Linking Planning and Analysis Case Study

Plans and budgets have little meaning unless they are linked to analysis and reporting.

Many years ago, when I was Management Accountant for a large pharmaceutical company, I created what I thought was an amazing budgeting system in Excel.

The Managing Director loved it because he could have the entire system on his laptop, take it away and answer any questions that came up during budget negotiations.

The next year we merged with another company and got a new CFO. He had heard of this system and, as I walked him through, asked, “How do we see how we are going against our budget?”

We hadn’t taken it that far.  The key really was about linking planning and analysis, so we could track performance back against the plan.

We had a great planning tool, but no way of measuring against the key drivers that were used in it. What he was most interested in was the underlying analysis of both the drivers and planning accounts in use.

Driver Based Planning

A really simple example of the type of thing he wanted to see is a revenue plan for an outbound call centre:

• 10 tele-sales people
• Working 22 days a month for 8 hours per day
• Making 12 calls per hour with a 1-in-10 hit rate and $100 average sale
• A budget of $176k revenue per month

In setting up reports or analysis against this, what should we analyse? the hit rate and average sale value, then manage against those.

The value of planning accounts

By using Planning Accounts (where we have no more than 20 “planning accounts” per cost centre that are aggregates of relevant general ledger accounts), you could then use the exact same planning accounts in your reporting and analysis then drill down on the detail to see what needs further investigation.

For example, if, say, Professional Services (the planning account that covers audit, consulting, legal, accounting etc) was 30% under plan, you could drill down on the Professional Services planning account and see the more granular GL accounts underneath that to help you explain the variance.

Alternatively, going back to the Call Centre example above, if your revenue by the end of Week 1 was too low, you could take actual results from your call centre systems and identify whether call- or hit-rates were down (institute training), or your average sales were below $100 (change the focus/product promoted).