Plan­ning and fo­re­cas­ting in the year 2020

Cornerstones of planning and forecasting in the future

Focus on measures and management commitment

  • Focus on measures: planning focuses on defining and elaborating concrete measures rather than generating budget figures. This is where most of the effort is directed.
  • Top-down orientation: strategic planning / objectives as starting point for medium-term planning, in strict alignment with the company's strategy
  • Commitment as a key deliverable of planning: the main purpose of planning is to get commitment. In this context, commitment means that executives do everything they can to achieve the agreed objectives, both as a collective and individually in their respective units or departments. If there is a business case to be made for transferring capital expenditure budget from A to B because that's where there's a greater likelihood of success, then that is what should be done in the interests of the company.
  • Taking some of the politics out of planning by avoiding direct links between planning and personal incentives: instead, market-based comparatives are used as incentives. This makes it possible to quickly generate realistic, yet ambitious values in the planning process without focusing the discussion on personal “feelings” (as may result from “sandbagging”, for instance).
  • Planning duration 2 weeks core phase: company planning should not take more than 2 weeks in total if predictive (prescriptive) analytics, a top-down approach and a focus on key management dimensions are used.

Don’t plan what you can smoothly predict

  • Comprehensive use of predictive analytics: broad application of predictive analytics models to generate proposed values for planning. These values are used as a basis for company planning.
  • Selective use of prescriptive analytics: in certain areas prescriptive analytics are used, meaning that in addition to the proposed values, concrete measures are suggested by the system.
  • Automated breakdowns: based on the agreed planning objectives at the top level, the target figures for lower levels are generated with the support of the system. Manual adjustments (e.g. transfers within a unit of responsibility) are possible in exceptional cases. Alternatively, there is no breakdown to lower levels. In such cases, activities are managed on the basis of actual-vs-actual comparisons supported by rolling forecasts throughout the year.

Action-driven real-time forecasting

The system generates forecasts continuously and fully automatically based on the latest actual figures and derived estimates. As soon as a certain threshold has been crossed for certain KPIs, management meets to discuss and decide corresponding actions. This means that that management process is triggered by deviations rather than time intervals. Deviations are analysed at all levels, from measures themselves to strategic environmental assessments.

Consider uncertainty and dynamics

  • Target corridor as a starting point: the planning process starts when top management specifies a target corridor. As regards content, the objectives are strictly derived from the strategic planning. A management-oriented tool helps to simulate different scenarios and to define the target corridor.
  • Planning based on ranges: planning is discussed in ranges because specifying exact values a) does not reflect accelerating market changes and b) implies an illusion of accuracy that does not match the overall approach. A “most realistic scenario” is used to populate the system and for communication purposes (primarily external).
Dr Jörg Ehlken
Partner | Düsseldorf | Germany
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