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Predictive Forecasting Becomes an Achievable Reality

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Article by Paul Davis

“Without data, you’re just another person with an opinion.” – W. Edwards Deming

As an EPM consulting leader for nearly two decades, I’ve watched with keen interest the growing phenomenon of Predictive Forecasting. To clarify, the term Predictive Forecasting is used to describe the process of generating future expected results based on the predictive analytics using data science algorithms.

Predictive Forecasting differs from normal / legacy budgeting and forecasting processes in that while typical planning processes have historically involved a very smart (hopefully) someone projecting the next several months of expected results based either on (in diminishing authority) seasonal averages, trends, gut feel, or simply compliance to an externally derived growth (hopefully) percentage target. As a result, forecast accuracy of traditional budgets are only as good as that opinion, and often suffer from poor results. Subsequently, organizations spend (hopefully?) countless hours analyzing variance of actual to target and postulating root cause for these variances. These exercises in variance analytics and root cause determination are necessary for companies to address the constant moving conditions of our ever quickening paced world.

In contrast, a Predictive Forecast removes the inherent human weightings, relying instead on actual history and a set of defined variables to feed predictive algorithms. Granted, these are a human defined set of variables, but even the factors can be improved by using data science, machine learning, and coefficient factoring algorithms to more effectively understand factor relationships. And because Predictive Forecasting is done in technical systems with the requisite horsepower to crunch Big Data volumes, deeply granular values can be used in creating a Predictive Forecast, and also be juxtaposed with actuals for variance analytics to more quickly and concretely define where forecasts are falling short.

So how is Predictive Forecasting now becoming a reality? Data Science algorithms have been around for decades. Software solutions have provided detailed analytics for years. Data Scientists themselves are able to access thousands of open source code streams in “R” to systematize their efforts. Heck, even Microsoft Excel incorporates some basic analytic algorithms.

My personal excitement about the current state of Predictive Forecasting is based on the burgeoning confluence of Predictive Analytics, Enterprise Performance Management, Analytics and Visualizations with Big Data capable database engines. By layering on the functional solutions listed above to homogenous data in columnar models, we are reaching the point of combining the functions of each business-based solution into an integrated whole;

  • Use Predictive algorithms against your Big Data store to create an informed forecast
  • Leverage visualizations and storyboards from Analytics to present variance reporting in an intuitive way that provides quick assessment of success
  • Deliver drill-back to root cause analysis in the Big Data system to evaluation transactional details

These current capabilities of Predictive Forecasting represent the next evolutionary stage of analytics:

  • Spreadsheet: Opinion / Gut Feel, fully flexible to individually create whatever desires, domain expertise
  • ERP tools: transactional, large-volume data engines built to run the business
  • Business Intelligence tools: OLAP, slice-and-dice self-service reporting, dashboards, visualizations
  • Predictive tools: algorithms, modeling, correlations
  • Embedded Platform: real-time results, proactive alerts, machine learning

Moreover, evolving Predictive Forecasting capabilities to a common platform with EPM, BI, and Big Data engines will extend the 4 V’s of Big Data to a 5th and 6th:

  1. Volume (granularity breadth and depth of data)
  2. Velocity (speed or response or computation)
  3. Variety (financial and non-financial sources, including SMAC data)
  4. Veracity (common, trusted repository of cleansed data)
  5. Visualization (interactive dashboards, charts, and the boardroom of the future)
  6. Value (alerts and actionable analysis that allows users to impact real organizational decisions)

Over the next few days, I will be posting to our SAP BusinessObjects Cloud Center of Excellence website (boc-coe.com) another couple articles with some specifics on Predictive Forecasting Use Cases, as well as how to set up and use SAP Predictive Analytics to execute two specific use cases; an algorithm for Time Series Forecast, and another algorithm for identifying influencers. I will make sure to hit on how Guided Machine Learning can be applied to these algorithms to embed them in your platform and see continual updates to result sets for improved output.

Thanks for reading.

How to Make Your Enterprise Planning Strategic in Nature

imagesThe fundamental success of your organization requires a solid understand of where you are, where you want to be, and how you get there.  In short, it’s about having a strategic plan that’s aligned with the market, leverages it’s core competencies, and is methodically implemented and monitored.

So why are so many companies challenged with strategic planning?  It’s because the strategy is too often not aligned with the ongoing planning process being led by Finance.   The role Finance plays is to support each of the key elements of the strategy mentioned above, by providing a realistic picture of the metrics along the way.  A properly aligned corporate strategy and planning process will drive accountability across the organization.  So how can it be done?

Change the Mindset of Your Corporate Planning

Improve the long-term performance of your enterprise by embedding these three procedures into your corporate planning:

  • Purpose
  • Alignment
  • Efficiencies

Your people and planning process affect the first two.  Building a financial platform is the biggest lever you have to impact the third.  Software applications like SAP BPC is still the industry standard for creating a platform that will allow you to become a world-class planning organization.

Purpose for the Planning

Know why you’re planning in the first place.  I don’t just mean is it revenue generation, or some form of cost analysis.  I’m talking about a true understanding of what decisions are being made by the effort and cost being expelled.  Defining the beneficiaries and the benefits they receive, will force the effort to be focused and measurable around those benefits.

Alignment with the Corporate Strategy

This by far is the most difficult to accomplish often due to the silos that exist between the strategic management team and the functional planning teams.  As a functional leader being asked to plan you have one key activity to make sure this alignment exists….require a clear description of the organizations strategic intents by your leadership.  These strategic intents are the compass in which all your planning efforts must be directed toward.  It’s a step often missed but a guaranteed game changer.

Efficiencies in How You Plan

Just remember the three A’s of driving efficiencies:

Accurate – Automated – Accountable

With a core understanding that proper planning is about change management, then we have to realize that the people involved must trust the numbers, be spoon-fed, and know they will be measured by it.  Getting these three realities in place will bring great performance improvements to your organization.

SAP BPC helps organizations address each of these critical areas.

Accuracy – by pulling data from your general ledger and creating a central repository for planning, there is one version of the truth.  This creates confidence in the numbers at all levels of the organization.

Automated – by creating a planning process in Excel (still the common language of business) that allows for robust modeling, the budget process couldn’t be any more interactive and simplistic in nature.

Accountable – by having a tool that easily measures and reports performance, accountability comes to life.  The visibility creates ownership and drives actionable intelligence…putting the power of performance in the hands of your people.

The Entity Dimension in BPC

download (1)The Entity dimension is one of the most important dimensions in BPC. The SAP ECC has four different objects that can act as Entity like Cost Center, Profit Center, Business Area and Company Code. The planning can happen on any of the above based on company structure and planning requirements.

The question is how we build the Entity dimension, by encompassing all four objects into one entity dimensions or by keeping them as separate dimensions. Let’s weigh the pros and cons.

Keep Cost Center, Profit Center, Business Area and Company Code as separate dimension

Pros:

  • Easy to integrate and automate master data from ECC to BW to BPC
  • Duplicate members can be tolerated, many times same member id is used for business area and company code in ECC

Cons:

  • Sparse data model, extra number of dimensions make data sparse and unnecessary big model
  • The availability of data decides the relationship and not hierarchies. If a transaction exists having a particular cost center and a particular business area then they are related. The hierarchy across these objects does not exist.
  • Become difficult to locate the data across these objects.
  • The usability goes down as user has to select all four objects correctly to find the require data
  • The chances of wrong data submission due to user error increases

Integrate one or more into a composite Dimension

Pros:

  • The BPC data model becomes smaller and easy to manage
  • The data available at Cost Center get rolled up to company code.
  • The planning and reporting become easy and intuitive

Cons:

  • The four objects need to be integrated in an hierarchy in BW or BPC using custom logic
  • Duplicate members require renaming with prefix like BA or COMP, etc.
  • The relationship between cost center, profit center, business area and company code needs to be many to one and not many to many. This may need redesign in ECC

The Take-Away

The composite dimension in BPC has efforts in the design and development phase but it makes the life of the end-user easier and reporting more robust. Entity dimension is one of the most important dimensions in BPC and its design has long term consequences on success or failure of BPC implementation. Considering each BPC implementation has its own set of challenges, it requires a careful study of the pros and cons listed above.

Updating Custom Data Manager Packages when Migrating to BPC10X MS

maxresdefaultIs your organization migrating from BPC7x MS to BPC10x MS? If so, a smooth migration is all about the details. Many people know to review and update the Reports and Input Schedules as necessary. And, teams remember to migrate and validate the other logic in the models.

Migrating, it’s all in the details.

What about the custom Data Manager packages that were created for the old version? BPC10x MS brings new terminology that’s reflected in the Data Manager packages which may need to be updated in the Data Manager packages. Of course this isn’t even considering if during the BPC upgrade the SQL database version was also upgraded. This may create additional changes to the custom packages.

SAP provides a migration tool that can only be used by Certified Migration Consultants, but the migration tool doesn’t cover everything. Here is a list of the details that require manual migration:

  • Script Logic
  • Data Manager Packages
  • BPF’s
  • Insight
  • Books
  • Custom Menus
  • Custom SSIS Tasks
  • Custom T-SQL

As Daniel Jacinto noted in the SAP Community Network: “Migrations are dependant on the complexity of your application set. If you have a lot of customizations or custom SSIS packages, then you will need to redo all of that logic into a custom process chain. If your reports contain highly complex and nested EVDRE’s. You will invariably end up rebuilding the report using the new EPM functions.”

How SAP Cloud for Planning Augments SAP BPC

You have BPC, and it integrates with your GL. You get updated master data and other data automatically. Life is good. So, why would you consider SAP Cloud for Planning? Because you can integrate your plans between Cloud for Planning and BPC (NW and MS platforms).

BPC gives corporate the robust, enterprise planning environment that leverages the flexibility and usability of Excel. That’s why there is such great adoption in finance and with other people who sit at a desk every day.

But, what about people in the field?

You need to consider the new abilities the cloud provides, such as:

  • Strategizing with your customer about their activities for the coming year
  • Showing customers analytics on their personal dashboard
  • Build a personal “what if” model using that same master data provided by your ERP to work out volume pricing for the top ten products for that customer.

While walking the plant with an iPad, you can plan product mix, volumes and timelines. Or, confirm your thoughts using predictive analysis…instantly. Then, save the final version to BPC for corporate reporting. Cloud for Planning is the next step in BPC with a people-centric look and feel. SAP thinks that this will be the most modern and easy to use system yet, and we agree. Cloud for Planning is complementary to BPC, or available as a stand-alone solution for those customers who just want to use a cloud-based solution.

 

Achieve Reporting Nirvana with Multiple Hierarchies

My_Bliss_editedFinancial organizations from a variety of industries think they are unique according to their reporting requirements. They will say things like, “We need to report according to GAAP, Management, Segment, Geographic Region, Tax, and,” the list goes on. We’ve heard it all. Luckily, these reporting requirements don’t make us bat a lash. With BPC, you can satisfy any of your reporting requirements with relative ease through Multiple Hierarchies. Setup mileage varies, but after that, you can roll your reports as many ways as your organization requires.

Define Your Hierarchies

For example, if you’d like to look at the data in a difference hierarchy than the one coming from ECC, you would need an alternate hierarchy to view your reports. There are two types of hierarchies in BPC, Standard and alternate hierarchy. Standard hierarchies represent your organization’s structure and alternate hierarchies are for alternative reporting purposes.

You can even define hierarchies according to time. If you’d like to do a year-over-year comparison or define a report for past data, that’s possible with BPC. According to your defined groupings, BPC allows you to create any number of alternate hierarchies and report on that.

Let BPC Do the Rest

Once you’ve defined your hierarchies, BPC rolls your reports automatically. While we understand your financial organization’s concern over meeting all the reporting requirements, the concerns are largely based on the way reports were done before. Your outlook changes after a BPC implementation. With Multiple Hierarchies, you really can achieve reporting nirvana.

Using BPC to Produce a Cash Flow Statement

DohIf you are trying to develop a Cash Flow Statement, data inconsistencies can turn you into a crazy person. Many have tried, all have become frustrated. Push button Cash Flow Statements aren’t always possible in many corporate environments, but that doesn’t mean all is lost. Instead of trying to work with the data problem, you can work with your data to facilitate the desired result. If you take a step back, you can focus on the goal of the Cash Flow Statement and get better results.

Cash Flow Statement Tips

During the SAPinsider’s Financials 2012 event, John Cerqueira presented “Improve the quality of cash flow reports using account transformation and currency translation business rules” which outlined 7 tips for using group currency cash flow reporting in SAP BusinessObjects Planning and Consolidation:

  • Load affiliate local currency balance sheets and income statements to SAP BusinessObjects Planning and Consolidation
  • Execute Account Transformations to derive direct cash flow and indirect cash flow lines in Local Currency
  • Use standard SAP BusinessObjects Planning and Consolidation reporting functionality using a direct cash flow account hierarchy for direct cash flow reporting
  • Use standard SAP BusinessObjects Planning and Consolidation reporting functionality using an indirect cash flow account hierarchy for indirect cash flow reporting
  • Validate Local Currency cash flow statements before executing Currency Translation
  • Execute Currency Translation to post Group Currency values to Balance Sheets, Income Statement, and cash flow accounts
  • Elimination will have to feature eliminations to cash flow accounts

You can utilize BPC properties and Excel formulas to develop a cost effective and flexible format to produce a Cash Flow Statement.