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When financial forecasting stakes are high, analytics can help

An Anaplan software user shows how SaaS CPM modeling offers finer control over complex projects that could wreak havoc on your bottom line.

The line between financial reporting, budgeting and forecasting technologies isn't always clear, especially with so many vendors offering software to manage all three functions, sometimes in the same comprehensive package. A recent discussion I had with a CFO who uses cloud-based financial planning and modeling software from Anaplan helped bring this complex market into clearer focus while illustrating why corporate performance management (CPM) works best when finance has a clear view into daily operations.

David EssexDavid Essex

Everett Truitt is CFO of Worldwide Clinical Trials (WCT), a contract research organization (CRO) that manages product testing and development strategies for drug companies. The company is like an Accenture -- an outsourcing and consulting firm -- for clinical trials, Truitt explained, and it makes most of its money from sending 1,000-plus employees out to the field -- in nearly 60 countries. Each trial is essentially a giant project and managed as such, with a budget of several million dollars and complex timelines that typically last about three years.

With so much at stake in so many projects, Truitt must keep a close eye on costs to prevent them from eating up WCT's profits. "We need to know precisely how long our backlog is," he said. Being overcommitted in too many projects can send a CRO quickly into the red if it doesn't have offsetting revenue coming in from current or prospective projects. "That's dangerous for operating margins if we don't have good foresight into our resource requirements."

By their nature, CROs are subject to drastic swings in the profitability of any given project. That means it's important to keep close tabs on daily developments without losing sight of the long view, according to Truitt. "If you miss something, you might not know it for months and months. What's really critical is to understand when we're giving people the resources and what kinds of resources we're giving to people in what countries," he said. "It's multivariant." A $10 million trial could take place simultaneously in five countries (and therefore five different currencies), with 200 major tasks per project.

Anaplan has given WCT the ability to predict its resource needs without getting lost in all the details, according to Truitt. "We have all of our backlog in Anaplan. To say it's mission-critical is a bit of an understatement."

Giant spreadsheet in the sky

To get "perfect clarity" into projects, WCT imported the data from hundreds of Microsoft Excel spreadsheets into Anaplan, creating a giant model that's "north of 18 million cells," Truitt said.

Reports extracted from Anaplan provide WCT with all the information it needs, but Excel hasn't gone away entirely. Some Anaplan data gets exported back to Excel for ad hoc analysis because the spreadsheet is "still so familiar," he said. Anaplan itself has an Excel-like user interface. "The difference is having the data in one place, having it be easy and being able to do reports."

The real analytical power comes when Truitt uses Anaplan to compare forecasts and budgets, spot a variance and zero in on the resource that's causing it. The software is particularly good at stripping out "normal noise" so analysts can concentrate on meaningful variances, such as revenue spikes that are not just anomalies but trustworthy signals of when it's time to hire more people. The software also helps keep track of employee skills so people can be deployed to countries right when they need to be, which minimizes the need for expensive contractors.

To reach this stage of data consolidation and analytics, WCT first had to get its ERP setup in order. "The company did not have one standard accounting system when we started," Truitt said, and corporate acquisitions only complicated things. "Once you acquire a business, by definition you've got data integration needs. We struggled mightily for two to five years."

The company didn't even consider large ERP systems from SAP and Oracle, opting instead for Microsoft Dynamics GP, the former Great Plains package. "You're just asking for failure if you try to implement something that big and complex," he said.

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Despite using Anaplan primarily for budgeting and forecasting, WCT also uses it for straight financial reporting. "The investment time horizon for a private equity-backed company is not infinite," Truitt said. "[Investors] need to exit in a reasonable period of time," which results in financial reporting requirements that are around 85% those of a public company. The monthly financial close is now finished in four hours instead of the three days it used to take, much of it correcting errors.

Truitt hopes to bring more operational metrics, such as time management data, into Anaplan so WCT operations can use it to manage their part of the business. It could, for example, help project managers get a better handle on out-of-scope work, which is either a potential money maker or a profit killer, depending on how it's addressed. "If you spend 10% more time, that could be half your profitability on a project," Truitt said. Managers could use Anaplan to analyze such developments and decide whether to pull out of a project.

Conversely, the same analytical ability could help in negotiations with customers. If WCT could give them early warning that a forecast is wrong, it might gain leverage to suggest a change order that can bring in more revenue than projected. "That's how it is with clinical trials," Truitt said. "You can't be precise with how long it's going to take to perform a task."

Anaplan already provides some of the data Truitt needs to spot such opportunities. "I get a report that says, 'Here's your 10 biggest projects with the biggest number of change orders,'" Truitt said.

In-memory analytics for agile EPM

Anaplan is getting a reputation for using Software as a Service delivery to get sophisticated modeling tools into the hands of business users and push the enterprise performance management (EPM) promise of comprehensive planning closer to reality. "We've got finance people talking to operations, and we've got operations people talking to finance," CEO Fred Laluyaux said in an interview last spring.

The company has a strong pedigree. Until mid-2012, Laluyaux had senior roles in SAP's governance, risk and compliance, and EPM efforts. Chief architect Michael Gould had arrived earlier from IBM's Cognos division to spend three years developing HyperBlock, an in-memory technology that purportedly lets Anaplan build models quickly. The company has high-profile customers, including Pandora, Whole Foods and Hewlett-Packard's sales department, which uses Anaplan for territory and quota management. McAfee, the antivirus maker, uses it for similar purposes.

Laluyaux claims Anaplan breaks the mold of analytical models that take years to build, in part by using Agile development methods to do it faster than the "old stuff," such as the mostly on-premises CPM suites Oracle Hyperion and IBM Cognos TM1. By integrating with major ERP systems, Laluyaux said his software can crunch the transactional data needed for a complete picture of operations.

Truitt, who considers himself a typical, Type A CFO and works 80 to 100 hours a week, just seems happy that everything is working correctly. "I don't really care about the limitations of our [accounting] system. Regardless of what those limitations are, I have to deliver something."

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