Ways to get ahead in business

Comshare's Michael Coveney explains why water companies should rethink their business strategies and utilise management planning and control systems to hone their performance

South West Water will use MPC to deliver its business plan for AMP4

South West Water will use MPC to deliver its business plan for AMP4

South West Water is entering the second phase of Comshare's MPC
This year the government is driving competition within the water industry through a variety of measures - inset appointments, large user tariffs, plus the imminent introduction of common carriage principles. Water utilities will need the ability to model, report and analyse both financial and non-financial information. Identifying problems and opportunities and responding quickly can mean the difference between meeting, beating or falling short of market and stakeholder expectations.

"Nine out of ten companies fail to execute their strategy - six of them do not even link their budgets to strategy." ¹ "90% of management teams in the UK will never obtain the growth they forecast." ²

Organisations have begun to realise that traditional performance measures are not enough to run a company. Yet it is still common to find organisations using spreadsheet or point solutions for planning, budgeting, forecasting, performance measurement and so on. Whilst these solutions have helped businesses manage their annual budgets, uncertainty in the economy means they are obsolete before the first quarter's results are reported, and strategic plans need to be rewritten every year.

Responding to market needs, a new breed of management planning and control (MPC) solutions for corporate performance management (CPM) is evolving to help organisations plan, budget, report, analyse and respond to opportunities in their business environment.

The world's leading analysts predict the market for these solutions will explode:

"Enterprises that effectively deploy CPM solutions will outperform their industry peers. However, implementing CPM solutions is not easy. By year-end 2002, less than 10% of Global 2000 enterprises will have implemented corporate performance management solutions; this will increase to 40% by 2005 (0.8% probability)." ³

Management planning and control is more than just a set of processes for planning, budgeting, reporting and analysing. MPC synthesises these disparate processes into a single, cohesive and ongoing system through which management can implement strategies better, strengthen decision-making and make management more effective. MPC is both a way of thinking about and running the business.

MPC requires an organisation to answer key questions. These can be grouped into two categories:

  • management planning - where do we want to go? How do we compare with our peers and competitors? What do we have to do? What targets can we achieve? How do we allocate resources?
  • management control - where are we? How are we doing compared to plan? What actually happened? Why did it happen? What are the alternatives? What decisions do we make? What is the impact of those decisions?

    After these questions have been answered, the cycle must start again, because the business environment is continually changing. The business must be ready, willing and able to adjust accordingly. This cycle should continue for the life of the enterprise.

    To answer these questions, management need two things:

  • relevant, timely information in the form of a model that reflects the way an organisation operates. This information is both financial and statistical on all aspects of the organisation, marketplace and competitors,

  • l technology that will enable management to create plans, manage the execution of those plans, evaluate performance, highlight exceptions and model decisions. The capabilities of that technology must work together as a single, seamless application that shares a common model of the organisation and a common set of data.

Water specific
Recognising that effective management of its regulatory contract would not be possible without a comprehensive business analysis, South West Water selected a single management planning and control solution to meet the needs of the strategic and operational user. "South West Water is under constant regulatory and customer pressure to deliver progressive cost efficiencies," explains Ian Bell, project manager for South West Water. "Consequently, we have to manage and deliver outputs to meet business objectives whilst striving to reduce costs."

"South West Water has an annualised five-year capital plan, to which we make fine adjustments every month. Our capital investment committee meets to approve new expenditure and the monthly approvals are fed back into the annual plan to see if we can afford it and if the timing is appropriate. Both revenue and capital implications are examined, and this is considered along with the annual setting of internal budgets. Remodelling our capital plan is thus seen to be both an annual and monthly exercise for us."

"To manage these requirements we needed to enhance our existing reporting environment with a system that could handle all aspects of the financial management and decision support process."

South West Water selected Comshare MPC to replace its spreadsheet based financial management systems. "MPC provided depth and breadth of functionality and this was important for us because our IT strategy regards bespoke point solutions as an anathema." Says Bell.

Phase one focused on delivering a budgeting application to improve on current financial processes and to support the migration of internal corporate finances to a two-year rolling cycle.

Comshare MPC is used by 15 business analysts and is about to be taken-up by 50 key budget holders. "The business analysts are the high-end users who use MPC's advanced analytical functionality to provide enhanced investment profiling, improved response to business change and more accurate modelling," Bell explains.

The benefits to the budget holders include better delivery of the budget process, better management of capital investment programmes, improved access to information and the move to a monthly rolling forecast.

Recognising the ease of maintaining its MPC system, South West Water's information services department passed control of the application to the key business users, who act as systems administrators. "I especially like the low-maintenance server-based approach which uses internet technology to deliver information and functionality," says Bell. "We have existing client-based applications which take much time and effort to install, maintain, upgrade and track on the 700 or more PCs which form our network. The fact that nothing needs to be installed on the client apart from a standard web browser makes managing the user environment in MPC very simple."

The second phase, which commenced in May 2002 and is due for delivery in November 2002, focuses on the capital and investment plan, extending this into a five-ten year business investment model. Here MPC will be used at the strategic planning level for asset maintenance and investment, and capital planning. MPC will be linked to the capital programme software - Asta Powerproject Teamplan. Bell explains, "To use a naval analogy, Comshare MPC decides where in the world we need to be, and Teamplan does the day-to-day navigating."

Hitting the target
Phase three will support investment planning on a strategic scale, linking benefits and outputs to targets and benchmarks. Performance metrics using unit costs, operational expenditure and capital expenditure calculations will be provided to track performance against targets. The ability to prove delivery against regulatory targets, such as planned investment programmes, output, efficiency and operating regimes, will be a major benefit. This is due to be delivered between December 2002 and February 2003.

"By using both financial and non-financial data we hope to improve and streamline the production of data to support our annual return to the director general of water services," explains Bell. "The ability to provide evidence of the beneficial changes which promote our position within the water companies comparison tables is key when corporate performance is discussed in the city and also within the industry."

Further ahead, South West Water will be using MPC to deliver the business plan for AMP4 to meet the five-year regulatory control period.

Consolidation
In summary, competition and toughening markets mean that organisations must look at their corporate performance management processes and the technology that underpins these processes. The ability to implement strategy and to understand and anticipate changes in the business environment will give an organisation true competitive advantage. It is no longer advisable to treat planning, budgeting, and reporting as separate activities and organisations should avoid the comfort of traditional tools such as spreadsheets. As South West Water has shown, MPC systems which streamline planning, budgeting, forecasting, reporting and analysis are helping water companies meet and beat the expectations of the market, regulators and stakeholders.

References:
1) Balanced Scorecard Collaborative, Financial Times, August 2001.
2) Survey by Bain, Financial Times, August 2001.
3) Gartner "Corporate Performance Management: BI Collides with ERP", Geishecker L, Rayner N, Dec 2001.


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