Ways to get ahead in business

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:

Geishecker L, Rayner N, Dec 2001.