corporate planning and management

The New Normal? – How corporate planning and corporate management must adapt to the increasing dynamics of the market and competition (3)

In the second part of this three-part blog series, I explained why forecasts are replacing classical budgeting as the central instrument for corporate management and why simulations are the basis for the well-founded analysis and evaluation of action alternatives, opportunities and risks. In this third and final part, you will learn why professional software support is essential for fast and up-to-date forecasts as well as sophisticated simulations and scenario analyses. It is not without reason that improving the technology used is currently the most important investment for optimizing planning and forecasting for many companies (see Figure 5). Modern software provides comprehensive functions to support planning and flexible adaptation options – a must in dynamic markets.

optimize planning and forecasting
Figure 5: What investments are needed to optimize planning and forecasting? (Source: BARC “Sound Decisions in Dynamic Times – Forecasts and Simulations Support Modern Corporate Management”, n=272)
 
Sound decisions in dynamic markets require fast and up-to-date forecasts

Due to growing time pressure, it has to be possible to create and update forecasts for planning managers quickly and efficiently. A sound database, good software support, a high degree of integration in planning and greater automation of forecasting are essential for this. Only up-to-date forecasts provide the information, significance and relevance that managers need to make decisions.

Specialist software solutions offer central data storage for actual and plan data, represented in a consistent data model. With modern tools, even large amounts of data can be processed with high performance. This is necessary because companies no longer want to access just a few data sources for better forecasts and simulations. Planning, forecasts and simulations increasingly require a comprehensive database that offers high transparency and quality, but can also be expanded to include external and unstructured data. Only in this way can all important signals from the market be considered and processed.

In addition to an integrated database, professional software solutions offer comprehensive functionality to support planning, forecasting and simulation, but also for analytics and other performance management topics. In particular, the support of forecast processes (e.g., by means of automated forecasts via predictive algorithms and machine learning (ML)) is an important investment area for software vendors in order to be able to support planners even better in the future. The integrated data management of actual and planned data creates the ideal basis for creating forecasts of future developments based on already recorded planned values and their comparison with realized actual values. Forecasts can be made either for the end of the year or on a rolling basis, whereby planned data is successively replaced by actual values and the planned values of open periods are adjusted in line with new findings and estimates.

Sophisticated simulations and scenario analyses require comprehensive software support

Sophisticated simulations and scenario analyses require efficient management of the required models and data and their flexible adaptation to changing conditions. Without well-founded support functions, this is not practicable, especially for extensive simulations with large amounts of data and complex calculations. Only with specialist software support can simulations be calculated efficiently ("on-the-fly") and analyzed in detail both consistently and quickly.

Compared to classic spreadsheets – which are still widely used in companies to create simulations flexibly and to adapt them manually – specialist software solutions offer consistent data management with uniform master data and calculations, central modeling and data integration from source systems. Furthermore, advanced functions such as the calculation of simulations with predictive algorithms and detailed traceability of results are available. Flexible modeling and comparative analysis of different scenarios is a standard feature of modern tools. In addition to supporting software functions, the model plays a decisive role in beneficial simulations.

From a methodological point of view, what-if and parameter simulations, in which effects on result variables are analyzed by means of changed input values such as prices and quantities, are the most frequently used variants in companies today (see Figure 6). However, driver-based simulation models in particular are gaining in importance. These enable organizations to transparently show the effects of changes to individual influencing factors or measures on (financial) result variables in simulations and scenario observations.

scenario analysis
Figure 6: Which of the following methods for simulations and scenario analyses do you use? (Source: BARC “Sound Decisions in Dynamic Times – Forecasts and Simulations Support Modern Corporate Management”, n=235)
 
Summary and conclusion

The increasing dynamics of the market and competition are having massive effects on corporate planning and corporate management. Their continuous adaptation to the "New Normal" is vital. Forecasts are fast becoming the central instrument of modern corporate management and simulations the essential basis for the well-founded analysis and evaluation of action alternatives, opportunities and risks.

In a dynamic environment, more than ever before, companies must be able to regularly adapt not only the contents of their plans, forecasts and simulations to new conditions, but also the underlying models. In addition to competent employees, companies need software tools that can be easily used and adapted by business users. Modern software solutions offer helpful support here, but are only "half the battle". In addition to specialist software support, efficient processes, agility and adaptability as well as data literacy and methodological competence in controlling are increasingly becoming decisive factors in competition.

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