First of all, the main planning areas of the business should be defined. These always contain the overall and result planning (profit and loss, balance sheet and cash flow) as the basic module. In many businesses, the partial operational plans are another important contributory factor to attainment of the objectives, but they are very seldom included in the higher level overall planning. Examples of partial plans include sales and material, salary, marketing, travel, consulting and IT costs. The aim of these partial plans is to use one model for each partial plan, which is automatically incorporated into the overall planning. This creates an integrated, self-contained cycle within an application which lends itself outstandingly well to counterflow planning (top down and bottom up) and also to simulation or scenario analysis.

Following the successful definition of the areas, the planning dimensions, planning hierarchies and planning density must be defined. A decision will be taken here as to which business dimensions constitute the key organizational structures, i.e. in what degree of detail (company, business unit, profit center, cost center) a business makes its plans. Often different dimensions to the overall and result planning determine the partial plans (sales and material, salary, marketing, travel, consulting and IT costs). The table in 4.1.1.1 illustrates an example of possible business dimensions for each planning area.

One important contributory factor to better acceptance and greater accuracy of the planning process lies in the definition of value drivers and the use of reference values.

The aim is to significantly accelerate the planning process by means of a driver-based logic and reduce complexity, thus leaving more time for analysis, simulation and scenario modeling. The input of planning values per company, cost center, profit and loss account and month is extremely time-consuming and can be greatly simplified by using value drivers in planning.

The basic idea behind this concept enables the persons responsible for planning to choose the relevant value driver for each account, planning element and business dimension, to enter a value for the planning element and then move on directly to an analysis based on the predefined calculation logic (final planning value and monthly distribution).

As soon as a business has decided to supplement the overall and result planning (profit and loss, balance sheet, cash flow) by including the partial plans, these must all be linked up. Taking a practical example, this means that a business must combine its partial plan for staff (bottom up planning of all personnel costs) with the relevant elements of the profit and loss positions to ensure self-contained planning. Staff planning is carried out for the previously defined business dimensions and measurement parameters. The calculated values are then automatically integrated into the overall planning.

Integration of all partial plans with the overall and result planning (profit and loss, balance sheet, cash flow) is essential to enable the management to perform simulations and scenario analyses and, by the same token, determine the impact on important profit and loss, balance sheet and cash flow items. The following examples show which questions, among others, may receive a direct answer.

• What effect do adjustments of sales and purchasing prices have on volumes, profitability and net current assets?
• Are the planned marketing activities consistent with the sales and margin plan for different product groups?
• What impact will there be on the profit and loss, balance sheet and cash flow items if I move X per cent of my staff from site A to site B?
• The implementation of a strategically important project results in a great deal of travel activity. What is the best and most cost-effective site for various discussions?
• The uncertain currency situation may have an enormous impact on our business. What effect will +/- percentage variations of the key currency pairs have on our balance sheet, profit and loss and cash flow positions and what form could a possible currency hedging strategy (FX hedging) take?

Experts use the term fully integrated planning to describe the link between overall and result planning (profit and loss, balance sheet and cash flow) and the integration of what are known as partial plans. The selected tool must be capable of illustrating all the business-relevant plans in a central application and of establishing a self-contained link. For example, if a company decides to integrate a staff plan, this means that all the values calculated from this plan on the basis of assumptions (salary, social costs, salary adjustments, bonus, training) will be automatically transferred to the particular items. In addition, all changes in profit and loss values must also have a direct impact on the balance sheet and cash flow positions to create a self-contained cycle which lends itself to coordination.

In the course of the planning process, many companies lose their way by going into unnecessary detail because each planning element is entered manually in a planning mask. This increases costs many times over and valuable time is lost. The use of driver-based planning improves the quality of planning and reduces the time required; more time is therefore available for plausibility checks and planning analysis. The tool must be flexible enough to work with existing drivers while enabling additional, enterprise-specific drivers to be readily integrated without abandoning the concept of integrated planning.

As soon as businesses allow the elements described above to be included in their planning model, more time is left for different scenario and simulation analyses. The selected tool must therefore have the functionality which enables this type of scenario and simulation analysis to be performed. An assurance should be obtained that the direct impact of any change in the planning model (profit and loss, partial plans) on all the relevant items of the overall and result planning (profit and loss, balance sheet and cash flow) will be calculated and coordinated. Examples might include changes in FX rates, price simulations or adjustments of payment terms and conditions with customers and suppliers.

One of the key enablers of UPM is the modern capability of Functional Databases. Functional Databases are still widely misunderstood.

Functional Databases (for example IBM Planning Analytics / TM1) are often lumped together generically with Business Intelligence and OLAP (On Line Analytical Processing) tools. While it is technically a type of OLAP (sometimes referred to as Multidimensional OLAP or MOLAP) and provides sophisticated Business Intelligence capabilities, this is not the capability for which Functional Database Technology was designed and developed.

Functional Databases are also often noted for and described as “in-memory” or “write-back enabled” databases. While these describe essential aspects of any Functional Database, they are not the defining features.

Functional Database technology was in fact designed and developed to provide highly interactive, collaborative and complex business modeling and analytics using large (even huge) data sets and its defining feature is its spreadsheet-like, cell-orientated modeling capability which makes building models conceptually intuitive for business users already familiar with spreadsheets and enables models using complex chains of calculations that mirror the unified and interactive processes of an organization.

Functional Databases thus essentially bridge the gap between transactional (typically Relational) databases, which are fantastic at storing and managing detailed records, but are cumbersome for analysis and modeling, and spreadsheets, which are great for analysis and modeling, but break quickly when dealing with large data volumes, highly complex models and multiple users trying to use them simultaneously, among other issues.

It is therefore essential that the UPM solution has - at its core - a Functional Database. This is a fact still curiously missed or misunderstood by most of the well-known Performance Management technology solutions available today, and its absence in these solutions has been the dominant factor in true UPM being unachievable for organizations that have invested in those technologies.

The profit and loss view of the business is an important component. Apliqo C3 gives companies an opportunity to define their relevant business dimensions with specific reference to customers. These are based on standardized business dimensions (company, version and currency) that are important for meaningful reporting and planning. In addition, companies have the opportunity to define generic business dimensions that give them complete flexibility for reporting and planning. These dimensions can, for example, be fed with information from the cost centers, profit centers, business units, divisions or regions and are then available for various purposes. The table below shows an example of possible business dimensions.

As already indicated, many companies find it difficult to present the modeling of balance sheet items in an integrated planning process. Some companies prepare a plan and rolling forecast balance sheet, but only a few of them have illustrated these items in a self-contained application (profit and loss, balance sheet and cash flow). An even smaller number of companies have integrated the partial plans into this application and are therefore able to analyze the effect of any change of plan on the relevant profit and loss, balance sheet and cash flow items. The benefit of full integration is self-evident; scenario and simulation calculations can be performed using this closed cycle and important balance sheet items optimized, thus making valuable resources available to the business that can then be used for investments designed to implement the strategy.

When dealing with the cash flow statement, many users have difficulty tracing the relevant items. However, with a complete profit and loss account and a constantly updated monthly balance sheet movement per item, the preparation of the cash flow becomes a simple mapping exercise. Once defined, rolling cash flow planning brings a huge competitive advantage for companies. This enables important information to be gained and corrective action taken if developments are moving in the wrong direction (e.g. excess net current assets). This in turn enables companies to optimize all kinds of planning items and so make more liquid resources available.

This partial plan enables companies to plan sales and material costs in greater detail or in a business- relevant manner. A range of information from the customer and material master data files is available as a possible business dimension, on the basis of which further planning data can then be entered. In addition, a decision is taken as to whether the planning values (sales and material costs) are defined on the basis of a quantity times price calculation (or derivative versions specific to the business model) or acquired as an input value. Insofar as businesses are able to make further information available (e.g. order book or opportunities), these can also be used as planning drivers in order to enable the future planning values to be calculated automatically.

This partial plan enables companies to plan staff costs in greater detail or in a business-relevant manner. The staffing plan generally comprises three areas.

Assumptions – Assumptions can be made and used to calculate costs. They include e.g. social costs, tax rates, bonus agreements, salary adjustments.

New employees – Plans can be drawn up for all new employees. Information such as posts, percentages, starting date and total salary are acquired. The calculated figures are automatically transferred to the employee plan.

Existing employees – Plans can be drawn up for all existing employees. Companies can load existing employees and the accompanying data from a surrounding system or from an existing data file and plan the job percentages and costs by entering departures and arrivals.

The company defines the degree of detail of employee planning and may, for instance, make its plans for each individual employee or on the basis of defined employee items.

All of the calculated employee planning values (salary, social costs, bonus) are linked to the relevant profit and loss accounts so that all partial plan changes automatically flow into the profit and loss account and the relevant balance sheet and cash flow items can be adjusted.

This partial plan enables companies to plan marketing costs in greater detail or in a business-relevant manner. The company can associate various marketing activities and campaigns with the predefined business dimensions and enter planning values for the particular combinations.

This enables the “what” (sales targets) to be linked with the “how” (marketing activities). By analogy with the other partial plans, the planning values flow directly into the profit and loss items while the particular balance sheet and cash flow items are automatically adjusted on the basis of the existing framework.

This partial plan enables companies to plan the travel costs in greater detail or in a business-relevant manner. The company can define individual travel routes and travel costs for travel-intensive areas and plan these factors on the basis of the number of journeys and overnight stays.

By analogy with the other partial plans, the planning values flow directly into the profit and loss items and the relevant balance sheet and cash flow items are automatically adjusted on the basis of the existing framework.

Businesses have the opportunity to define further partial plans at any time and can link them to the overall and result planning. The particular partial plans are always heavily dependent upon the corporate business model and the particular business drivers. Examples include partial plans for consulting, IT and facility costs, which are planned by the same principle and then linked up.