© 2010 IBM Corporation Business Analytics software Transforming Finance through Forecasting & Analytics Christoph Kaderli Marketing & Strategic Initiatives Executive, IBM Business Analytics Bratislava October 13th, 2011 Editable Text Editable Text Editable Text

© 2010 IBM Corporation Business Analytics software 2 Volatility & uncertainty are here to stay Years to reach 50M users: Radio 38 years TV 13 years Internet 4 years Facebook 2 years Supplier lead time is 62% faster than just two years ago

© 2010 IBM Corporation Business Analytics software 3 CFO Agenda: Improve Effectiveness & Beyond Finance Introduction N = 1,834 Note: Executives asked: How important to your Finance organization are each of following areas of responsibility? and How effectively do you think your Finance organization is performing in each of those areas? And Please rank your top 3. Importance defined as enterprises selecting [5] Critical and [4] on a 5-point scale where [5] Critical and [1] Unimportant. Effectiveness defined as enterprises selecting [5] Very Effective Critical and [4] on a 5-point scale where [5] Very Effective and [1] Ineffective Source: IBM Institute for Business Value, The Global CFO Study % 28% 26% 21% 16% 9% 28% 35% 23% Core Finance Enterprise Focused 2 Gap 1 3 Importance Effectiveness Driving integration of information across the enterprise Providing inputs into enterprise strategy Supporting / managing / mitigating enterprise risk Driving enterprise cost reduction Strengthening compliance programs and internal controls Driving Finance function cost reduction Executing continuous Finance process improvements Developing your people in the Finance organization Measuring / monitoring business performance Rank 52% 61% 55% 83% 49% 84% 59% 75% 62% 85% 52% 80% 59% 80% 39% 73% 51%77% 0%20%40%60%80%100%

© 2010 IBM Corporation Business Analytics software 4 Analytics-driven organizations outperform Efficiency & business insight contributes to better financial performance Sources: IBM Institute for Business Value; 2010 IBM Global CFO Study. One year: 2008–2009 Five years: 2005–2009 Value Integrators All other enterprises

© 2010 IBM Corporation Business Analytics software 5 Why? How are we doing? What should we be doing? … Analysis, Ad Hoc Query, Text Analysis, Reporting Dashboarding, Scorecarding, Real time Planning & Predictive Analysis, Budgeting, Forecasting Actionable Insights enable everyone to answer 3 Key Questions CUSTOMER SERVICE SALES MARKETING FINANCE HR OPERATIONS IT PRODUCT DEV. Social / External Internal Data

© 2010 IBM Corporation Business Analytics software 6 Lessons from the Leaders The “Best” Rely on Advanced Analytics Source: IBM Institute for Business Value, 2010 IBM Global CFO Study (Adapted)

© 2010 IBM Corporation Business Analytics software 7 Forward Looking Flexible Focused on Risks & Opportunities Fact-based Rolling Forecast – a modern approach

© 2010 IBM Corporation Business Analytics software 8 Plans/ Budgets detail how you think the future should look Forecasts describe what the future will most likely look like Difference from Budget and Plans “Using Rolling Forecasts allows companies to incorporate the most recent information and insights about the marketplace.” Kaplan/ Norton, Authors, Management Gurus “..it is speeding up the budgeting process.” Hackett Group 2008

© 2010 IBM Corporation Business Analytics software 9 There are several success factors Time Horizon Participation Modeling Risk & Uncertainty Culture Process Measurement

© 2010 IBM Corporation Business Analytics software 10 There are several success factors Time Horizon Participation Modeling Risk & Uncertainty Culture Process Measurement

© 2010 IBM Corporation Business Analytics software 11 What is a Rolling Forecast? JFMAMJJASONDJFMAMJJFMAMJJASONDJFMAMJ Q1 Forecast Q2 Q3 Traditional forecast Q1 Forecast Rolling forecast

© 2010 IBM Corporation Business Analytics software 12 Rolling Forecast = 12 month quarterly? No. It depends on your business!

© 2010 IBM Corporation Business Analytics software 13 Match the time horizon to the rhythm of your business Short cycles  Consumer electronics  Retailing  Investment banking  Advertising  Cash flow  Overtime Long cycles  Oil exploration  Pharma development  Infrastructure investment  Plant construction  Infrastructure investment  Research & development Industry Function

© 2010 IBM Corporation Business Analytics software 14 Common Time Horizon decisions*  Airline: Rolling 2 quarters; monthly  Semiconductor: Rolling 2 quarters; twice per quarter  Automotive:Rolling 2 quarters; quarterly  Chemical:Rolling 2 quarters; monthly  Telecom:Rolling 4 quarters; monthly  Technology:Rolling 4 quarters; quarterly  Engineering:Rolling 6 quarters; quarterly  Consumer goodsRolling 6 quarters; monthly  PharmaceuticalRolling 6 quarters; quarterly

© 2010 IBM Corporation Business Analytics software 15 There are several success factors Time Horizon Participation Culture Modeling Process Measurement Risk & Uncertainty

© 2010 IBM Corporation Business Analytics software 16 High participation creates value. Sales Marketing HR

© 2010 IBM Corporation Business Analytics software and drives ownership & insight

© 2010 IBM Corporation Business Analytics software 18 There are several success factors Time Horizon Culture Participation Modeling Process Measurement Risk & Uncertainty

© 2010 IBM Corporation Business Analytics software 19 Remember this traditional template?

© 2010 IBM Corporation Business Analytics software 20 A simple test for selecting the right items „Simplicity is the ultimate sophistication.“ Leonardo da Vinci

© 2010 IBM Corporation Business Analytics software 21 Agregate

© 2010 IBM Corporation Business Analytics software 22 Change Language, use Drivers – Revenue (New Accts) – Office Supplies (Paper) – Office Supplies (Pens) – Gifts, Misc. Opportunities Pipeline Number of employees Customer Satisfaction

© 2010 IBM Corporation Business Analytics software 23 Automate Time Cumulative Revenue Calculation Goal Average Run rate Data entry / Collection Mathematical Statistical Or mixed „rules“

© 2010 IBM Corporation Business Analytics software 24 Start small and grow big AUTOMATION TRANSFORMATION (Optimization)

© 2010 IBM Corporation Business Analytics software 25

© 2010 IBM Corporation Business Analytics software 26 There are several success factors Time Horizon Culture Process Measurement Participation Modeling Risk & Uncertainty

© 2010 IBM Corporation Business Analytics software 27 Forecast multiple scenarios? Place Your Bets What if? Multiple scenarios Floating assumptions Data volumes

© 2010 IBM Corporation Business Analytics software 28 Consider a simpler approach Upside Exceptions Base Case (most likely) Downside Exceptions

© 2010 IBM Corporation Business Analytics software 29 There are several success factors Time Horizon Culture Participation Modeling Process Measurement Risk & Uncertainty

© 2010 IBM Corporation Business Analytics software 30 Some measures you should consider  Aim for repeatability  Measure the quality  Set strict goals

© 2010 IBM Corporation Business Analytics software 31 Forecast Accuracy - useful in different ways Attention Time { 5% gap Model issues Discover potential bias

© 2010 IBM Corporation Business Analytics software 32

© 2010 IBM Corporation Business Analytics software 33 There are several success factors Time Horizon Culture Participation Modeling Process Measurement Risk & Uncertainty

© 2010 IBM Corporation Business Analytics software 34 Management fosters culture Forecast substantially lower than Actuals “The forecast’s key role in management of the company means it must be brutally honest whether we like what we see or not.” Bjarte Bogsnes, Project Manager, Statoil

© 2010 IBM Corporation Business Analytics software 35 Management sets the tone “Okay, clearly things have changed. What are the drivers of the change? What is the impact on our business? What actions should we be taking?” “Why didn’t we anticipate that in the budget? Who screwed up?”

© 2010 IBM Corporation Business Analytics software 36 Management owns, clarifies the purpose of rolling forecast Relationship to decision-making Relationship to budget Purpose of the Forecast Assessment of your processes New Compensation Approaches

© 2010 IBM Corporation Business Analytics software 37 There are several success factors Time Horizon Culture Participation Modeling Process Measurement Risk & Uncertainty

© 2010 IBM Corporation Business Analytics software 38 Become smarter with Forecasting & Analytics  Define your approach  Forecast culture required  Changes to models required  Upgrade your technology

© 2010 IBM Corporation Business Analytics software 39 IBM Business Analytics Analytics-based Research Workload Optimized Systems Global Business and Technical Services Smarter Planet Solutions Information Management Cloud, Virtualization Channel and Partners Smarter Commerce Social Business Smarter Cities Watson Massive stream analytics Smart Analytics System Netezza Big Data Data quality System z Many Eyes 10,000+ certifications 27 certified business partner solutions Fraud and Abuse Management (FAMS) Financial Integrated Risk Mgnt (FIRM) CFO Dashboard We can support you today

© 2010 IBM Corporation Business Analytics software 40 © Copyright IBM Corporation 2011 All rights reserved. The information contained in these materials is provided for informational purposes only, and is provided AS IS without warranty of any kind, express or implied. IBM shall not be responsible for any damages arising out of the use of, or otherwise related to, these materials. Nothing contained in these materials is intended to, nor shall have the effect of, creating any warranties or representations from IBM or its suppliers or licensors, or altering the terms and conditions of the applicable license agreement governing the use of IBM software. References in these materials to IBM products, programs, or services do not imply that they will be available in all countries in which IBM operates. Product release dates and/or capabilities referenced in these materials may change at any time at IBM’s sole discretion based on market opportunities or other factors, and are not intended to be a commitment to future product or feature availability in any way. IBM, the IBM logo, Cognos, the Cognos logo, and other IBM products and services are trademarks of the International Business Machines Corporation, in the United States, other countries or both. Other company, product, or service names may be trademarks or service marks of others.