I am a Marvel Movie super fan and I know, I have a problem. I am getting really excited about the upcoming movie “Avengers: Endgame”. Can you imagine how complicated it would be to plan a movie of this magnitude? There are probably 25 A-List actors and actresses (and 100’s of others) set to make an appearance in this movie! For each cast member, you have financial contracts, travel schedules, and other special arrangements fully coordinated around the filming schedule.
When it comes to budgeting and planning for your company, I am sure it sometimes feels like even a more daunting challenge than trying to make a Marvel superhero movie. I think we can all admit, that within each of our organizations, we have various “characters” of our own. Here are 3 ideas for simplified planning in your organization.
1. Plan at a higher level of cost center and accounts
Just because your General Ledger is at the Cost Center, Company, and Account level does not mean that you must plan to that same level. If your company is anything like the 100’s of companies I have worked with, you might have 200 Cost Centers and 500 Accounts. That is literally 100,000 unique cells where data can sit per month. Obviously, every cost center does not have data in every account.
Our recommendation for a more simplified planning process is to potentially plan at a higher level of Cost Centers and/or Accounts. For instance, do you really need to plan the breakout of your travel expenses by airfare, hotel, meals, entertainment, fuel, mileage, etc.? Or can you plan at the consolidated level of all travel expenses while achieving comparable results?
2. Plan by year, not by month
Most budgeting and planning systems plan at the monthly level for the upcoming fiscal year. Many end users get caught up in trying to put their data in the correct month, rather than focusing on the total dollar amount for the year.
Our recommendation for a more simplified planning process, consider having your budgeting users focus only at the total year level. If you use a software application such as IBM’s Planning Analytics, Workday’s Adaptive Insights, or Oracle’s PBCS you can likely build in phasing or spread methodologies behind the scenes that will look at Sales, Weeks per Month, Business Days per Month, or even Prior Year Actuals to correctly spread the annualized data.
3. Use a driver-based planning model
It seems counter-intuitive that a driver-based model could simplify your planning process, but in many companies, this is the case. For example, a distribution facility might have 300 hourly based employees, over multiple shifts. It would be incredibly difficult to plan costs by employee, as you would have to adjust the hours per month for each employee based upon their role or shift. The distribution facility management likely already has a good idea of their throughput – or how many units per hour they can process in the various parts of their warehouse. They also likely have metrics stating Average Cost per Hour to operate the facility. Using these two drivers, along with the forecasted units for the month, we can derive the cost to run the facility.
3,750,000 Units Forecasted to be shipped in April 2019
115 Units per Hour Throughput
= 3,750,000 / 115 = 32,609 hours
$12.75 Avg Cost Per Hour
= 32,609 Hours * 12.75/hour = $415,760
The real advantage here is that you now only have 2 drivers to adjust per month. Rather than having to adjust over 300 individual employees hours.
It’s time for a simplified planning process
Above are just three ideas on how to achieve a simplified planning process. If you are interested in a customized recommendation for your company, please contact our team here at eCapital Advisors.
FYI – if you call me on April 26th, I am likely taking the day off to watch the premiere of “Avengers: Endgame”, but I will get back to you the next day!