Posts Tagged ‘Forecast’

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

Best Of Class Forecasting & The Eternal Struggle…

March 16th, 2017 Comments off

There’s few corporate topics that elicit the levels of frustration and confrontation that budgeting will create amongst teams. Unlike the amusing skirmishes that we’re watching at a government level right now, you’d think that this exercise at a corporate level, when there is only company performance to address and the absence of “political parties”, that this would be a straightforward process. Well this certainly couldn’t be farther from the truth as we all know. Over the next few posts I’ll be diving into not only the process and pain that most companies will go through, but an overview of the budgeting platforms I have worked on and the considerations for each.  While some of my views might seem matter of fact to my finance colleagues, my posts are always intended to provide insights for the rest of the organization when their having to deal with what is typically that “black box” department called Finance.

In the most optimal situation, the compilation of a Budget represents the collaborative process that should involve all the functional areas of an organization. This collaboration in the end will yield a Budget that all individuals are supportive of and will ultimately drive future accountability in delivering results that achieve the commitment made to the Board. In the worst situation, and one that will ultimately result in a broken process at every level, are goals that are mandated at the top level and each functional area is forced to determine what path it will take to get to the end goal, regardless of how reasonable the goals might seem. Ultimately, these goals are not fully supported by the team, will not be met over time, will yield resentment, as well as create unnecessary levels of conflict amongst the team as they resources become scarce in the absence of results and fingers are pointed in every direction as goals that were never their own are missed. These are absolute extremes, and in most cases, the majority of corporate budgeting efforts fall somewhere in between and need to be navigated through effective communications, compromise, and support.

What is important to keep in mind, at least with consideration to what the Finance department is managing, is all the elements that they’re compiling and that the budgeting process is really a mechanical process…there is no emotion involved in this process. Even though it will prompt emotional responses across functional areas, it’s really mechanical for the Finance team. With that in mind, it’s also worth understanding what the endless data points are that are having to be compiled for the Budget. I’ve worked in smaller $30M turnarounds that have a relatively small product offering and limited international distribution….to much larger entities such as DC Shoes / Quiksilver, as well as MGE, which then reported on a consolidated basis to Schneider Electric. The latter organizations had extremely complex budgeting practices that had been decades in the making, involved consolidations with dozens of international entities, while also having to balance both GAAP and IFRS reporting. Not only were there challenges with international consolidations, but there were countless other elements to work into the planning process, which included…

  • Establishment of company codes depending on subsidiary considerations.
  • Delineation between the multiple sales organizations
  • Considerations to the multiple distribution channels that were at play
  • Breakdown between customer types
  • Inventory segregation
  • Product segregation to allow further performance reporting
  • Seasonal considerations, which in apparel, likely meant 4-5 seasons annually
  • Demographic segregation…Men, Women, Youth, etc.
  • Product categories…Bottoms, Tops, etc.
  • Fabric segregation…Denim, etc.

It’s easy to see with the list above why the Budget process is a very mechanical process and NEEDS to be absent of any emotion in the process. It’s also easy to see with the list above that the process also needs to be a collaborative one with EVERY functional area to ensure success in the process and an end budget product that is supported an endorsed by the team.

With some relief, it was a much simpler budgeting process at Cylance as we were still a primarily domestic story with Protect being the main product offering. We ran a separate P&L for the Services business as that was a strategic part of the organization, but we also had to ensure that the Services team was operating in a profitable manner. Services was an incredibly profitable business at MGE and there was no reason it shouldn’t be at Cylance and we had the reporting enabled to be able to track whether that was the case. While there was still some developing international business, it was going to be a fairly small percentage of our overall results, at least over the next 12-24 months while the domestic business was still going to be the main growth vehicle. Did we need to plan at a regional level and monitor the spend…absolutely. However, for the stage that Cylance was at, and for the foreseeable future, there was no reason to complicate the process and create a ton of busy work to keep Finance busy and engaged. There was no reason to build a P&L based on hundreds of departments or cost centers that was more akin to what was necessary at a $40B Schneider organization. As with manufacturing, and other supply chain philosophies, lean P&L management in early stages leads to a very straightforward process, one that does not require extensive interpretation, and ultimately leads to a clear & concise path that was developed by the team, is supported by the team, and is easily navigated by all constituents.

So how do we bridge the gap between supporting the teams with what they need, effectively consolidating and considering their feedback, and the platform that is utilized to bring it all together and present the detailed view to the Board? That’s what we’ll dive into over the next few posts and jump into some of the key areas of the P&L. The common theme that I’ve always carried over the years, is that the success of an organization is tied to the collaborative approach and one that considers and respects the feedback of the team. Ultimately it’s the team, or the CEO, that is presenting the Budget to the Board. A Budget that is expected to be delivered on and achieved. It should be a safe assumption that the Budget is the product of an entire team collaboration and one the team is committed to rather than being dragged along for the ride. I’ve had to endure every situation, but without a doubt, I’ll always side with collaboration…

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

It’s December & the Budget isn’t finalized…?

December 10th, 2008 Comments off

Needless to say the last month has been extremely hectic trying to reengineer the financials of a new company, as well as trying to finalize the 2009 Budget. While it’s kept me from regular updates on the blog, it’s been a great exercise in a truly unique economic environment. As of now, I am looking to present the final 2009 Budget to the Board next week for approval. If this was any of the prior years I had gone through the budgeting process I would have been infuriated if the Budget had not been completed by the beginning of Q4, but then again, this is no ordinary year.

Considering that we are focused within the Retail / Apparel sector, we have obviously been closely watching the retail comp results of the last quarter and trying to anticipate the impact to our own business. Fortunately, one of our larger customers, Journeys, has been posting positive retail comps, which has been a bright spot in the Genesco portfolio. However, others have not been so fortunate. We also distribute product through the “Core” channel, which is primarily comprised of “Mom & Pop” shops, which have exhibited some surprising resiliency over the last half-year. Clearly, this holiday season will be the true test for them. Regardless, we have ended up using every bit of time in this calendar year so that we can finalize and commit to a 2009 Budget that is as accurate as possible and not having to explain obvious variances for the remainder of the year.

One of the more challenging fronts has been the International side where we distribute product through more than 45 countries and negotiate our transactions in both the U.S. Dollar and Euro. For our Euro accounts, although we have had discussions with some of our customers about decreased purchasing power and weakened markets, those customers have also shown surprising resiliency. However, for those subject to exchange rates based on their native currency, there’s a different story. We’ve seen decreases of any where from 25% in the U.K., to 40% in Australia, and outright currency freezes in a number of other countries. Will the currency situation reverse as the oil situation did from its highs this year? Hard to say, but at this point we’re planning for an “As-Is” scenario.

So as we move into the final weeks of 2008 and prepare the final Budget for submission to the Board, I’ve been able to effectively incorporate the conditions currently reflected in our sector, which would not have been included were the Budget completed at the beginning of Q4. We’ve made changes to all aspects of the Budget and will be moving into 2009 with a degree of confidence knowing we’ve been able to reflect all aspects of the current environment. We’ve also had the luxury of being a smaller company and having the agility of moving quick to adapt to market conditions, which is much more difficult in a larger entity. So yes, it is December and only now is my Budget being finalized. When was your Budget completed? Are you going to spend the year explaining countless variances or have you been able to incorporate current market conditions?

Thanks for reading . . . .

Jeffrey Ishmael

Pending projects – September topics planned

August 29th, 2008 Comments off

Today is really turning into one of those days where it’s not quite coming together for a quality update and I’ve really tried to focus on Quality versus Quantity in my postings. Maybe it’s partly due to the looming holiday weekend & that its also been an incredibly busy week. Between a client project I’ve been working this week, as well as “meetings” with a number of other companies, recharging the batteries are key this weekend.

However, I have been thinking about all the topics I do want to address in the coming weeks. I’ve been trying to schedule more time to address these since I think they’ll be very interesting subjects to table. I really want to address points #2 and #3 since these have the potential to have far reaching implications in the conversion to IFRS. Some of what I had in mind:

1. Further breakdowns of the Sales & Operations Planning (S&OP) process and the development of a white paper on this topic.
2. Revenue recognition and the differences between IFRS and GAAP.
3. Fair Value reporting and the differences between IFRS and GAAP.
4. Overviews of the Budget/Forecast process as it relates to a traditional 4-quarter view versus the implementation of a rolling 5-quarter approach.
5. SEC reporting and the differing levels of transparency between companies in the same industry. (Not all 10-K’s are created equal….)

I also need to compile a few of my multiple updates into a single white paper, such as the Internal Audit thread. I’ve also created an account on SlideShare where I plan on posting some of my slide presentations. Looks like it’s going to be a busy month ahead…..

Thanks for reading . . . .

Finance 101 – what do the results really mean?

August 11th, 2008 Comments off

I have written a number of posts regarding questions such as “Who really owns the Budget?”, as well as speaking about my belief in developing collaborative cross-functional relationships to enhance the budgeting and forecasting efforts. It’s so easy to assume that key managers and directors should be clear about balance sheets and cash flow statements since they are always covered in even the most basic business and accounting classes, at the both undergrad and graduate level. Naturally, everyone should know the interaction between these two….right?

While I have successfully created these cross-functional relationships and have been able to have these same managers & directors embrace their budgeting efforts, they are typically not clear about the relationships between the three main financial statements. For most, the absolute bottom line question is whether we are profitable as a company. No question that this is key, but profitability does not always ensure that the company has the resources it needs to support the growth it might be experiencing. For the most basic example, lets assume a $100 million revenue company is growing at a modest 15% and produces net income of 7% per year. This gives the company, without incurring any additional debt, $7 million additional current capital to support the 15% increase.

    But what are the additional investments that need to be made by the company?

-What additional inventory will need to be added to support new growth? New product line?
-Will the company need additional sales people to invest in future sales? New sales group?
-Are their system upgrades or implementations that need to be invested in to support growth?
-Is the company outgrowing it’s current facility and needs to consider expansion?
-What inflationary increases need to be accounted for in the Budget? Wages and insurances…?
-Is the company currently servicing an existing level of debt previously incurred?

Once we start getting into the issues of working capital management and the effects on the balance sheet and cash flow, it’s quite possible that the picture may not be as optimistic. After running through just the few questions listed above it’s easy to see how quickly your profit from the year has just been whittled down, or may not even cover the needs of additional growth. It’s when the management from all functional areas understand these relationships that it becomes much easier to rally their support and involvement in the forecasting process. While your colleagues don’t need to possess the skillset to build these financial statements, their understanding and support will go far when the business environment is challenging, as it is now.

Thanks for reading . . . .

Q3 and your FY Forecast…

July 22nd, 2008 Comments off

     Okay, we’re only 3 weeks into Q3 and moving into the busy summer season, atleast depending on the industry that you’re in.  Hopefully, your close for the first half is also completed and you’ve had a chance to review your YTD results against the original Budget and made the appropriate updates to your Forecast.  For most of my colleagues there is a single Forecast that they play off of for the remainder of the year, and typically only the consolidated income statement, or one for each business segment.  However, have these same efforts been taken to the Cash Flow and Balance Sheets as well?

     My bigger concern at this point would be making sure that there are a number of Forecast scenarios that have been developed. While the Forecast usually incorporates the elements not known at the time of budgeting, it’s usually still an optimistic view of the current business climate. I don’t think any of my colleagues were honestly anticipating such a challenging environment, but it’s here…especially in the consumer and retail sector.  It’s also being felt by companies delivering infrastructure products that are reliant on corporate capital expenditures, which are also being scaled back.

      Does you current forecasting process include a realistic “worst case” scenario that you’ve also taken to the Balance Sheet and Cash Flow levels? Are you comfortable that you have the resources to weather such a downturn without resorting to extreme measures such as headcount reductions, capital investment reductions, and working capital management that may anger your vendors?  These may have a short-term boost but the long-term effects are harder to bounce back from.  If your “worst case” truly becomes a reality do you have good relationships with your banking contacts and have you kept in touch with them during through the year? 

       For most that I have talked to, results are modest, resources are being managed, and they are closely watching headcount, but most believe the current environment will not deteriorate further.  What if it does?  I’m still trying to dial in my crystal ball, and until I do, I’ll make sure I have Plan B…and Plan C, and Plan D.

Thanks for reading . . . .