today in managing these efforts without using project-oriented software and continuing to do what they’ve been doing for decades. However, I believe there is a better way, one that will enable them to manage their operations more effectively and improve the performance of these projects.

“Initiative-based planning” is the term that software vendor Planview uses to cover these sorts of project-oriented activities in companies whose core business model is not project-driven. The company has adapted its project planning software to enable departments and business units to plan the aspects of the business that happen frequently but irregularly, that require a significant but different set of resources and that can have a noticeable impact on the corporation’s top and bottom lines. Currently, companies use various approaches to plan and track these efforts. Although some are better than others, they take more time and do not provide the kind of detail, precision and accuracy that project-oriented software can. They do not enable companies to adapt easily to change or to do the kind of real-time contingency analysis that helps them to make better decisions more consistently.

People in finance departments or in the project-oriented parts of the business that need to plan operations and their financial consequences should consider replacing their spreadsheets or conventional planning tools with software that helps them plan, manage and review projects. But these sorts of tools are designed to complement a company’s corporate planning applications, not replace them. In practice, the output of initiative-based planning software – especially the financial aspects – feeds directly into the enterprise system. This cuts the effort needed to update forecasts and plan contingencies. It also enables companies to do more incisive analyses so they can assess more aspects of the performance of the project-related elements of their business.

If projects or initiatives have a noticeable impact on your company’s expenses, revenues or cash flow, I suggest that you look into using dedicated software to handle them. Planview should be one of the vendors you consider.

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Robert D. Kugel CFA - SVP Research

Topics: Performance Management, Project Portfolio Management, IT Performance, Operational Performance, CIO, Financial Performance, Business Planning, CFO, Initiatives Management, Initiatives Planning, Operational Planning

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Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.