Using Affecto’s solution for dynamic forecasting, DNV Business Assurance replaced traditional budgeting with an effective forecasting tool for improvement and growth, significantly increasing forecasting effectiveness and the ability to take timely action according to changes.
Rapidly changing markets force businesses to seek out new management tools that support faster and more agile ways of adapting. The traditional budgeting process is today seen by many as time consuming, detail focused and inflexible. In many cases, traditional budgeting may even be counterproductive.
DNV Business Assurance is a world leading certification company with 1.600 employees and 2500 contractors in 48 countries providing certification, assessment and training services to assure the performance of customers’ products, processes and organizations across a wide variety of industries globally. With numerous, relatively short and repeating assignments, occurring in relatively irregular sales cycles, planning for optimal resource utilization was a major challenge.
In 2011, the management of DNV Business Assurance realized that the existing budget had become a hindrance to growth. The budget process was retrospective instead of proactive and an impediment to taking timely action. The company wanted to develop an actionable management culture focusing on the value drivers that were directly connected to the business processes. The vision was finding methods of guidance that could replace the traditional budgeting process and make the organization more able as well as willing to adapt.
– How to put better planning and forecasting methods in place? The management of DNV Business Assurance was impatient for an answer.
AN ACTIONABLE PROCESS
– Our future is growth. A reliable forecast will further support for our growth, says Barbara Frencia, CFO, DNV Business Assurance.
– Reliable forecasts allow us to timely plan actions, respond rapidly and to correctly allocate resources, for example taking corrective actions, follow-up quotes, evaluate necessary sales personnel, targeted marketing campaigns, or increase cross selling, in order to have better financial outcomes.
The solution: A switch to dynamic forecasting as defined by the “Beyond Budgeting” principle; A driver-based model of management using relative targets and focusing on strategy and value drivers, offering greater flexibility and moving business decisions closer to the actual business processes.
– The client wanted to move from traditional budgeting to a driver-based way of planning, says Bjørn Runar Nes, chief architect in Affecto, who has supervised the development. – From our first meeting in May 2011, we had just a few days to deliver a proof of concept to the DNV BA’s global management team. Having been convinced of the possibilities and feasibility, DNV Business Assurance wanted a solution in place in September, leaving very little time for development.
Time to market was extremely short, but a well matched project group of highly skilled DNV people with a strong drive to perform, Affecto was able to deliver the DFM solution (Dynamic Forecast Model) according to plan.
– A key element in the DFM solution is that it helps the customer defines exactly which tasks are most favorable in order to reach the targets, says Bjørn Runar Nes. – The idea is not to tie people to a number in a budget, but to navigate through constant change, follow ups and downs and learn from events as they occur. Management decides which projects and investments should have priority among the opportunities that appear.
FROM DRY DATA TO RELEVANT REPORTS
The DFM solution Affecto developed collects information from the management, sales corps, and field personnel in one solution and shows how the different business processes are linked. By adding parameters such as number and length of working days, time allocation of employees to services, pay levels, and local sales success rates, the solution is able to project how changing some of the parameters can affect results, for example regarding resource allocation and financial results.
Achieving the right level of detail is the key. At DNV BA, every employee is on file with a detailed time allocation to the products based on competencies, and capacity. The solution gives historic data over 8 quarters, and a 5-quarter prognosis. The client may look at the prognosis one month, one quarter or 5 quarters ahead, per the last 12 months or in any mixture. This allows management a holistic overview of business processes and the business intelligence they need to build the business towards the future.
– One critical success factor is to anchor the solution well into the organization, says Bjørn Runar Nes. – In DNV BA, management made a strong effort to motivate all in management and middle management to really want to use the new solution.
– By implementing the solution in close cooperation with the users, having on-site support and solving early issues then and there during the start-up phase, we were also able to build motivation and enthusiasm for the solution.
Results were quick to follow:
– Our short term global sales forecast effectiveness for October 2011 was 34%, says Barbara Frencia, CFO of DNV Business Assurance. That means that in September we only expected to make 34% of the sales that we actually made in October, making “operative planning” very difficult. By December 2011, our global sales forecast effectiveness was 92%. That’s practically a 60 percentage point jump and a major improvement in accuracy in just 2 months! We can now say that our short term sales forecasting reliability is promising for the future.
FROM HISTORY TO FUTURE
Dynamic forecasting is a KPI-based management model and returns key figures relative to among many other things the marketplace, competitors, and clients. Dynamic Forecasting springs from the “Beyond Budgeting” vision of replacing the static budget tradition with a future oriented approach. It enables the organization to look many months past the end of the traditional budget year, and react quickly to change.
Dynamic Forecasting continuously poses the question: – Are we still on the right track?
– Dynamic Forecasting will better support our strategic ambitions in particular when it comes to growth, says Thomas Vogth-Eriksen, Former CEO of DNV Business Assurance now CFO of DNV Group. The model will help us to be more adaptive as an organization to new business opportunities as they occur.
Compared to traditional budgeting, the targets of dynamic forecasting are set relative to the vision and strategy of the business to a greater degree, and are measured relative to the market; for example as market share, growth compared to the market total, or performance compared to the same period the previous year. Actionable prognoses come with recommended activities such as ncreasing sales of higher-margin services or where availability of a competence is especially high, according to the analyses. The idea is to provide those closest to the client with the tools and the freedom to reach their objectives.
– It is important to note that Dynamic forecasting does not mean loss of management control, says Bjørn Runar Nes. The guiding principles provide parameters that ensure that management always retains a hand on the wheel!