Corporations spend millions on time-consuming planning processes leading up to the budget for the following year. The budget comprises a mix of business targets based on implicit and explicit assumptions about the future. The cost side tends to be fairly predictable, as it is linked to the organisation’s own decisions and commitments already made (e.g. capital and workforce). The income side, however, depends more heavily on external factors that are out of its control (e.g. market and price development).
When the future turns out to drift far away from the premises of our plans, steering based on the budget for the year would be similar to crossing a winding mountain road with a locked steering wheel.
When the road makes a sudden turn, immediate action is called for. The outdated budget is of little use, and there is no time to wait for another planning cycle to finish.
We cannot remove uncertainty through planning. But we can transform our planning approach to embrace a reality where rapid change has become the new normal.
Simulation based agile planning
In contrast to the traditional approach, where a single plan is produced as the outcome of a lengthy and costly process, simulation based planning can produce any number of scenarios extremely fast and with almost no effort.
Not only is simulation great for long-term strategic planning and annual budgeting. Even more importantly, it helps companies stay prepared for the unexpected; being ready to address new developments and sudden events with the right measures and timing.
Traditional planning will always remain slow and costly. It involves people at different levels from all parts of the organisation who perform difficult transformations of vast amounts of information into a coherent, quantified, and convincing story (budget) that the company will meet stated expectations and targets over the coming year.
The cornerstone of invigorating the planning process is to move slow and error prone manual tasks into fast and reliable processes, while maintaining – and even improving – the chance for planners and management to spend more time to study, analyse, compare, learn, evaluate, judge, discuss, and decide.
Recent advances in user friendliness, power, and flexibility of simulation technology enable creating fast and realistic computer models of business challenges, allowing planners to focus on the big picture, instead of spending late hours on unruly spreadsheets and elusive slides.
At Covestro on-the-fly simulation is used during executive committee meetings to study the impact of changes in factors such as prices, sales volumes, and raw material costs.
See Alexander Becker et al (2013) to learn more about how Coverstro (formerly Bayer Material Science) have introduced agile planning based on our technology.
Alexander Becker et al (2013): Agile Planung. Controlling integriert und global. p. 96-100. Schäfer Poeschel.
The core – a simulation model for your business
The road from bringing planning from a data input activity to an experimental exploration of alternative ways to address the challenges we are facing goes via the creation of a comprehensive business simulation model. The simulation model is the result of a systematic process for collecting and organising the organisation’s collective knowledge about itself and its market.
Equipped with a bespoke dynamic business simulation model for the company, planners get a scenario engine at their disposal. It has significant implications for what planners can accomplish in an astonishingly short time. Instead of only providing data, controllers are becoming real business partners for top management.
A number of different planning approaches and situations can be supported by the business simulation:
- Long-term strategic planning
- Annual budgeting
- Effect-based based updates to traditional plans
- Rolling forecast and beyond budgeting
- Agile planning
- Scenario planning over various time horizons
The reason for the speed and flexibility of a well-crafted business simulation comes from its holistic business logic, live access to both business data and metadata, high-level input of parameters (assumptions and decisions), and a fast in-memory simulation engine.
In particular, the separation of business logic, metadata, and data reduces the effort of preparing the simulator for a new scheduled or ad hoc planning session.
Dynaplan is collaborating with the Institute Accounting, Control and Auditing, Prof. Dr. Klaus Moeller, Chair of Controlling / Performance Management University of St. Gallen
Our tool-box for dynamic business simulation
Technology is the cornerstone of implementing scenario-based business planning. Dynaplan Smia is developed to support the introduction and ongoing use of simulation as part of the planning process. The software combines the strengths of well-known technologies into a user-friendly and powerful planning platform:
- Clear visualisation of business logic through diagrams à la PowerPoint, with the possibility to drill down into any level of the simulation model.
- Flexible tables and charts for data entry and display, with possibilities for slicing and dicing.
- Familiar navigation between cockpits using hyperlinks.
- Unique features for working with scenarios and rolling forecast.
- A powerful simulation engine.
We have given a lot of attention to the question of how customers can get ongoing benefits from their initial investment in a business simulation model:
- First of all, when we make a planning model with a customer, the model remains with the customer for further development and use.
- Secondly, customers are encouraged to build up knowledge and capacity to take active part in the construction, maintenance, and use of their business simulators.
- Finally, Dynaplan offers an operation support programme to customers who want help maintaining, upgrading, and using their business simulator over time.
Please use the contact form at the bottom if you are interested in how to get started with dynamic business simulation for your own organisation.
Controlling practice group
Subscription to our operation support programme gives free access to our controlling group, where customers get together with Dynaplan and invited experts to learn from each other, and to discuss the road forward in dynamic business planning.