Creative Financial Models Improve Decision Making

While monthly time periods are often sufficient for annual budgeting, some business models require planning with more granular time periods.

Corporate Performance Management (CPM) solutions are designed to empower finance and operations to generate insights that deliver more value, more efficiently, and more often.

So, I am surprised that so many CPM solutions still require that all models be set up with months for the time period. Moreover, while solutions such as A3 Modeling enable the user to plan with any time period, just as you can in a spreadsheet, many solutions require you plan by month and assume a single, 12-month fiscal year. Not only does this make it difficult to deal with companies that have multiple entities with different fiscal years, it means you actually cannot do daily or weekly modeling.

In addition, many retailers use a “13-month” calendar with 4 weeks in each time period so they can get more consistent period over period trending and reporting. These retailers need a CPM solution that at the very least enables 13-month reporting. To keep this blog simple, let’s call any software that requires you to plan only by month: 12-month-only software (12-MOS).

Here are a couple typical conversations I’ve witnessed between 12-MOS sales rep and a prospect.

Conversation 1: The “ruled-out” retailer prospect
Context: The sales rep has been trained to ask if the prospect wants to plan with a 13-month year, because the 12-MOS does not support this requirement.

Sales rep: Do you plan with a 12-month fiscal year?
Prospect: Actually, we do our reporting with a 13-month year.
Sales rep: Oh, we don’t do that.
Prospect: OK, bye!

Conversation 2: The daily model debate with a hospitality-industry prospect
Context: the FP&A manager at a large resort, a large museum that wants to plan daily admissions, or an airline that plans by daily flights, builds up the planning model by day to forecast financials and staffing.

Sales rep: Why would you want to plan by day? Don’t you want to plan by months?
Prospect: Yeah, I want to plan by months…. but, in our industry, holidays and weekends totally change our model. The daily trends are material to us. Can your software plan with days as time periods or at least weeks.
Sales rep: Aha! I got it, in this case, create a line item for each month with the number of weekends in the month as a driver?
Prospect: That’s not how we approach the planning process. Gotta go, bye!

A3 Solutions budgeting and forecasting Best Practices sometimes require creative financial models to improve decision making. If you don’t “fit in the box”, you are entitled to a Free Trial Model. If you have an interesting planning model that requires daily or weekly planning where 12-MOS is not sufficient, send over your model and we’ll load it up in the cloud for you to explore hands-on.

About the Author:

Rob Lautt is a graduate of Princeton University School of Engineering. Veteran in both finance and IT departments in manufacturing and distribution industries, Mr. Lautt is the visionary behind A3 Modeling and the Spreadsheet Automation Server that powers it.