When looking at the core elements of corporate or enterprise performance management (CPM/EPM) for manufacturing organizations, there are specific planning processes considered essential to success. Among these processes is business modeling, which is fundamental for any operation. By investing time to plan and develop business modeling, global enterprises can map their path to success and reduce risk along the way.
Business modeling not only drives results and minimizes risk, but also highlights any causes behind changing variables that could impact business performance. It’s essential to approach business modeling thoroughly. This involves analyzing various facets to determine any need to change, improve, or seize opportunities to secure success and minimize risks.
Business Modeling Approach: Align Strategy with Operations
There is often a disconnect between goal-setting/planning in Finance and the activation of these strategies by Operations. This is especially true when enacting a new business strategy in a manufacturing environment that requires a shift in the usual business approach to improve performance outcomes. Here are the key areas to help bridge this gap in your organization.
1. What If? Scenarios
Business modeling enables decision-makers to run through a series of “what if?” scenarios. When approached with a free-thinking mindset, these strategic exercises help to identify potential new revenue streams and opportunities for growth. This contemplation involves taking a full scan of potential outcomes for any investments or other business moves, and recognizing which options have limited risks with maximum profits. This is a great starting point.
2. Competitive Advantage
Through business-modeling processes that aim to align strategy with operations, you can recognize the best avenues that will drive growth for your enterprise. This will help you understand how to gain a competitive advantage over other organizations.
Armed with a well-researched business model, you’ll have an outlook of all happenings around your business and where to seize opportunities, or minimize your risks and remain uninvolved. Because sometimes the best move is no move at all.
While business modeling can set the tone and direction across the enterprise, some models may not be holistic. To illustrate this, we can look beyond finance to operations. Often, the modeling is aligned with corporate goals, but fails to consider data from the overall operations to make the model realistic or useful for guiding your organization’s future strategies.
The annual forecast, which is determined and enacted within finance departments, sometimes cannot meet the realities of a fluid state of business. This reality is reflected in the operational modeling of a sales department, where the annual forecast quickly loses relevance as departmental forecasts and plans are iterated in a weekly or monthly itinerary. Unlike the static finance model, the sales model is adaptive and better reflects the realities of the operation.
To avoid these inconsistencies in your business model, you need to find ways to combine the data to shape your decision-making processes. Connecting up-to-date sales data with finance forecasts will naturally lead to a more agile approach to capitalize on opportunities at the corporate level.
Otherwise, this common disconnect between department goals could hinder your organization’s ability to successfully fulfill business plans and objectives. To better meet the needs of operations analysts, a new approach must be conceived. This is where rolling forecasts come into play for Finance leaders in manufacturing organizations.
4. Rolling Forecasts
Rather than compiling one, static annual forecast, which can quickly become outdated, a rolling forecast continuously collects data to create adaptive estimates that better reflect operational realities. For the purposes of Finance, this approach can offer more accurate projections while also better integrating current business data. This approach is useful for planning and budgeting within every department.
The advantage of rolling forecasts from a business modeling and operations analysis perspective is increased accuracy and adaptability. A fixed budget is typically assessed annually and remains a static resource for an entire year. On the other hand, rolling forecasts will create a budget for up to 18 months into the future, but will be regularly assessed, with months added to the budget on a rolling basis.
Rolling forecasts are more helpful for future planning as they update their reports and predictions and then apply these to your automated budget plan. That way, your strategies will reflect the most recent conditions so that you don’t take any risks that could be costly for your business.
Regular updates will help you be prepared in the face of constant changes that typically take place in today’s business world. As we have seen recently, unforeseen circumstances such as the COVID-19 pandemic can upend entire industries, including manufacturing, necessitating an agile and adaptable approach. By incorporating monthly actuals, enterprises are better positioned to adapt to changing circumstances in the manufacturing sector.
6. Improved Balance
The nature of annual budgets generates increased seasonal workloads and can negatively impact finance departments as everyone struggles to meet budget deadlines. Attempting to cope with increased workloads and deadline stresses inevitably increases the potential for burnout, which could introduce unforeseen risks of not having mental clarity to interpret data and anticipate changes.
Rolling forecasts, on the other hand, spread the work evenly throughout the year, leading to opportunities to equally distribute responsibilities as goals are met monthly.
7. Clear Communication
When implementing new approaches to address opportunities within the marketplace, communication is critical. Planning and research will help you and your team analyze all necessary data and insights to make informed decisions. And, a thorough understanding of your organization’s challenges and opportunities is essential for choosing the best direction to follow for the future. But, it won’t bear fruit without proper communication.
The motivation to implement these plans and goals needs to be well-understood within each responsible department. To ensure full cooperation, these plans must be communicated effectively to each department throughout the enterprise. How can you achieve this?
- Create useful documentation of your business model.
- Use the documentation to serve as the guidelines for explaining your strategies and the reasoning behind them.
- Craft custom messages to each impacted team to gain buy-in and reduce risks associated with siloed attitudes and thinking.
Take a Solution-Based Approach to Business Modeling
Enacting a rolling forecast approach to support business modeling requires a specialized software solution. Why? Because the ability to populate data on an ongoing basis is essential to a functional approach to rolling forecasts.
This task is ably handled by OneStream Software, the leading provider of CPM solutions that can meet each business challenge for manufacturing organizations. Included in their OneStream software platform is a financial planning tool explicitly designed to enhance agility through dynamic updates of actuals and reports using up-to-date data.
This automated approach enhances cross-department collaboration. The budget and forecasting process now incorporates relevant data from multiple streams to provide an improved view of financials and make progress in achieving your business goals with minimal risk involved.
Using OneStream, you can instantly seed budget and forecasts for powerful data modeling and begin updating rolling forecasts immediately. It’s the clear path forward to optimize business plans, reduce risks inherent in the manufacturing industry, insulate your organization from competition, and help achieve buy-in across the enterprise.
– Interested in learning more? Contact HollandParker for a free consultation to discuss migrating to OneStream. As a Diamond OneStream Implementation partner, we have the expertise and capabilities to support your organization’s CPM journey.