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
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
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).”
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
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
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.
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
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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