Already using Hyperion Financial Management (HFM) for consolidations? If you are, it may seem economical to use it for budgeting and forecasting as well. But, before you spend the savings, consider the total cost of squeezing your planning and financial close processes into one application.
Any organization large enough to need HFM likely has separate departments for controllership and planning. The differences between the financial close and planning processes make this split nearly universal. Unlike the rhythm of the monthly close, planning cycles can be annual, quarterly, monthly or ad-hoc. While the accountants are compiling historical results, the planning team is focused on future performance. Even though these teams have similar skills and backgrounds, the tools they need to do their jobs efficiently are distinctly different. When both processes are supported in the same application, conflicts arise as each team tries to leverage technology to its advantage.
Once HFM has been incorporated into the closing process, the accounting team naturally becomes risk averse. HFM is now part of the internal control structure that is relied upon both internally and externally to ensure financial results are in compliance with regulatory requirements. The actual cost of a restatement, should an error occur, is minor compared with loss of confidence by investors and the associated increase of the cost of capital. To reduce this risk, most companies establish blackout periods where no application changes are allowed prior to a financial close where results will be published. Blackout periods typically include quarter-end months, the last two months of the fiscal year, and the time it takes to close the books.
The planning process is fluid and requires frequent changes to the assumptions that govern the collection and processing of data. Often these changes require tweaks to existing calculations or extending the model (e.g., to include a new channel or business unit). Blackout windows require a very early start to the planning season. Figure 1 is a hypothetical example of how a budget process would work given the blackouts. The blackouts essentially force the planning team to set the budgeting assumptions in June – six months before the actual events so that the changes can be implemented and tested. The implementation and testing occurs in prime vacation season with obvious complications. A first pass can be run in September with a brief window in October for modifications prior to a final cycle.
Producing a budget is possible in this scenario but the quality of the final product may be compromised by the constraints on the planning team. Maintaining the separation between the financial close and planning processes allows each team to control the changes to the systems that support them. There are a number of ways to maintain the separation including: 1. create a separate HFM application; 2. implement Hyperion Planning and combine the budget and actual results in one application for reporting. Either of these options mitigates the risk of producing a budget that is of no value due to blackout time constraints. Considering the planning process objective is to ensure the organization meets its financial goals, making compromises for short term savings is not a good tradeoff.
Author: Ron Woodlock, Performance Architects