Archive for the ‘Budgeting / Forecasting’ Category

Anaplan…& Implementing a Robust Forecasting Platform: Billings & Revenue

March 24th, 2017 Comments off

For the first few years at Cylance there was not a huge reliance on our forecasting platform and the need to put a pricey tool in place. There was simply no need to spend a six-figure amount when our business was still an entirely domestic story and the core revenue stream was still Professional Services. While we implemented NetSuite within our first few Quarters as a company, we opted for the NetSuite as our core platform so we could then bolt on additional modules as needed. We opted for their forecasting module almost immediately, but for a very basic forecasting function. As a Professional Services story, we only had a basic need to forecast gross labor hours, utilization rates, hourly cost rates, as well as estimated billing rates. At this point, we still did not have any consideration to Product revenue, and in the absence of, did not have any considerations for revenue recognition at that point. Considering that our Services revenue was not invoiced until completed, it was a very straightforward modeling exercise.

Fast forward to the launch of our Product offering and we knew it was going to necessitate a jump to a new platform as we were already starting to see some weakness in the NetSuite module. This new phase required an entirely different level of forecasting considerations for which there was no historical activity and for price points that had not been previously seen in the security sector. Would we actually realized, and stabilize, at a pricing level that would be many multiples over the incumbent first generation AV offerings. With consideration to the Product forecasting;

  • Average price per node on an annualized basis
  • Billings distribution by contract length…12, 24, and 36-months
  • Flexibility to easily adjust the anticipated weighting of billings
  • Subscription or Perpetual agreements (very few perpetual, but still present)
  • Robust deferred revenue modeling as a result of signed contracts
  • Sales staff hiring and assigned quotas.
  • Implementing any “seasonality” consideration into the model
  • Existing quotas, annualized growth, as well as ramp up period for new hires.
  • OEM, Consumer, and Government assumptions.
  • International entities & expected exchange rates for a consolidated USD view
  • Contra revenue accounts

It’s pretty easy to see that, even the short list above, there was going to be an entirely new level of complexity to our forecasting efforts, which could not be accommodated in our original module. After meeting with one of our key investors and discussing some of the options available, Anaplan seemed to emerge as a strong candidate and we made the decision to move forward. It was time to put a more robust tool in place as we started moving towards 9-figure revenue goals.  Even with the move to a new forecasting tool, we also had an entirely unique challenge as in developing a the components of this Forecast without a wealth of historical performance metrics. This meant that we would be constantly updating the Forecast as we compiled more Product transaction data. Fortunately for us, we saw a relative level of stability in our average PPN and our contract lengths. The two most difficult elements we had to work through during the implementation was the buildout of the deferred revenue forecast and the buildout of the revenue forecast that was supported by a detailed hiring plan and the assigned quotas for each one of those individuals. This was not going to be a simple spreadsheet exercised based on modifying a few cells and voila’…you have an annual number! The goal was to build a platform that would hold up to the scrutiny of our investors as well as easily identify & bridge any performance shortfalls that were realized versus planned.

In taking one example of where Anaplan excelled was in the modeling of our domestic revenues through the quotas that were assigned to each of our sales staff. While a painstaking exercise, there was an itemization of every existing sales staff, as well as those who were recently hired, or planned to be hired. There were individual quotas assigned to each one of these individuals. For those new hires, there were additional considerations to a ramp up period as they learned our tech, the inner workings of the Company, as well as seeding their existing network in their new employment. While these assumptions were usually conservative to reflect a few Quarters of nominal contribution, most were ramping extremely quickly. However, were we going to see the same level of immediate success as we scaled from a few dozen to sales staff to a multiple of that? That’s where we would have flexibility in Anaplan to adjust the model accordingly. From a billings and revenue modeling perspective, the only limits in Anaplan would be those that we placed on ourselves. However, we also had to be careful that the levels of planning detail we opted to incorporate would be important in the planning of the business and not turn into an exercise of planning paralysis.

The second painstaking, but worthwhile effort, was the buildout of the deferred revenue model. With the help of one of Anaplan’s premier implementation staff members, this was efficiently tackled and resulted in a clearly mapped Forecast that was easily trackable after any changes were made to new sales hires, quota modifications, or changes to average contract lengths. It was no longer the “black box” that we were challenged with on our prior platform. The additional benefit of the new Anaplan deferred revenue forecast is that it was easily audited and reviewed against the underlying assumptions. This would have played a pretty key role in our prior financing round in which there was a divide between the models presented by investors and our internal view…on the older platform. As one investor had noted during those efforts…”We’re familiar with that module and it is a bit of black box…”. A nice affirmation of our decision to move to Anaplan, but we were not yet fully deployed on Anaplan to supply the new view.

With respect to our choice to move to Anaplan, we also chose to work directly with the Anaplan implementation team as we wanted to keep our entire efforts and focus inside the Anaplan camp. I opted not to risk having a point of weakness between Anaplan and the efforts of a 3rd party reseller for implementation. It was a great decision and the Anaplan team was fantastic. In the end, the primary goal of moving to Anaplan was to be able to provide complete transparency to our investors, provide them the confidence that there was a robust set of underlying assumptions in the Forecast, and to allow for an intelligent dialogue on the integrity of the underlying Forecast. That once unbundled, it would be easy enough to see where any weakness might be occurring if there was a shortfall against Plan. We’ll jump into the cost of goods and operating expenses in the next round…

Thanks for reading.

Jeffrey Ishmael

You Didn’t Have To Provide A Plan To The Board?

January 20th, 2017 Comments off

BUDGETOne of the benefits and enjoyments I get from updating my blog are the questions that I typically received from people asking for certain clarifications. This comes as no surprise since the original intent of my blog was to bring a little more transparency into how the Finance department operates relative to every other functional area in the company and what might be driving the actions or decisions of the Finance department.
With that said, I received a follow-up yesterday on the update I wrote on planning within a hyper growth environment. One of the main messages in yesterday’s post was that you really can’t plan, or at least effectively, in a hyper growth environment. With that message I was asked how the Board would accept that an operating plan wouldn’t be presented to them for the year. I have to say I was a bit amused at the question, but completely understood why it was asked. Not to mention, the Board would never allow such a hall pass from any team. There is ALWAYS an operating plan that is highly thought out, detail oriented, and usually has a number of additional scenarios that will convey what the impacts will be to cash and profitability if targets are missed or exceeded. For ballpark references, you might have the base scenario, as well as a +20% and a (20%) view. For a more mature company these ranges will obviously be tightened up when you have a higher degree of predicability and more history to base the plan off of. When you’re really just a handful of Quarters into a trajectory, which you are anticipating to double, and the trajectory starts looking like a 6-8x, then you have an entirely different beast to deal with.
So how do you plan for such a scenario? Again, as I mentioned yesterday, you really don’t “plan” for it, but you react to it and adjust the allocation of resources to support that new growth trajectory. As with any business, you have key indicators you look to gauge the health of the business and whether you are tracking to achieve the commitment made to the Board. The elements below are certainly not all inclusive, but are merely a sampling of the items that could be watched when encounter a growth rate that is entirely unplanned.
Billings & Revenues: While this is the key driver on which all spending decisions are made, the total number is not the overriding driver. There’s further review that should be done on the quality of that revenue, what the concentration is, and whether there are any key areas that are potentially missing against Plan. In the case of Cylance, we were constantly watching what our price per endpoint (PPN) was at every level. What that PPN was at a macro level, a channel level, a vertical level, as well as what they were for the duration of a deal. Looking to this number would indicate what the true health of the business was. Was there a single customer that accounted for a disproportionate share of the Quarter business, which in turn, might prompt a tapping of the brakes to ensure that hiring and spend weren’t getting ahead of themselves relative to the Plan and a normalized trajectory. Prudence should always reign supreme.
Gross Margin. Definitely a key indicator, but it also depends on what the structure of the billings are and how the terms being written may be influencing GAAP-based reporting. For a situation where multi-year deals are being done, it might be best to look at early results on a non-GAAP basis if a disproportionate amount of the activity is headed for the balance sheet as deferred income.
Headcount. For me, this was one of the key indicators as it related to our burn and this is certainly not just a single macro number, but a more complex element to dive into. First, what is the overall cost per head and what is the trend line on that figure? Are you’re costs per head staying constant or are you seeing an increase in that number, which might be tied to incentive plans that aren’t aligned with results, increasing benefit costs, or all of the above? Second, what are the average billings and revenues per employee? While the overall headcount might be increasing, this number should also be increasing with the results that are being achieved in excess of plan. It’s not a problem increasing headcount over the Plan, so long are you are seeing the achievement or increase in this planned metric. Third, what is the distribution of the headcount by functional area? Did the original Plan call for 12% within the Marketing area and now the revised number puts Marketing at 18% of the headcount? Is there a disproportionate growth in any one area because that functional area has successfully lobbied for additional staff that is not consistent with industry norms?
Facilities. This area is obviously heavily influenced by the increased headcount that is occurring to accommodate the unplanned growth. If historically Rent expense has been 2% of your operating expenses then this is the approximate metric that needs to be followed in order to stay consistent with the Plan. If you’re exceeding Plan and need more staff then this number, while increasing on a constant dollar basis, should still remain at approximately 2%. As an example, you’re planning a $25M year, which would allow for approximately $500k in rent expense. If the new trajectory is now $100M, then theoretically you would have $2M to spend on rent to accommodate the additional headcount needed to support that growth. Ideally you also start achieving economies of scale where you can actually see that number go down as a percentage of spend. If you fail to miss you billings number, hire all the folks, commit to even more rent expense…then you’re going to find yourself in a bit of bind. It’s akin to “I’m going to get a big raise next year so I’m going to buy my second home and a new car for my wife and I…”. And when it doesn’t happen?
Systems. This is another area that needs to be heavily strategized and managed in a hyper growth environment. There will be unplanned upgrades that will necessitate spending in the $500k-$1M range that, while necessary for growth, were previously balked at due to their cost and the original trajectory you thought you would be on. You might have thought you had another year…or two…to bring them online, but now seeing a 6x freight train coming at you there is no other choice than to starting throwing a ton more coal on that fire and get up to speed.
Culture. We’ll discuss this in another post…or posts.
This barely scratches the surface of “planning” in a hyper growth environment. It’s more about regulating the health of the patient, making sure the vital signs are remaining healthy, keeping your finger on the pulse and knowing how to respond. It’s the doctor that has decades of experience, treats every patient the same, only to realize he has misdiagnosed the patient and either administered the wrong medications…or too many. It’s about collaborating with the broader team in making key assessments, discussing with the team their needs, and ensuring that the resources (MONEY) are properly allocated and within the range of the original Plan that was discussed.
Thanks for reading…

Jeffrey Ishmael

Employees, Facilities, & Systems In A Hyper Growth Environment…

January 19th, 2017 Comments off

IMG_0219     I’m really enjoying the conversations that I’m having with prospective new teams, as well as the vendors that I partnered with during the hyper growth phases at Cylance. The most predominant question is “how did you guys plan that out and accommodate the growth you did?”. Really, the level of success we achieved was not planned, at least not in the timeline that it was achieved in. From the outset, we had “modest” growth that still had us doubling our billings on an annual basis. We knew early on that we were going to have a relatively aggressive trajectory, but certainly not the hyper growth we were confronted with. While it has its blessings, it also tables an entirely unique set of challenges. Challenges on finding that appropriate balance in planning out employee growth, facility growth, as well as the systems you want to put in place…all with a focus on prudent spend knowing that the wrong decisions will result in unnecessary cash burn.
Employees. While we were extremely surgical in the original hiring, there were also unplanned surprises that increased our headcount, and thus our burn. Take for example the assumptions about our product and what we were anticipating relative to the ongoing support of our customers. Early on, the assumption was that our product would be entirely turnkey, that any deployments would be extremely rapid, and that the product would be easily integrated into any customers native environment. Well…not so fast. We quickly determined that we would indeed need a more robust customer support team, and one that was going to be more than just a few people. It was not a difficult decision to make as we knew this was the best decision for the customer and the best decision in support of our product and future success. We just needed to ensure that we moderated our spend in other others to accommodate the unplanned spend. As with some of our other spend, these were not black & white spreadsheet decisions and we worked through all the shades of grey as a team. Also early on we were aggressive in the buildout of our Sales Engineering team. This team was the technical complement to our Sales team and would be responsible for any pre-sale technical questions, proof of concepts, deployment issues, etc. As we started to close more business it was determined we needed a dedicated team just to handle the proof of concepts with prospective customers. Again, not in the plan, additional headcount, and thus, an increase in our cash burn. More conversation that thad to be addressed by the broader team and ensure that the metrics that we were operating under continued increasing in the face of rapid employee growth.
Facilities. When you start out in a living room on fold up tables you tend to maintain that same prudence planning and moving into new locations. We had early support for an investor with some temporary space. Following that, it was then a big commitment for us to assume a five year lease on a 12k square foot space when we still had barely secured our first Services customer. Even more surprising was outgrowing that space in less than two years. The other three years? We had always negotiated great leases so we had no problems maintaining cash flow neutrality when we subleased that space and moved into a new 16k square foot space, but with the opportunity to expand to additional floors within the same building. Imagine our surprise when we realized that in less than a year we were going to be out of space due to a dramatic increase in bookings after we signed the lease. We then renewed our relationship with The Irvine Company to lease additional space in an adjacent building and could easily expand to additional floors. As with our earlier leases, we always ensured we had negotiated leases that we could sublease if necessary if there were any unplanned corrections to the business that had us with excess capacity. However, it wasn’t excess capacity that was the issue, but a lack of. As I had successfully worked with other companies in a campus type environment, we started leasing vacant space in adjoining buildings to accommodate the rapid growth. There was little cap ex for buildout and we had exceptional flexibility. Even as we started to occupy a significant amount of space in prominent high rise buildings adjacent to the airport, while also securing prominent building top signage, we were able to keep our facility expense to less than two percent of our total operating expenses. Building top signage on two buildings that would essentially create the Cylance corridor near the airport.
Systems. As I was handed a laptop with Quickbooks on my first day i knew that this would not be our platform moving forward and quickly looked at what we might deploy that would carry us out over the next 2-3 years…or more. It was determined that Netsuite would be the platform and we could add additional modules as we grew and our needs changed. Whether commissions, deferred revenue, fixed assets, or multi-currency, Netsuite provided an economical platform that was widely adopted and could scale. I had just completed an SAP implementation and it was clear that we didn’t need to go in the direction of Oracle or SAP, both from a complexity, as well as a cost perspective. There were also some other great platforms that we had looked at early on. As an example, we had looked at Domo as a candidate for our dashboard platform. However, at a full implementation cost approaching six figures it just didn’t make sense early on as we had very little to report on in a pre-revenue capacity. A great platform, but not for the nominal amount of financial data we were compiling. Fast forward to a year of accumulated product bookings, pipeline data, channel data, etc. and we were properly positioned to take advantage of it, which we did. As we also started to push towards employee growth of almost 500 we knew that the HR & Payroll module in Netsuite was not going to be robust enough for what we needed and determined that Workday would be the appropriate platform as the company started scaling towards a headcount in the thousands. A year prior and headcount of barely 120 there was certainly no reason to spend high six figures to license and implement Workday. However, a year later and employee count approaching 500 it became a much easier discussion to have.
So how do you plan for employees, facilities, and systems in a hyper growth trajectory? You really don’t. There is no Board meeting that your going to roll into and legitimately say your going to go from $10M to $100M in the next year…not unless you’re going to sedate them and move quickly through that slide. However, you do put the systems and decisions in place that will give you the most flexibility to continue altering your course without having to look back with the realization that you’ve incurred a significant amount of sunk costs that really didn’t deliver any value or provide you with future flexibility. Decisions have to be made in tandem with the broader team, the key vendors that you’ve established relationships with, as well as the input of the Board and key advisors. It’s a heck of a ride and one your not going to be discussing in B-schoool…although look for a Cylance case study in the future!
Thanks for reading…
Jeffrey Ishmael

Life In The Start-Up Lane: When “Standards” Keep Changing…

September 25th, 2013 Comments off

As I’ve mentioned in some of my prior posts, whether it’s just another day in Finance or within the life of a start-up, there is no normal day. Take that a step further and you’ll likely find that there is no level of “normal” reporting that you can rely on to measure what is happening with the business.  At least not the “standard” level of reporting that you would have relied on at a prior company, which was likely much larger and more mature. As we are about to kick-off our sixth fiscal Quarter, the reporting that we relied on two Quarters ago is far different than what we are using now, and what I expect to be using in another few Quarters.

Part of the challenge within a start-up is balancing the integration of new systems while developing the rest of the business. This is not a sequential sequence of events, but a series that run parallel, often forcing business decisions based on experience and gut instinct. This is probably where I highly value the time that I spent in equity research covering 20 different retail and apparel companies. Monthly comp sales unleashed a flurry of data that had to be quickly assessed, reported on, and subsequently disseminated to clients. It had to add value, and above all, it HAD to be correct. Making business decisions in the absence of data, or at least incomplete data, is a very uncomfortable position for most folks.

So how do you measure the business when the standards are constantly changing? The absence of standards is not indicative of an absence of accountability or transparency, but part of the evolution that naturally occurs within a start-up. Yes, there is a Budget that is developed and based on certain assumptions, but it’s not long before that Budget becomes a distant reference point as you begin compiling data and assessing the potential trends that are developing within the business. However, one to two Quarters of data certainly is not a “trend” within a start-up, but it sure helps in refining the assumptions used in the Forecast. As with our business, while we are cognizant of the metrics that we will ultimately be using to measure our performance, some of those metrics are simply meaningless at this point since the business is still young and there isn’t enough data yet collected. That doesn’t mean that we’re not tracking our bookings, revenues, margins, and other macro indicators, but the detailed view is in a bit of a holding pattern at the macro level until we can drop down to the next level for more meaningful reporting.

As our business continues to grow and prosper, I absolutely expect a fundamental shift in our reporting abilities as we collect more data. We’ll move from the “spirit” of building the business to “fine tuning” the engine and driving increased performance through the data distributed to our key internal stakeholders. In these early stages of a start-up, it’s a delicate balance between giving the teams the latitude they need in developing the business, tracking their activities to the Budget, and determining whether their invested time and expenses will deliver an ROI in the immediate future. In the initial phases, that ROI may come in the form of customer satisfaction, referrals for new projects, potential new hires, and if all are executed properly….bottom line profitability.

Living the day-to-day life of a start-up is not the black & white mechanical structure most are used to working under. It necessitates the development of comfort in change and knowing that will be the case for quite some time. However, at the end of day, just take a step back, look at the evolution of your bottom line results, the trend in customer engagements, customer feedback….and you’ll know exactly how well you’re performing.

Thanks for reading…

Jeffrey Ishmael

A Squandering of Brand Value: Developing A Case Study…

April 22nd, 2013 Comments off

In my last entry I mentioned that I would be running a series that would break down the elements of how brand value is can be so easily squandered when mixed into a larger corporate portfolio, or under the watch of an executive team lacking the proper motivation. This is obviously a pretty complex issue and can’t be contained in a single blog entry, which is why I have chosen to take the approach of outlining the issue in a series of entries. Keep in mind, that while my approach might be directed at an entity that rolls up into a corporate parent, it can easily apply to a stand-alone entity. My experience in seeing brands fail to reach their true potential has typically been linked to a corporate parent. Ultimately, it’s an inequality of brand level performance, a lack of consistent accountability, a lack of proper resource allocation, as well as a highly political environment.

The walk we will go through on this case study will be a top down overview of the company’s P&L. Starting with revenue, progressing down through cost management, expense management, and ultimately addressing key issues such as personnel, accountability, and communication.  A company and its employees can always work through certain levels of resistance. Resistance is a natural part of the growth process. However, when each one of these potential resistance levels are compounded on each other it develops into a strong headwind where forward progress is minimal and the amount of energy needed to overcome ends up becoming, in some cases, more than the team can tolerate and key team members opt out. It’s not the hard work that turns them off, but the extreme efforts and frustration it takes for small incremental gains. Gains that could be much larger in the face of a cohesive effort and proper support.

In particular, we’ll dive into the following areas;

  • Corporate Influence. Are the brands financial goals clear and aligned with the expectations of corporate? Are the resources being deployed enough to support the achievement of those goals? Will the brand goals remain unchanged in the event of under performance by another brand or division?
  • Revenues. Is there a defined revenue plan in place that has been developed in the spirit of longer term sustainable and healthy growth for the brand? Is the brand constantly being challenged with pushing last-minute & unplanned revenue to offset a lack of performance by another brand or division. Is the revenue plan supported by the proper product initiatives and investment to see the plan realized? Is the revenue plan properly detailed by channel, product line, key customers, or similar detail? Macro level plans are only hope in disguise.
  • Cost Management. Are the projected margins for the product offerings, as well as the channel strategies, aligned with the expected outcome? Do you have the proper contingencies in place should there be a disruption in costs or supply chain? Are suppliers being paid as negotiated by corporate or are late payments affecting what might potentially be the optimum product costing?
  • Inventory Management. Is the brand being given the latitude to make the proper inventory investments to fund the planned growth? Are inventory resources constrained due to the lack of performance by another brand or division? Are you managing the brands inventory levels so as to maximize margin performance, avoid potential brand dilution in the market, as well as optimize cash flows?
  • Expense Management. What is the trend of operating expenses for the brand relative to historicals, as well as against expectations for the current plan? Is the brand continually seeing an improvement as a percentage of revenues or do they continue to grow disproportionately? Are you being denied the proper resources by corporate in order to offset non-performance by other brands or divisions? Do you have the proper staffing to execute on the original plan? Is a current lack of proper headcount creating risk that may not be seen for a few more Quarters but is allowing corporate to show more favorable results in the current results?
  • Quality of staffing and accountability.  Is the brand employing the right talent to deliver on what the brand has promised to corporate? Is the brand being given the latitude by corporate to execute on the plan that was delivered, and possible communicated in a public manner, or was it an exercise in futility? Are the levels of accountability the same across all brands or divisions? Does the same commitment to top talent extend across all brands or divisions or do results tend to be overlooked in favor of tenure? Is there a consistent level of communication across the brand relative to goals, progress, and commending the team for what has been accomplished?

Each one of these areas will be looked at in more detail. What is interesting to watch unfold is how each of these areas, even by themselves, can have a material impact on profitability. Take a combination of these and you then see how the effect is millions of dollars that are lost throughout the year. Not lost in a theoretical sense, but realistically lost and are NEVER regained. It’s not just the potential loss that might happen over a few Quarters, but that loss combined with the opportunity cost in the time spent rebuilding. Add to this the loss of key players who leave to align themselves with better performance and you lose some of that core brand knowledge that is so critical for the rebuild.

Thanks for reading…

Jeffrey Ishmael

Sales Forecasting Is Not A Sunday Night “Discipline”…

January 30th, 2013 Comments off

It really doesn’t matter what industry you might be used to working in as a Finance professional, there always seems to be a common set of “battles” that are waged within a company. I use the term battle very loosely, but I’m really referring to the persistent collection of information by Finance so as to further our efforts and reporting capabilities.

Since there’s really not a Finance clock that dictates when I need to update my Forecast, I’ve always rolled with the timing that has been set by the Sales department. After all, the update of a Sales Forecast is their meeting and not mine. I just happen to be along for the ride. As I have always approached a Forecast, I have constantly preached the approach of being intimately involved in the business and not allowing the Forecast to be a spreadsheet exercise based on some narrowly assigned variable calculations. It needs to be based on the “beat of the street”…if you will, the heartbeat of what is actually happening. Don’t get me wrong, many times, the Forecast is a top down number that has to…or must…be achieved for the Company. However, there is the area where the two need to meet. Whether that’s in the middle of the Quarter or the end, promises have to be delivered on and results achieved.

Fast forward to the Sales Forecast meeting. I LOVE this meeting! This is where the rubber meets the road every week and you hear about all the fantastic things going on…or perhaps you don’t. For me, this is not the place to be surprised. This is the meeting, where if there is an issue, it has already been tabled in advance, and the meeting might be used to rally the troops for a solution, or in a worst case, a revision of the Forecast. I strive for not allowing the latter. I have always strived, and typically accomplished, an extremely low level of variability to a Forecast.  However, this can only be accomplished if you have good information. Information that is filtered to you on a daily basis. Information, that when constantly streaming from your Sales team, is an affirmation of the Forecast in place, or a signal to potentially make adjustments in future Quarters. With this approach in mind, forecasting is not just a Sunday night exercise for the Sales team or Finance. It’s a collaborative exercise that needs to happen daily. For me, discussing the sales pipeline is like watching my heartrate or wattage output on a training ride. It’s an indicator of whether performance is sub-par or if you’re coming in hot and need to bring in additional support.

You can’t gauge your progress with a once per week check-in. You can’t measure the discipline that is truly in place when there is only a once per week check-in. You can’t truly measure the passion of your team with a once per week check-in. This should also not be misinterpreted as extreme micro management either. At its most basic level, this is just as simple as constant communication between a Sales team and the Finance group. What’s your cadence?

Thanks for reading…

Jeffrey Ishmael

What Are The True Symptoms? – Part 2

December 17th, 2012 Comments off

As I mentioned in my last post, I had the enjoyment of sitting down with my sister to help her through a hypothetical hospital P&L walk. Although her interest in the subject was forced due to a Hospital Finance course she was being forced to take, it was still enjoyable to walk her through what I do on a daily basis. As with any P&L, we started at the topline and discussed revenues, or in her case, the billings a hospital would recognize in their delivery of services. I explained to her that the hospital will assemble a Budget based on certain historical trends that would likely include patient volume, service offerings, anticipated growth/decline in the surrounding community, and other similar factors. That the actual billings would be tracked against these figures and any changes would be reflected as a variance. We discussed the possibilities that might significantly affect the billings of a hospital, which might include natural disasters, significant weather impacts, major accidents (airline), or possibly a viral outbreak. While these might seem extreme, they are examples of what could drive variances in a hospital’s P&L.

We kept the walk very simple and segregated only between billings and the operating expenses of the hospital. With that in mind, we started discussing some of the common elements to a hospital P&L. The biggest factor in this portion of the walk being labor. We discussed how a hospital, based on historical activities, would likely set up a labor matrix for the staffing of the hospital, and what the effects would be if admittance rates drastically increased or decreased, and the subsequent variances this would cause. She started to see the pattern here and started drawing similar analogies to the use of supplies, as well as what the effects would be if inferior supplies were used….& the potential liabilities this would create for the hospital. I could sense that her grasp of the subject was taking hold and she was actually becoming enthused about the topic.

As we walked through a number of the other P&L elements she actually commented that I seem to have a pretty interesting job. I told her that the biggest key to executing on the original Budget, and the ability to address changing market conditions, was ongoing communication & transparency with the staff. It’s the job of the Finance department to provide the proper level of transparency and help keep the team informed and educated on the results being achieved. It’s the obligation of Finance to communicate with the rest of the staff, and as I advised my sister, it’s critical to understand what the true symptoms are of the variances that are being presented.

Thanks for reading…

Jeffrey Ishmael

Are You Striving For Improvement or Optimization?

July 16th, 2012 Comments off

     As my prior colleagues can attest, my pursuit of improved financial performance has never been focused on our results versus a prior year, or even a competitor, but in striving for the optimal position for our business relative to our goals. While I will always report our position relative to a Budget and the promises made to key stakeholders, we know Budgets are a static view in the midst of market dynamics that are constantly changing. Improvement in an of itself can very often be characterized as mediocrity, while a sincere drive for optimization implies a focused drive on pursuing the highest caliber of result. You might say that’s a rather general statement so let’s put this in a more specific context.

     Let’s take one of the more significant categories relative to working capital management…Inventory. Let’s make the assumption that a company is growing at 15% and has determined that there is a goal to keep inventory growth to no more than 5%. In this situation, you’re essentially going to realize a higher velocity on that inventory, thus a lower amount of inventory days on hand, and theoretically, a more “optimal” position. Right? Not necessarily. You reach the end of the year, pat yourself on the back for achieving the revenue growth and keeping inventory growth to only 4%. Hitting your goals doesn’t imply that you’ve achieved an optimal position. It could easily be the contrary.

     Have you taken the time to run a more detailed analysis of your revenue stream, what those trends are in the most recent 4-8 Quarters, and how that compares to the anticipated growth in the coming year? Have you taken the time to run a more detailed analysis of your on-hand inventory relative to the revenue statistics to ensure that you have an appropriate pairing between the two? What’s even more challenging is to add the complexity of multiple seasons, product categories, demographics, or even regional elements, and you have a very challenging situation to manage.

     This is the analysis that is so critical when it comes to not only the management of working capital, but the management of resources throughout the entire organization. Whether you’re the CFO, CEO, or the Director of a key functional area, have you taken the time to analyze how headcount or marketing resources are allocated throughout the company? During my time with MGE, this would have been a question for not just our own operating division, but a question that Schneider Electric would have been tabling across all their brand divisions. These are the tough questions that need to be pursued when you’re really striving for optimized results.

Thanks for reading…

Jeffrey Ishmael

S&OP, Inventory Levels, A/O, & Your Forecast….

October 29th, 2009 Comments off

            Lately we’ve started getting back into the heart of the earnings season and the scheduling of Quarterly calls to discuss results. With a keen focus on the Retail and Apparel sector, it’s been interesting to hear the shift in planning for many of the manufacturers.  Whether right or wrong, I’m hearing a consistency in the approach that we are taking, at my own company, relative to our peers in the industry. There’s clearly been a shift towards tightening the gap between inventory planning commitments relative to the PO commitment on the part of customers. With a decrease in PO commitment by customers, their shift to a reliance on A/O for the Holidays, how’s a manufacturer to plan if retailers are planning flat growth but PO submissions are noticeably down?


            Although this was not the quandary we were dealt at MGE, we had other significant challenges that forced us to implement a comprehensive Sales & Operation Planning initiative aimed at improving our supply chain, our demand & supply planning, as well as develop the indicators that would be used in the future to measure our success. For MGE, we were fortunate enough to have a team that believed in the potential of the initiative, but the support & involvement of our global executive team (ok…mandate) in the process. It was also a huge undertaking for our company due to the necessary personnel that needed to be involved. The scope of the project was truly impressive.


            However, most fail to appreciate the scope of such a process. “Oh…interesting – a new Sales & Operation Planning process. That must be some work….” Now there’s a simplistic view.


Let’s really break down what our S&OP process entailed:

Ø  Necessary involvement on the part of Sales & Marketing, Manufacturing, Product Design, Finance, and Planning & Logistics.

Ø  Development of Weekly, Monthly, and Quarterly planning schedules for all key areas.

Ø  Dissecting planning down to the levels of Lines of Business, Product Segment, Product Families, SKU’s, etc.

Ø  Identifying all the key variables that would affect the process, which included raw material lead times, manufacture lead times, freight times to key markets, processing times at destination port, etc.

You can quickly see that this is an incredibly involved and detailed process that will affect every area of the organization. This is not merely a Purchasing or Finance function, it’s an organization endeavor.


            When discussing a targeted improvement in your working capital, this process touches just about every portion. Let’s really break this process down:

Ø  The company engages in a data gathering process and determines the depth/detail of the reporting they want considering in their decision making.

Ø  All collected data will be used for the Demand Planning stage analyzing sales data, production data, and any other KPI’s or metrics currently in place.

Ø  All the data compiled and analyzed in the demand planning phase will be utilized in the Supply Planning stage. The need here will be to take into account any constraints in capacity analysis, the supply of existing product lines, introduction of new lines, and the review of factor supply plans.

Ø  The effort put forth in the supply planning phase will lead to a Preliminary S&OP Review, which essentially will be a nearly final supply plan, distribution plan, and the resulting financial plan.

Ø  The final stage is the Executive Review, in which the management team is reviewing the expected performance analysis, assessing the necessary investment decisions, resolving any potential conflicts, and escalating any necessary portions of the plan. At this stage, the Executive Team is expected to provided the necessary approval and support to execute.


            Need to cut your inventory levels a bit? Need to get a quicker delivery of your product? Need better terms from your vendors? All achievable with a rather simplistic approach. However, if you are truly working with a global entity with a complex design, manufacture, and distribution model, a half-ass piece meal approach isn’t going to work, nor will it give you the long-term sustainable advantage needed to get to the next level. If you want to create a truly competitive advantage then the effort needs to reach across the entire organization.


Thanks for reading . . . .


Jeffrey Ishmael

Creating & Communicating a Financial Mission….

October 13th, 2009 Comments off

            Yesterday I was speaking with some peers that work in the same industry that Osiris is in and we touched on the topic of the difficulty of developing and communicating a financial vision & strategy for a company where this element was noticeably absent, or weak. Part of the concern was that their organization had a deep-rooted history of success, but in the more recent Quarters, was not performing to historical standards and the company really needed to implement more in-depth reporting to support a new level of decision making in the organization. How do you implement such a critical new element in the face of strong personalities and individuals who are not accustomed to being second guessed?

            Great question….and not to mention, quite the dilemma. For whatever reason, I’ve become the go-to guy for these projects in previous organizations, and the reason for which I was brought into my current company. As was discussed yesterday, there are the strict standards that have to be communicated in the reporting of a company’s financials, however, there are multitudes of gray when communicating with the different functional areas when qualifying the results or developing the Budget for the coming season.  Every company is going to have their “Rock Stars” within each of the function areas. Whether this is Sales, Marketing, Engineering, or R&D, it’s imperative to know what motivates and drives each one of these respective groups. It’s important to know if they really understand how their areas impact the financial results of the company. It’s absolutely imperative that they are engaged in a collaborative way to share information, to educate them about how their actions affect the financial results, as well as understanding what they need to accomplish their departmental goals.


Ø  Have they previously worked in a very narrow scope / silo-type organization without any accountability?

Ø  Has there previously been a collaborative approach in the development and sharing of company financial information?

Ø  Are the employees clear about what the financial goals are for the organization? Is there a financial mission that has been communicated?

Ø  Are there metrics in place so that employees can see the progress being made and that their efforts to partner with Finance are producing results?

Ø  Is your approach to working with other departments viewed as a burden with more work to prepare or are you viewed as a support structure providing a valuable resource?

Ø  Are you capable of developing a level of reporting and metrics that will satisfy the reporting needs of the company?


            The considerations are endless, but it all comes down to the basic element of communication and knowing how to adjust your message and mission to the different functional areas that you need to deal with.  There’s also the need to know that there is an acceptable pace of change and that change is not going to happen overnight. However, the change does need to happen and it needs to be tracked to ensure that forward progress is being achieved. You also need to ask yourself if you have the experience and skillset to quickly assess the environment and needs of the company in the development of the mission. For a company that has a multitude of  “Rock Stars”, the need to establish credibility is critical and must happen quickly.  No doubt a challenge, but always a worthwhile challenge to take on….


Thanks for reading . . . .


Jeffrey Ishmael