Search
  • Dr. Christoph Hermsen

Efficiency gains and cost savings in international financial planning - Cloud-based tools optimise p

1) Complex coordination processes of international financial planning: Cloud applications help!


The dynamic and rapidly changing markets are an everyday challenge in business practice. Fast product launches in global markets, frequent changes and the resulting response to changing customer requirements combined with dynamic production adjustments are the response of successful companies1.


However, this also leads to extensive changes for "traditional" operational financial planning. In the past, an annual planning process over several months could meet the requirements of the company management, but this is no longer possible in times of rapid change.


2) Too significant are the influences of changes in the markets on the financial situation of the companies and thus on the planning requirements. The operational financial planning cycles must therefore be adapted to the changed market requirements.


In addition, the sometimes strained financial situation of companies makes it necessary to have even more timely and up-to-date financial planning.


3) In addition to quarterly reporting, investors and shareholders are increasingly demanding to be informed promptly about the respective changes in current business, also in an adjusted financial plan.


For the operative management, a constant up-to-date financial planning is also a decisive prerequisite for the successful implementation of change processes. Changes in market conditions or implemented measures always lead directly or indirectly to a different financial situation. Therefore, a constantly updated financial plan as a rolling plan for the future has become a central success factor.These requirements can no longer be met within the framework of conventional, time- and labor-intensive financial planning. New approaches are needed to enable timely, coordinated and efficient financial planning with simultaneous reporting.


  1. Cf. inter alia Hagen/Müller/Wieben (2018), in particular chapters 3 and 4.

  2. Cf. Graumann (2014), 631 ff.

  3. See Spremann/Grüner (2018), 222 f.

2) Group financial planning simultaneously and transparently


Within the framework of traditional financial planning, it is always necessary to decide whether a top-down or bottom-up approach should be used. Either the financial targets to be met by the operating units are specified or the subsidiaries submit "their" financial planning to the parent company, which then calculates the consolidated results of the planning. Both methods, when used in isolation, each have considerable disadvantages. On the one hand, there may be "frustration" with unattainable targets or "ignoring" the specifics of local markets. On the other hand, easily attainable personal goals and comfortable financial resources are conceivable.4)


In practice, the respective advantages and disadvantages are often compensated for by combining the approaches individually, each with its own focus. However, the basic problem of the chosen procedure always remains.


The use of decentralised solutions (often local, file-based data entry techniques) and centralised consolidations (network-based ERP solutions) then requires a great deal of time, coordination and updating in operational practice. Extensive reporting processes must be managed and implemented. Changes and extensions to the reporting structures require detailed process management, costly IT infrastructure and corresponding human resources.

5)


If one additionally considers the binding and consumption of all operational resources, the picture of an "expensive planning monster" emerges which, due to the lack of alternatives, is the subject of everyday business in almost all companies today.


3) Cloud tools as a management tool


Until now, international financial planning with several responsible persons distributed worldwide required extensive internal company networks with corresponding investments, costs and coordination times. Comprehensive IT solutions are therefore common products of ERP providers and are also a very lucrative business for them.6)In addition, the frequently tense capacity utilisation of internal IT departments is the reason why changes to planning processes cannot be implemented due to changing market requirements. Special projects and pressure to adapt also make the IT departments a critical bottleneck. Planning and administrative requirements are then often left behind.Quick process adjustments, controlled by the business department with IT support from external partners can be a successful solution approach



4. See Graumann (2014), 525 ff.

5.Cf. Behringer (2018), especially Chapter 2, pp. 29-85.



4) Efficiency and timeliness: Cloud Financial Planning 4.0


A configurable, scalable and individual cloud financial planning already allows today to meet the requirements of financial planning 4.0 without the need to build your own infrastructure.


The use of cloud planning tools is easily possible without operational IT resources. Internet access is sufficient to implement cloud planning and apply it internationally. Here, internationally different employees can jointly create a financial plan and regularly update it with current information. The results are immediately visible to all participants and can facilitate appropriate management decisions.


Reporting and information requirements can be achieved directly based on this and are available to the respective addressees in digital form, if desired at the same time. Possible effects of implemented measures or changes in market performance are immediately visible for the overall planning. Team-oriented interpretation and calculation of alternative action mechanisms can be carried out immediately and the financial consequences of the current financial planning are visible to everyone at all times.7)


By linking reports, information can be aggregated and detailed. This makes "live" reporting according to individual user concepts possible for the first time.


However, the joint, immediate and transparent working in teams requires extensive user control. Here, with most cloud solutions, user rights can be managed and set up very precisely and differentiated. This begins with limited read access to aggregated data and extends to full read rights for all information. The input of data can be limited to single factors up to a complete input of all required information. In addition, individual areas can be modified, e.g. the calculation of the cash flow for a Japanese subsidiary, until the planning system is completely changed.


Once Financial Planning 4.0 is implemented as a cloud application, additional solutions can be booked depending on the provider. These standard solutions vary from supplier to supplier. For example, forecasting, partly AI based, or market research data are offered.

Here, the range of services is likely to expand significantly in the next few years to move from previous individual solutions to comprehensive intelligent cloud applications with predefined solution aids.


Extensive additional solution options are therefore available to Financial Planning 4.0 as intelligent cloud applications. These can be used on a project basis or implemented step by step, depending on the requirements of the companies. Parallel introduction is just as conceivable as the gradual transfer of existing systems.


In particular, the flexible use of the resource cloud application by "adding" capacities and functions, or "reducing" them, allows rapid adaptation to ever-changing requirements. A block of fixed costs "IT costs" becomes variable costs according to the desired performance.


In Financial Planning 4.0, the rapid adaptation of changes becomes a reality in everyday business as opposed to rigid planning processes of the past. Target-oriented, flexible reporting and team-oriented simulations support sustainable decision-making processes in real time compared to printed decision documents, which are often already considered "outdated" at the management meeting.


6.See Behringer (2018), p. 215 ff.

7.See on the report/reporting: Graumann (2014), 228 ff.



Bibliography


Hagen, V., Müller, M., Wieben, H-J. [2018]

Corporate development and strategic corporate management, Hanover 2018.


Graumann, M. [2014]

Controlling, 5th, revised edition, Herne 2014.


Spremann, K., Grüner, A. [2018] Finance, 5th edition, Berlin 2018

Behringer, p. [2018]

Group Controlling, 3rd edition, Berlin 2018


Biography



Dr. Christoph Hermsen, university lecturer for accounting and finance at the Fresenius University of Applied Sciences, research focus: Cloud-based process management, control of global companies and digital real estate management/M&A, studied economics at the University of Duisburg-Essen, followed by a doctorate at the University of St. Gallen, Switzerland. More than 25 years of leadership and management experience in manufacturing, international industrial companies, several years' stay abroad in the USA and extensive foreign assignments in North America, Asia and Eastern Europe.


10 views

© 2020 Bedford Consulting.