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enterprise performance management

FP&A Done Right: The Changing Role of the CFO

June 17, 2022 by Revelwood Leave a Comment

This is a guest blog post from our partner Workday Adaptive Planning, explaining strategy and vision for the Office of Finance.

Companies are asking more of their CFOs than ever before. They’re expected to lead environmental, social, and governance (ESG) initiatives, oversee finance transformation projects, and ensure their teams have the right skills for the future. That’s why finance leaders need the right technology.

The role of CFOs is changing as their responsibilities keep growing. “Today, CEOs and boards are looking to CFOs to help outperform peers while navigating crises,” said Terrance Wampler, group general manager, office of the CFO, at Conversations for a Changing World, a global Workday digital event. “CFOs are moving from a sole focus of maximizing shareholder value to addressing a much broader set of stakeholder values.”

These broader stakeholder values—and expectations—require a greater focus on sustainability, talent acquisition, and digital acceleration.

Simply put, companies are asking more of their CFOs—especially when it comes to having the right technology.

Growing Revenue

“Revenue is all about growth,” Wampler said. “Successful growth requires striking the right balance between quick wins within three months, medium-term operational improvements spanning three to nine months, and longer-term, more strategic initiatives across one- to three-year plans,” he said. 

There’s a strong correlation between revenue growth and high-performing financial planning and analysis (FP&A) teams, according to a 2021 study by the Institute of Management Accountants (IMA). Companies with high-performing FP&A teams saw a 21% revenue growth, compared to just 4% growth among companies with the worst-performing FP&A teams. 

What does a strong FP&A team do well? 

“One of the most impactful things CFOs and FP&A teams can do is model multiple revenue scenarios,” Wampler said.

Workday can help them do that, Wampler explained: “With Workday, customers model and execute on short-, medium-, and long-term scenarios, incorporating financial and operational data and performing what-if comparisons.”

Controlling Costs

Reining in costs remains a primary concern for finance leaders: In a 2022 PwC survey, almost one-third (30%) of CFOs ranked reducing cost as a percentage of total revenue as a top priority.

When looking at organizations that are successful at optimizing spend and driving predictable cash flow, one of the biggest opportunities to manage discretionary spend lies with their suppliers and procurement practices. 

As they grow revenue while containing costs, CFOs also must ensure that capital investments maximize ROI. 

“A CFO is the guardian of the capital that he or she has been entrusted with,” Wampler said. “Planning in Workday can help organizations get the most return from their capital investments with improved forecasting of capital expenses, effective and efficient capital project planning, and, of course, fast and accurate reporting and analysis for the complete lifecycle of your capital assets. You can also plan and model capital asset acquisitions, automate depreciation methods, and gain complete visibility into the impact of capital on your financial statements.”

Meeting ESG Goals

Organizations and their CFOs face increasing pressure to deliver not only financial impact but environmental, social, and governance (ESG) impact as well. For 58% of corporations, there was a positive relationship between ESG and financial performance, according to a 2021 meta study by the NYU Stern Center for Sustainable Business and Rockefeller Asset Management.

Companies that have made ESG factors a priority can benefit from the ability to track sustainability data—not just within the organization but extending to third parties, as well. “Data you could track include things like a carbon footprint, climate change, even risk to the supply chain … all through a configurable dashboard,” Wampler said.

Recruiting and Retaining Talent

As the “Great Resignation” sees workers leaving their jobs in record numbers, CFOs must consider how they can best recruit and retain talent in a rapidly changing economy. Of employed U.S. adults, one in four plans to look for opportunities with a new employer once the pandemic subsides, according to a Prudential survey.

Employers need to leverage technology that can give them an edge in hiring. 

“A good software user experience translates to a great employee experience,” Wampler said. That’s why Workday prioritizes developing products that improve employee engagement, in part by automating processes, he explained. With intelligent process automation, Workday enables teams to work smarter, not harder.

Machine learning (ML) and artificial intelligence (AI), along with the opportunity to learn new technology skills, are additional ways to keep employees engaged, Wampler added.

Beyond providing better technology solutions, a cloud-based platform also helps support workers outside of the office. As many employees have adapted to remote or hybrid work environments due to the pandemic, Workday’s robust functionality allows employees to perform their duties regardless of where they’re located and gives them additional flexibility, Wampler said. 

The CFO Stakes

Employees, suppliers, customers, and communities can benefit when companies invest in transforming back-office processes and systems—suggesting that there’s a lot at stake today’s CFO.

The good news: 75% of CFOs say the pandemic has accelerated the digitization of their operations, according to the Hackett Group. “Next-generation technology is now considered table stakes not only to survive but to thrive in the new normal of uncertainty,” Wampler said.

Home » enterprise performance management » Page 2

Filed Under: FP&A Done Right Tagged With: enterprise performance management, esg, Financial Performance Management, financial planning & analysis, Workday, Workday Adaptive Planning

IBM Planning Analytics Tips & Tricks: PAW Chart Multicolors

June 14, 2022 by Revelwood Leave a Comment

One of the visualizations in Planning Analytics is a column chart. This type of chart is a good way to compare items since all the lines are in proportion to each other.

An easy way to create a column chart is to simply create an exploration and change the visualization into a column chart. Here is an example of a stacked exploration that compares companies by scenarios and the related column chart:

Chart, histogram

Description automatically generated

This chart is great since it’s easy to compare the high and low values. However, it’s very hard to differentiate the sub-categories since all columns are the same color. In this case, it’s hard to compare Actuals vs. Final Budget.

You can configure your chart to use multiple colors via the following steps:

  1. While in Edit mode, single click on your chart widget.
  1. Select the option for “Fields” at the top, right corner. Not all visualizations use fields, so this may appear blank if you have not yet converted your widget to a chart.
  1. Move the applicable dimension from the Length category into the Color category. In my example, color is associated with the scenario dimension.
Graphical user interface, text, application, chat or text message

Description automatically generated

Once moved, the same chart will look like this:

Chart, bar chart

Description automatically generated

This approach will allow you to use your color palettes (defined within the properties) to differentiate the dimensions within your stacked column chart and make your analyses easier.

Revelwood has worked with IBM Planning Analytics / TM1 for more than 27 years. We’ve partnered with hundreds of companies on the design, development, maintenance and updates of IBM Planning Analytics applications, across every industry. Have a challenge with Planning Analytics / TM1? We can help you!

Read more IBM Planning Analytics Tips & Tricks:

IBM Planning Analytics Tips & Tricks: PAW Visualization Value Labels

IBM Planning Analytics Tips & Tricks: Refresh PAW Visualizations Automatically

IBM Planning Analytics Tips & Tricks: PAW Maps

Home » enterprise performance management » Page 2

Filed Under: IBM Planning Analytics Tips & Tricks Tagged With: enterprise performance management, Excel functions, Financial Performance Management, IBM Cognos TM1, IBM Planning Analytics, Planning & Forecasting, Planning Analytics Tips & Tricks, TM1

IBM Planning Analytics Tips & Tricks: NumberToStringEx

June 7, 2022 by Revelwood Leave a Comment

IBM Planning Analytics has the ability to export data to flat files with the use of the ASCIIOUTPUT and TEXTOUTPUT functions. However, these two functions will only accept string variables. That means that numeric data will first need to be converted to string before exporting. Most developers know about the NumberToString function, which converts numbers to string, but there’s another function that is more powerful.

NumberToString does not apply any formatting to the numbers. This will work fine if the export is meant to be consumed by another system. However, if your export has an audience, you may want your report to have consistent and pleasing formatting. Here’s where the NumberToStringEx function can come in handy.

The NumberToStringEx function has four parameters: Value, Number Format, Decimal Separator, and Thousands Separator. The number format uses the same structures as the custom formatting in Excel.  Here’s an example of the function with the results:

NumberToStringEx( 1750.34892, ‘$#,0.00’, ‘.’, ‘,’)
$1,750.35

As you can see, the NumberToStringEx function eliminates the need to round your numbers prior to conversion as well as concatenating special characters after conversion.  

NumberToStringEx also allows for dual formatting of positive and negative numbers. Just like in Excel, you will need to separate the two using a semicolon. This eliminates any IF conditions you’ll need to use to format numbers if you had used the NumberToString function.

NumberToStringEx( -1750.34892, ‘$#,0.00;($#,0.00)‘, ‘.’, ‘,’)
($1,750.35) 

Revelwood has worked with IBM Planning Analytics / TM1 for more than 27 years. We’ve partnered with hundreds of companies on the design, development, maintenance and updates of IBM Planning Analytics applications, across every industry. Have a challenge with Planning Analytics / TM1? We can help you!

Read more IBM Planning Analytics Tips & Tricks:

IBM Planning Analytics Tips & Tricks: Planning Analytics Workspace Process Editor Function Help

IBM Planning Analytics Tips & Tricks: Excel OFFSET Function

IBM Planning Analytics Tips & Tricks: The SCAN Function

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Filed Under: IBM Planning Analytics Tips & Tricks Tagged With: enterprise performance management, Excel functions, IBM Cognos TM1, IBM Planning Analytics, Planning Analytics Tips & Tricks, TM1

Modern Accounting: Achieving Finance Transformation

May 26, 2022 by Revelwood Leave a Comment

This is a guest blog post from our partner BlackLine, explaining four essential steps for transformation success.

Making the Move to F&A Digital Transformation

For controllers, CFOs, CTOs, and business leaders in general, planning a move to digital finance transformation can be daunting—and it can raise some serious concerns. What if, for example, the transformation causes more problems than it solves in the intermediate term? What if it adds interim state technical complexities to an already challenging ecosystem further challenging the partnership between finance and IT?

Mike Polaha, BlackLine senior vice president finance solutions and technology, has seen these and other issues arise in his time working with global organizations. Digital transformation has been proven to deliver significant benefits, he notes, but the keys to success are in the preparation and being smart with the ways you organize and sequence the strategy and work plans.

4 Steps to Finance Transformation While Avoiding Common Pitfalls

Base Your Strategy on Diagnostics

Your strategy and corresponding business case should have a clear goal, and that goal should be informed by benchmarks of similar companies in the affected finance processes.

“You don’t want your strategy to be informed by hunches,” says Polaha. Instead, it’s good to use an outside consulting group—the Hackett Group, for example, or some other company with a benchmarking service—to see where you currently stand, then focus your strategy to gain the greatest competitive advantage at maximum efficiency.

Benchmarking can also be critical in selling the transformation to executive management.

“It can help you show executive leaders how, by making certain investments, you can not only improve your cost to serve, but likewise how the service can be differentiated in what it can now provide,” he says. “You’re more finitely tethering the functional investment to the overall business strategies.”

Adopt a Leading-Practice Orientation

Polaha notes, “every company is unique, of course, but all companies share certain fundamental characteristics. Once a company realizes this, it’s able to benefit by looking at, and emulating, industry leading practices.”

 Here is where a relationship with a top-end system integrator like Deloitte or EY can pay dividends.

“These companies have lots of experience with finance transformation,” he says. “They can show you a well-documented way of adopting best-practice processes for your specific areas of concentration.

“Also, BlackLine can help implement leading practice solutions based on our own experiences with customer installations and our regular participation in customer advisory boards. In essence, our application is crowdsourced by enabling best practice inherent in the composition of our solution design.”

Admit You’re Not a Software Company & Embrace the Cloud

According to Polaha, “too many companies think that they can develop their own applications. The problem is they first have to build the applications, and then they have to maintain and upgrade them. Then typically at some point they start to fall behind and can’t catch up.”

An example is one company that tried to upgrade their intercompany reconciliations by customizing their ERP software. “It then became very difficult, and costly, for them to implement vendor upgrades without the fear of breaking everything they’d developed.”

Using the cloud can help speed application deployments and allow companies to digitize rapidly at scale. The company also avails itself to a future proof architecture by allowing the SaaS provider to continually embed the latest evolutions in process and solution capability.

Polaha notes, “there are times when companies have too many applications with significant overlap. It’s better to partner with fewer vendors that can use the cloud to cover multiple applications.

“If you’re using one finance vendor for account reconciliations and another to do cash application for accounts receivable, it’s much more efficient to give those jobs to a single, cloud-based vendor to simplify the overall technological and contractual footprint.”

Harmonize Finance Data with the Enterprise

Here’s where finance can be an evangelist and a valuable partner to IT.

Data analytics are growing in popularity as a tool for business planning, but Polaha notes that analytics are only effective when they’re based on data that’s harmonized—unified—so that all data uses common, standardized naming and formatting conventions.

As an example, today’s finance groups are making increasing use of analytics-driven rolling forecasts that produce continuous predictions based on the previous time period’s data. Rolling forecasts can be very effective planning tools, says Polaha, but only if they are based on harmonized data.

“The problem is that without harmonized data, some people will be basing their planning instances on their unique views of the data. So, you end up with 50 instances of planning and forecasting software, and you can’t put Humpy Dumpty back together again.”

Once finance has harmonized its own data, it can then become an evangelist for data harmonization across the enterprise.

“Finance can then present a common view of finance data to IT,” says Polaha. “IT can use that for further harmonizing their own data and applications,” he says.

“That’s the ultimate prize for transformation, isn’t it? To get finance, IT, and the entire enterprise moving smoothly into a digital future.”

Home » enterprise performance management » Page 2

Filed Under: Financial Close & Consolidation Tagged With: BlackLine, enterprise performance management, finance transformation, Financial Performance Management, FP&A, modern accounting, modern FP&A, Revelwood + BlackLine

FP&A Done Right: The Value of Scenario Planning

September 17, 2021 by Revelwood Leave a Comment

This is a guest blog post from our partner Workday Adaptive Planning, highlighting the value of scenario planning in modern finance.

Considering all that’s happened over the last year, the case for robust scenario planning has rarely been stronger. Scenario planning—the practice of establishing strategies for variables (possible futures) in key business factors—helps organizations thrive amid uncertainty. To put it simply, scenario planning arms finance with the ability to incorporate responses as changes happen.

Without the ability to adjust revenue and expense assumptions over time, model multiple scenarios simultaneously, or see the impacts of new markets, staffing changes, or regulations, companies won’t have the ability to weather whatever comes next—much less respond to changes in real time.

In a recent webinar by the Association for Financial Professionals, two panelists explored the value of scenario planning and management in modern finance.

“COVID-19 has been described as being the great accelerator and really has forced all of us to do some sort of scenario or contingency planning over the last year,” said Jack Alexander, a former CFO turned adviser, author, and coach. “And my hope is that finance and operating executives will utilize scenario planning broadly in the future and integrate those more into the key planning and management activities.”

Alexander described working with a client pre-pandemic that was facing two major uncertainties. “In this case, the company was unsure whether the economy would continue to expand or contract, and they also had a significant contract that was up for recompete. So they had basically four possible scenarios on a two-by-two matrix combining those two uncertainties,” he said. “And then I also encourage the development of a black swan scenario too—low-probability, high-impact events—and that sort of covers things including what happened with COVID.”

Kinnari Desai, vice president and head of corporate finance at Workday, described a multistep process for accelerating the scenario planning process.

Align leaders’ top priorities

First, organizations need to identify their top two or three priorities. “This could be top-line growth, margins, or cash flow, but it’s very important to be clear on those upfront,” Desai said. “We get perspectives from our executive team and align with them on what is important.”

It’s also critical to understand what is top of mind for business leaders, whether they’re in sales, services, G&A, technology, or other departments. “We need to ensure we have scenarios that are relevant cross-functionally and not only within finance,” she said. “This really helps us incorporate multiple perspectives and inputs into what is important, and we know where that knowledge belongs.”

Alexander echoed Desai’s process of speaking to the C-suite to understand competitive threats, market forces, and developing factors, as well as key personnel who have a view of such areas as critical raw materials and supply chains. “So it really has to be a broad participation across all functions,” he said.

Identify key drivers of sustained value creation

Another key step is to perform analyses to pinpoint the relevance of important factors and focus on the ones that matter. “How much could they influence the outcome? We also get an understanding of which variables and outcomes can be controlled in a short timespan versus ones that will take longer to pivot,” Desai said. “We do not try to optimize every variable but just focus on the ones that matter incrementally, and then we bring them all together in our scenarios.”

Bring in external data where relevant

Finance should develop a perspective that is informed by outside data. “It could be from industry, our peers, customers, economic data,” Desai said. “And at Workday, we use our software called Workday Prism Analytics, and that helps us marry this external data to our internal data, which informs our scenarios.”

Evaluate the frequency of scenario planning and adjust accordingly

“Not all variables, as we know, change on a similar cadence. Some need weekly attention, some monthly, or some even daily,” she said. “And our finance organization combines this power of scenario planning and continuous planning, which allows us to move in an agile fashion.”

Desai added that while there are many variables that impact the business, not all of them have a material impact. For her team, the top six variables garnered most of their attention. “And then we spent all our time understanding how they were going to shift,” she said. “Now, no one has a crystal ball, but the best we could do was to determine how those six variables would move. And those were the big rocks for us that were going to change our outcomes, not the 15 others.”

Three elements to enable agility

Alexander’s approach emphasizes three elements: vision, recognition, and response—all of which are aided by scenario planning and lead to better business agility.

“Even in terms of the vision, it helps because you’re going to be identifying critical assumptions, and you’re going to consider alternative outcomes other than the primary plan,” he said. “And if you combine that with business intelligence, external outlooks, a focus on customers and competitors, that really helps.”

As a year of uncertainty has shown, organizations better able to adapt to rapidly changing environments are often more optimally positioned to withstand crises or uncertainty. In order to build organizational resiliency, scenario planning performed correctly can help the enterprise identify its key business factors, take into account critical cross-functional needs, and create the agility necessary not only to survive, but to succeed.

This blog post was originally published on the Workday Adaptive Planning blog.

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Filed Under: FP&A Done Right Tagged With: enterprise performance management, Financial Performance Management, FP&A, FP&A done right, FP&A leadership, modern finance, what-if analysis

IBM Planning Analytics Tips & Tricks: Columns and Sections of Stacked Columns

August 24, 2021 by Lee Lazarow Leave a Comment

Tips & Tricks

Today’s IBM Planning Analytics Tips & Tricks post is a new video demonstrating how to define the columns and the sections of a stacked column chart. You will learn an approach that allows you to quickly view your data in different formats by simply replicating your view.

Watch this Planning Analytics Tips & Tricks video to learn:

  • How to change views in an Exploration
  • How to do a quarter-by-quarter analysis by changing the order of the stacked columns
  • How to show both methods on the same book

Stay tuned for more IBM Planning Analytics Tips & Tricks videos!

IBM Planning Analytics, which TM1 is the engine for, is full of new features and functionality. Not sure where to start? Our team here at Revelwood can help. Contact us for more information at info@revelwood.com. And stay tuned for more Planning Analytics Tips & Tricks weekly in our Knowledge Center and in upcoming newsletters!

Learn more IBM Planning Analytics Tips & Tricks:

IBM Planning Analytics Tips & Tricks: PAW Lines vs Area for Multiple Elements

IBM Planning Analytics Tips & Tricks: Code Char

IBM Planning Analytics Tips & Tricks: Depreciation

Home » enterprise performance management » Page 2

Filed Under: IBM Planning Analytics Tips & Tricks, Videos Tagged With: enterprise performance management, IBM Cognos TM1, IBM Planning Analytics, TM1

IBM Planning Analytics Tips & Tricks: PAW Lines vs Area for Multiple Elements

August 10, 2021 by Lee Lazarow Leave a Comment

Tips & Tricks

A line chart is typically used to show values over time. This type of chart is great to see trends with your data. An area chart is also used to show values over time and is sometimes referenced as a line chart with the area below the line filled. While this is the case in IBM Planning Analytics Workspace (PAW) for a chart that contains a single line, it is not the case for a chart with multiple lines.

Here is a simple line chart in PAW and the related area chart:

IBM Planning Analytics Tips & Tricks: PAW Line vs Area for Multiple Elements

In both situations, you can see the trend and you can also see the values.

Here are the same PAW charts with multiple lines (e.g., multiple companies):

IBM Planning Analytics Tips & Tricks: PAW Line vs Area for Multiple Elements

In both situations you can again see the trends in the data by looking at the flows from left to right. However, you do not see the same values in the two reports. You can see this by looking at the labels on the Y-axis. The line chart is designed to show a set of independent values and therefore allows you to see the values for each company. The area chart is designed to show the accumulation of the values, which makes it hard to determine values for anything except for the bottom element.

As you can see, the type of chart makes a difference when reviewing your data. So how do you decide which chart to use? The simple answer is to ask yourself what you are looking to see. Are you looking for separate values or accumulated values? As long as your picture answers that question, you can never go wrong!

IBM Planning Analytics, powered by TM1, is full of new features and functionality. Need advice? Our team here at Revelwood can help. Contact us for more information at info@revelwood.com. We post new Planning Analytics Tips & Tricks weekly in our Knowledge Center and in newsletters.

Read more IBM Planning Analytics Tips & Tricks:

IBM Planning Analytics Tips & Tricks: Scatter Charts vs Bubble Charts

IBM Planning Analytics Tips & Tricks: The Waterfall Chart

IBM Planning Analytics Tips & Tricks: PAW Chart Padding

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Filed Under: IBM Planning Analytics Tips & Tricks Tagged With: charts, enterprise performance management, enterprise planning, Financial Performance Management, IBM Planning Analytics, IBM Planning Analytics Workspace, IBM Planning Analytics Workspace charts

FP&A Done Right: Overcoming Obstacles to Collaboration in the Office of Finance

August 6, 2021 by Revelwood Leave a Comment

This is a guest blog post from our partner Workday Adaptive Planning, highlighting how to better improve collaboration in the Office of Finance.

As the role of CFO continues to become more strategic and collaborative, CFOs are expecting their teams to follow suit. As such, many finance leaders are requiring their teams to broaden their understanding of other functions and pushing them to communicate and collaborate more effectively, both internally and externally. According to our studies, collaborative work now consumes a significant portion of the finance team’s week.

The limitations of legacy tech

One of the primary obstacles to better collaboration is outdated technology. With many finance departments still relying on email and spreadsheets to drive their reporting process, collaboration is a time-consuming, frustrating task.

Think about this common scenario: A report identifies a variance and is emailed out to multiple stakeholders for review. This triggers a massive email chain of variance queries, change requests, and edits. Soon you have multiple versions of the spreadsheet existing on different computers. Which one is the right one? And if it’s not saved on the server, who can access it?

Of course, the other issue is accuracy. How does anyone know whether the numbers in the spreadsheet are correct in the first place? Manual-driven processes are susceptible to errors like entering data in the wrong cell, messing up a formula, or adding an extra digit by mistake. As stakeholders copy and paste information into spreadsheets and email them along, you lose the ability to easily track who is entering data or verify where that data originally came from.

The role of nonfinance managers in financial reporting

When some finance departments talk about collaboration, they think about ways of making it easier to collaborate within the department. While that’s important, true collaboration means making it just as easy for nonfinance managers to be able to access and make changes to a report.

Going back to spreadsheets, often the finance department works to get the report perfect before sending it off to an operational manager for review. If the operational manager adds a last-minute update, it can require a massive amount of work to incorporate, review, and verify.

While accurate data is obviously the top priority, something else to consider when collaborating with nonfinance managers is data visualization. Even after you have all the numbers together in a report, a spreadsheet can be difficult to interpret and understand. A report is only as good as the action your team can take from it; to improve collaboration, you must improve both access and understanding of the data.

The 3 steps to making reporting collaborative

If you wish to make your reporting a more collaborative process, here are three keys to keep in mind:

Step 1. Access
Instead of static spreadsheets and email, it’s critical to move your reporting process to the cloud using smart financial reporting software like Workday Adaptive Planning. Because it’s accessible through the web, all your stakeholders can work from the same set of numbers at the same time without confusion or delay. And since you can control and track at the user level who has access and who enters data, you can greatly increase transparency and accountability throughout the reporting process.

Step 2. Ownership
In addition, Workday Adaptive Planning can automatically import data from both your financial and nonfinancial systems. This not only saves time and reduces errors, but it also takes all your data out of departmental silos and brings it together to give your entire company a single source of truth to work from.

Step 3. Understanding
Once you’ve automated data collection, you can focus on delivering insights. Workday Adaptive Planning lets you easily distribute board reports, slice and dice management and financial reports for specific departments, and drill down into the details. Because it’s connected to all your systems, you can also easily create real-time, visually appealing dashboards that give nonfinancial managers instant insight into their department’s performance.

Collaboration is integral to today’s finance initiatives

The marriage of traditional accounting and analytic skills with interpersonal communication and collaboration skills reflects the changing face of today’s finance team and leaders. Data alone is not valuable to today’s organizations. But the ability to aggregate, align, and interpret company-wide data that guides corporate performance continues to separate the traditional from the modern CFO.

This blog post was originally published on the Workday Adaptive Planning blog.

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Filed Under: FP&A Done Right Tagged With: collaboration + finance, enterprise performance management, enterprise planning, Financial Performance Management, FP&A, FP&A done right, Office of Finance

IBM Planning Analytics Tips & Tricks: Depreciation

July 27, 2021 by Lee Lazarow Leave a Comment

P&L planning models consist of a variety of inputs, including revenue planning and various forms of expense planning.  In addition to these standards, we are often asked to develop other planning components. One of these components entails a depreciation process, which leads to the question: what is depreciation?

Depreciation is defined as “a reduction in the value of an asset due to wear and tear or obsolescence.” In business terms, this typically entails a calculation to determine your current asset’s value. 

There are various methods to calculate depreciation, all of which are taught in an Accounting 101 class. Most organizations, however, use a simple approach called “straight line” that spreads the reduction evenly over the course of a pre-defined asset life.

There are typically four components to a depreciation process:

  • Asset value – the original cost of the asset
  • Asset life – how long will it take for the asset to stop reducing its value
  • Salvage value – the amount you expect the asset to be worth at the end of the asset’s life (e.g., a resale value)
  • In service date – the time that you begin depreciating the asset, which is not always the same time as the purchase date

The calculation is relatively simple: subtract the salvage value from the asset value to determine the amount to be depreciated, then divide that amount by the asset life. Remember to ensure that the asset life uses the same level of time periods as your model … months, quarters, or years.

Once the depreciation calculation is performed you can easily view the original asset amount, the total allocated amount, and the current asset value. Want to learn more about depreciation details or recommended best practices? Contact us and we’ll help you.

IBM Planning Analytics, powered by TM1, is full of new features and functionality. Need advice? Our team here at Revelwood can help. Contact us for more information at info@revelwood.com. We post new Planning Analytics Tips & Tricks weekly in our Knowledge Center and in newsletters.

Read more IBM Planning Analytics Tips & Tricks:

IBM Planning Analytics Tips & Tricks: Scatter Chart vs Bubble Chart

IBM Planning Analytics Tips & Tricks: The Waterfall Chart

IBM Planning Analytics Tips & Tricks: 445

Home » enterprise performance management » Page 2

Filed Under: IBM Planning Analytics Tips & Tricks Tagged With: Cognos TM1, depreciation, enterprise performance management, enterprise planning, Financial Performance Management, FP&A, IBM Planning Analytics, TM1

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