EXECUTIVE SUMMARY
In a new first of its kind study of senior financial executives, research reveals that global enterprises rely on out-of-datetechnology and manual processes
for capital planning, preventing them from fully maximizing their return on capital (ROC). The current planning process and tools fail to provide reliable performance and on-demand analytics data on millions of dollars of capital investments, leaving questions regarding whether companies are allocating capital to the best, most productive efforts for strategic advantage.
The study shows that companies rely on spreadsheets and manual processes to manage their capital projects. While a company’s budget is prepared annually, capital planning is conducted year-round requiring frequent access to real-time performance to analyze results.
The purpose of the study was to understand the state of capital planning processes at large organizations given today’s dynamic business climate. The objective was to benchmark the ways that finance organizations currently manage the capital planning process, the tools they use, and the impact.
The findings of this study suggest that asset intensive companies with large capital spending budgets need better information technology tools to manage their capital planning processes. They must be able to optimize capital expenditures, monitor performance, andreturn on investment (ROI). They need tools that will enable them to optimize capital budgets and rebalance spending priorities as business conditions change. Finance and operations require software tools that eliminate time spent on manual tasks and provide increased visibility allowing them to focus on analytics while enabling flexibility to manage capital projects. In this report, capital planning will be referred to as “planning”, which for the purposes of this study is definedas long-range financial planning for capital
Commissionedby Planview® Conducted by: FERF, the research affiliate of FEI, and Appleseed Partners
Benchmark Study:
The State of Capital Planning
Key Statistics
49% indicated the manual nature of planning and spreadsheet complexity is the top planning pain point 48% reported the top planning risk is inability to track
affordability and ROI
80% responded that they use manual to highly manual approaches for planning
25% responded that the frequency of planning is ongoing and 51% said it is done quarterly
42% said the top challenge with spreadsheets is inability to run what-if scenarios
35% are planning to invest in automation and refine their planning processes in the next 12 months
The Risks
The risks, inherent in the processes and tools used by the typical enterprise, were obvious to those surveyed. Fifty percent reported their top risk as the inability to track affordability and ROI; the inability to maximize market opportunity, resources, and budget came in at number two;with concerns over making the wrong long-range investments coming in third. Almost half of firms reported having these three concerns.
The Pain
Study participants were drawn from global, multi-billion dollar companies: companies with the resources to acquire and adopt new tools and processes that automate and optimize planning. Of the 128 senior executives surveyed – those with responsibility for major planning decisions – the top planning pain point identified by 48% of respondents was the manual nature of planning and its complexity.
Overwhelmingly, finance organizations rely on manual processes and un-integrated spreadsheets as their primary tools to conduct planning with 96% reporting that spreadsheets are the primary tools in use.
The report further shows that the planning process is an ongoing (25%) or quarterly one (51%),and that revisiting the plan is happening on a continual basis.
Forty-five percent of respondents declared that the planning process is jointly owned by finance and business units. They use a combination of siloed spreadsheets with an unstructured process creating additional planning complexity identified by participants.
The Challenges
When asked to select the major challenges to the spreadsheet-based approach, more than 40% said both the lack of “what-if” scenario capabilities and the lack of integration between spreadsheets were problematic, while nearly 40% selected limited analytical capabilities as a key issue.
Plans to Automate
In the study, 35% of respondents were satisfied with their current planning process; however, only a third of respondents said it is a medium to high priority to automate and refine the planning process within the next 12 months.
The numbers indicate that companies are not content with their current processes but executives do not see the issues as critical enough to warrant attention. There is often lack of funding or lack of awareness of compelling alternatives. Information technology solutions that address the challenges of sophisticated long-range planning are commercially available and require consideration given the current challenges and risks identified in this study. Summary
Unlike other parts of the enterprise, which use modern technology to run their business, Finance is relying on outdated technology and tools for planning - ironically, planning is one of the enterprise’s most critical, long-range, and strategic processes. While other departments have access to more sophisticated processes, software
applications, and tools to ensure that decisions are data-driven and accurate, the lack of these technology advancements for Finance can have far-reaching implications for ROI and efficiency, and even the future of the company itself.
Table of Contents
I. INTRODUCTION ... 5
A. About the Survey ... 5
B. Survey Process, Participants, and Methodology ... 5
II. THE STATE OF CAPITAL PLANNING ... 6
A. Planning Time Horizon ... 6
B. Frequency of Planning ... 7
C. Length of Time for Planning ... 8
D. Ability to Measure and Analyze Investments ... 9
E. Structure Level of Capital Planning ... 10
F. Ownership of Capital Planning ... 11
G. Current Automation Level ... 12
III. CAPITAL PLANNING PAIN POINTS AND RISKS ... 13
A. Major Pain Points ... 13
B. Major Challenges Using Spreadsheets ... 14
C. Top Risks ... 15
IV. FUTURE PLANS FOR CAPITAL PLANNING ... 16
A. In Their Words ... 16
B. Priority and Time Frame for Automation ... 17
V. SUMMARY ... 18
A. Takeaways and Considerations ... 18
B. Recommendations ... 18
APPENDIX – DEMOGRAPHICS ... 20
C. Responses by Industry ... 20
D. Responses by Company Revenue ... 21
E. Level in Organization ... 21
VI. About the Authors ... 22
VII. About the Sponsor ... 22
I.
INTRODUCTION
A. About the Survey
As part of an initiative on corporate financial planning, an online survey was commissioned by Planview® in Fall 2011. This study focused on the state of long-range financial planning for capital and major investments at large enterprises. The survey assessed how organizations currently manage the process, the technology, and tools they use, and the impact of business climate changes on planning. The survey and analysis were conducted by Financial Executives Research Foundation (FERF), the nonprofit research affiliate of Financial Executives International (FEI), and Appleseed Partners, both independent third-party consulting and research firms.
Any inquiries or comments regarding the survey, or permissions to use portions of this report in the public domain should be sent to [email protected] .
B. Survey Process, Participants, and Methodology
FERF and Appleseed Partners conducted the study in September 2011, collecting 128 survey respondents. The respondents were from North America and more than 75% of respondents were from global companies having greater than $500M in annual revenue and 32% with greater than $1B in annual revenue. Participants represented
a broad range of industries within Manufacturing, Technology, Finance/Insurance/Real Estate, and Consumer Goods. Fifty-seven percent of respondents were executives; 71% report into the finance organization, and 97% claim direct participation and decision-making in the capital planning process. See appendix for more details on the demographics of the respondents.
Please note that not all questions were required. As a result, the total number of responses for any given question may vary from the total number of survey respondents. The number of respondents is provided in each graph. In addition, for some questions participants were asked to select only one answer while other questions requested that they select all answers that apply. Because of this, the total percentage of all answers for any given question may exceed 100%.
“Seventy-five percent of
respondents were from
global companies having
greater than $500M in annual
revenue.”
II.
THE STATE OF CAPITAL PLANNING
A. Planning Time Horizon
This question was asked to determine how far into the future companies are planning investments. Forty percent responded that their time horizon is one of 2-3 years, followed by 36% claiming a 4-5 year planning horizon. This latter group consisted primarily of utilities, energy companies, transportation, health sciences, and some
manufacturers. The faster cycle industries included finance/insurance/real estate and the technology sub-segment of manufacturers.
Three-fourths of companies have planning horizons covering two or more years. Consequently, they have to manage multiple overlapping projects at various stages of maturity. Business conditions and the state of these investment programs can change and evolve considerably over a single time horizon. Tracking each project from inception to completion is ongoing. An important challenge; therefore, is keeping track of the data related to these projects over multiple periods as well as performing analysis necessary to evaluate project performance, optimize spending, and assess overall performance.
B. Frequency of Planning
Substantiating some of the initial groundswell that prompted the commission of the survey, a key study learning is the frequency with which planning is conducted. For
the majority of respondents, planning is no longer an annual process: for 25%, it is continual, while 51% revisit, and potentially re-plan on a quarterly basis. Because companies manage capital projects on an ongoing basis, they need to actively manage the information related to those projects and update and analyze results regularly.
“For the majority of respondents,
planning is no longer an annual
process: for 25%, it is continual,
while 51% revisit, and potentially
re-plan on a quarterly basis."
C. Length of Time for Planning
In chart C1, the question was, how long does the planning process take? Planning is ongoing for 18% of companies and 47% responded that the planning process itself takes 2-3 months.
When asked about revisiting the plan (chart C2), 35% percent said that they revisit planning continually and 23% address it quarterly. Further research would be needed to confirm that this was less ongoing in the past, and that the current economy is driving this constant state of planning, but it is notable. It begs the question, how much time is this ongoing, continual planning taking these resources and how efficient is it? Do planners have data available on demand to make decisions?
These two charts reveal that today’s organization is in a constant state of planning. Consequently, it is important that companies minimize time spent collecting, analyzing, and preparing data related to capital projects. Given the need to revisit the plan, availability of on-demand metrics is important and yet appears not to be easily available to financial decision makers
D. Ability to Measure and Analyze Investments
Only 26% of respondents rated their ability to analyze and measure investments post-delivery as good or excellent. All others either were neutral or negative in their reviews.
Deeper examination shows a strong correlation between structured planning processes (see Exhibit II-E) and analytics ability. Only 15% of those reporting a somewhat or very unstructured approach to their strategic
planning process reported a good or excellent ability to analyze and measure the outcome of their investments. By contrast, 34% of those who were somewhat or very structured in their process reported good or excellent at ability to analyze and measure investment results.
The second key contributor to complicate a firm’s ability to measure and track effectively is the manual approach using spreadsheets. Purpose-built software solutions automate the planning process allowing stakeholders to analyze, measure, and track investments. But, according to the research, the primary pain point in planning is identified as the manual nature of planning (Exhibit III-A).
As stated earlier, the shift to a more continuous planning process underscores the need for effective measurement and tracking and yet most reported weakness in this area. In fact, frequent revisions to the plan will require meticulous tracking data on which to make decisions.
E. Structure Level of Capital Planning
Forty-eight percent of respondents said that their planning process is somewhat structured with a quarter saying that their process is somewhat to very unstructured.
One consideration from this chart is if a process is ‘somewhat structured’ versus ‘very structured’, how structured is it really? Based upon a cross-tab and deeper analysis of the ability to analyze results of investments (Exhibit II-D) to the structure of the process, 50% of those who were ‘very structured’ were good or excellent at analyzing
investment results whereas only 30% of those who characterized their process as ‘somewhat structured’ were good or excellent at ability to analyze investments.
Being very structured ought to be standard when it comes to allocating capital, yet only one in six meets that standard.
F. Ownership of Capital Planning
Nearly half of respondents said that the primary responsibility for planning is jointly owned by Finance and business units, and 26% declared it is owned by the C-level; it is worth noting that 57% of study participants are executive level. Our findings have been that Finance runs the process in the organization and coordinates across multiple, often distributed business units.
G. Current Automation Level
The study shows that planning is an overwhelmingly manual process.
77% of respondents indicate that planning is manual to highly manual 29% indicate it is highly manual, leveraging multiple spreadsheets 48% claim it is manual, using some
spreadsheets plus some process and standardization
20% have some automation in place and some planning-specific tools
Only 2% indicate their processes are highly automatedand use purpose-built software and standard processes
When asked if spreadsheets are usedfor planning, 96% responded that is their primary
“Capital spending is an ongoing process involving overlapping multi-year projects managed across business units and functions; it demands a highly automated process and only 2% fall into that category, only one in five are even close.”
III.
CAPITAL PLANNING PAIN POINTS AND RISKS
A. Major Pain Points
When asked about the pain points in the planning process, 48% of respondents said the manual nature of planning and the resulting process complexity, 37% cited the impact of business climate change, and 35% reported lack of visibility into performance.
B. Major Challenges Using Spreadsheets
In response to the question, (Does your organization primarily use spreadsheets for capital planning?) 96% of respondents said that spreadsheets were the primary tool used for planning. When asked about the challenges in using spreadsheets for this process, 42% pointed to the inability to run what-if scenarios, 41% found the lack of integration between spreadsheets problematic, and 38% took issue with the limited analytical capabilities of spreadsheets.
C. Top Risks
When asked to identify the top risks to planning and the business, nearly 50% of respondents cited the inability to track affordability and ROI from investments. This was followed closely by being unable to maximize
opportunities, resources and budgets at 45%, and making the wrong long-term investments at 44%. 0% 10% 20% 30% 40% 50% 60%
IV.
FUTURE PLANS FOR CAPITAL PLANNING
A. In Their Words
Participants were asked to share in their own words what would help most to fix the challenges involved in capital planning. This is a representative list of recommendation from the respondents:
“Finance requires better standardization with fully integrated common platforms to budget and analyze capital projects.” (Director of Finance, Manufacturer)
“There is a change in paradigms regarding planning being just a financial exercise. Planning should be an organizational strategic capacity, and a financial
integrated approach.”(CFO, Wholesale Trade Company) “We need better visibility and post plan
accountability.” (SVP and CFO, Semiconductor Manufacturer)
“Companies need greater integration and prioritization
of strategic, operational, and capital planning.” (VP Finance, Large Consumer Electronic Retailers) "Better post-implementation evaluation of investment to ensure ROI and business case were achieved." (Corporate Controller, Automotive Parts Manufacturer)
"Companies need the ability to compare multiple scenarios in multiple economic climates." (CFO, Recreational Vehicle Designer and Manufacturer)
"We need software that allow us to model various scenarios and tools that allow us to calculate metrics such as ROI/payback on a standard basis currently, all operating companies calculate a little differently" - Controller, Manufacturer
“Companies need greater integration and prioritization of strategic, operational, and capital planning.”
VP Finance, Large Consumer Electronic Retailers
B. Priority and Time Frame for Automation
That means while 70% of executive respondents were not satisfied with the current process, only a third plan to address it through automation in the next 12 months. More than a third of respondents are making automation and refinement of the planning process a medium to high priority and are planning on taking action within the next 12 months. Interestingly, given the strategic nature of the subject, 23% have not assigned this a priority to address.
The question was formulated to ask respondents to state both the priority level and time frame for automation. Companies may consider automating the planning process a higher priority yet are not prepared to put a timeline of less than 12 months. In the planning world, 12 months is only one planning cycle away. The pain associated with the manual aspects of planning may be more acute at different times of the year for planners depending on their fiscal calendar and their most intensive planning seasons. While the pain may not be as acute at certain times of the year, it will tend to resurface and escalate as complexity increases and with constant business climate change.
V.
SUMMARY
A. Takeaways and Considerations
The trend toward more continuous planning coupled with the fact that organizations are relying upon unstructured processes and manual tools is troubling given that good decision making demands meticulous, on-demand tracking and performance data. It is clear that planning process structure and automation level is directly related to the ability to measure and track performance, provide scenario analysis and measure return on investment – key
components of data –driven decision making and maximizing return on capital.
While other departments have access to more sophisticated processes, software applications, and tools to ensure that decisions are data-driven and accurate, the lack of these technology
advancements for Finance can have far-reaching implications for ROI and efficiency, and even the future of the company itself. In the study, only 35% of respondents were satisfied with their current planning process; however, only a third of respondents said it is a medium to high priority to automate and refine the capital planning process within the next 12 months. The disparity between those dissatisfied with their current process and those acquiring new solutions to mature their processes could be attributed to various factors:
The skill and comfort level that finance professionals feel with spreadsheets, even as many realize implications of this approach vis-à-vis sophisticated cross-company planning
Lack of assessment on the potential return of automating and improving the process and implications for competitive advantage
A general lack of knowledge within Finance of the availability of solutions developed to meet their specific needs.
B. Recommendations
Given today’s environment – a dynamic market, increasingly agile competition, tighter constraints on manpower, capital resources, and a less forgiving shareholder eye on the bottom line – it may be time to look into purpose-built financial technology tools that can automate, speed, and improve the planning process. Companies that utilize purpose-built solutions can gain a competitive edge, improve the accuracy of financial planning, keep investment
“Unlike other parts of the enterprise, which use modern technology to run their business, Finance is relying on outdated technology and tools for planning - ironically, planning is one of the enterprise’s most critical long-term, and strategic processes.”
1) Consider where your organization is today in terms of planning process gaps and limited metrics:
Are we getting the results we need from time spent on capital planning?
Are our people spending too much time working with spreadsheets and consolidating numbers and not enough of their time actually analyzing data?
Are we able to do the scenario analysis that we need?
Are we able to accurately forecast, then measure and track our return on capital today? What is the status quo costing the company in terms of time, accuracy, and money? Are we considered best in class from a planning perspective?
2) Consult an expert: Robert Kugel, Senior Research Director of Ventana Research heads up CFO and business research focused on the intersection of information technology with the finance organization and business. His research includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Read Robert’s blog at
http://robertkugel.ventanaresearch.com/ or contact him via email at [email protected].
3) Learn more by attending a special webcast: On January 24 at 12PM CST, Bill Sinnett from FERF, Maureen Carlson from Appleseed Partners, and Madison Laird, Planview Executive-in-Residence, will discuss the findings of The Capital Planning Study and offer ways to improve the capital planning process. Register for either the live broadcast or the on-demand recording at http://www.planview.com/stateofcapitalplanning.
4) Get the informative whitepaper titled:The Role of Finance: Number Crunchers or Change Agents?by Rich Murphy, former CFO of Deutsche Bank Global Technology, and learn how to lead your company to better strategic investment planning and be a catalyst for change in your organization. Download the paper today at
http://www.planview.com/roleoffinance.
If you have any questions or comments regarding this report, or if you would like additional information, please contact
APPENDIX – DEMOGRAPHICS
C. Responses by Industry
Survey respondents were distributed in terms of industries with 29% from Manufacturing, 13% from Technology, and 10% each for Consumer Goods, Utilities/Energy/Transportation and Healthcare/Life Sciences.
D. Responses by Company Revenue
The study focused on global enterprises with significant planning and demand on the finance organization. Nearly 50% of respondents were from companies with more than $1.1B in annual revenue and 17% were from companies with more than $5.1B in revenue. Twenty-seven percent of participants represented companies with $500M-$1B in annual revenue.
E. Level in Organization
Fifty-seven percent of participants were executive level and 30% were director level with the following as common titles across all: CFO, Assistant Vice President and Director of Financial Analysis and Planning, CAO/VP/Controller, Chief Risk Officer, Director of Finance, and Treasurer.
About the Authors
Maureen Carlson is a partner at Appleseed Partners, an independent marketing consulting and research firm. Maureen has nearly 20 years of experience in high technology, business-to-business marketing, research, and consulting. She has focused on product marketing for hardware, software, and professional services; has experience in several market segments such as manufacturing and healthcare; and has worked on other research projects with the sponsor, Planview Inc.
William M. Sinnett is Senior Director, Research, for Financial Executives Research Foundation, Inc. (FERF), the research affiliate of Financial Executives International (FEI). Bill also supports FEI’s Committee on Finance & IT (CFIT), and authors its e-newsletter, “Finance & IT News.” Bill joined FEI as Accounting Manager in 1985, and became Manager of Research for FERF in 1989 and can be reached at [email protected].
VI.
About the Sponsor
The Planview solution for corporate financial planning provides an end-to-end approach giving companies a centralized view of all enterprise investments. It enables stakeholders to choose the right investments for the company, understand the financial implications, and validate ROI. Learn more at www.planview.com/Finance. For 20 years, Planview has been advancing the discipline of portfolio management, helping its customers change the way they manage people and money to make better business decisions. With a singular focus on portfolio
management, Planview is the only company that combines customer-driven software, unmatched domain expertise, and proven best practices to solve each customer’s unique business problems. For more information, visit
VII.
About
FERF
About Financial Executives Research Foundation, Inc.
Financial Executives Research Foundation (FERF) is the non-profit 501(c)(3) research affiliate of FEI. FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and non-members alike, in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals. This and more than 140 other Research Foundation publications can be ordered by logging onto
http://www.ferf.org. Questions about FERF can be directed to [email protected]
The views set forth in this publication are those of the author and do not necessarily represent those of the FERF Board as a whole, individual trustees, employees, or the members of the Advisory Committee. FERF shall be held harmless against any claims, demands, suits, damages, injuries, costs, or expenses of any kind or nature whatsoever, except such liabilities as may result solely from misconduct or improper performance by the Foundation or any of its representatives.
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