How we digitally transformed our financial planning
At Digital Mind our business is to change the business processes of our customers by introducing new technology solutions which improve and make it easier to do all kinds of everyday tasks, thus allowing the company to spend less or earn more. Our customers rely on us possessing the best and most up-to-date know-how on how do everything in a most effective way, and they also look at how we do our own business, so we have to be really careful not to become a proverbial cobbler, whose children are walking barefoot.
As official partners to some of the leading business technology manufacturers and software developers in the world – such as IBM, OpenText, Optimal Systems and others, Digital Mind has the unique opportunity to test all the latest tools and solutions that we offer to our customers, in running our own business. This approach allows our experts to gain practical, local hands-on experience with the latest technology, while optimizing the internal business processes of Digital Mind at the same time. We are using way too many tools and solutions to cover in one blog post, so today we’ll be focusing on the evolution of our financial planning throughout the 11 years since Digital Mind first set out to make running a business as easy as possible.
THE EARLY DAYS
Our company at its core is a consulting business that does projects. Our customer purchases a project of certain scale and after its conclusion pays for a pre-negotiated number of man-hours. As in every project-based business, main challenge is the inevitable and always present discrepancy between resources available and resources sold. Meaning that either we are in the position where we have sold more man-hours than we have available and have to hire more experts on a very short notice, or there are very qualified and highly paid people sitting idly and waiting for the next project, sometimes for months, while generating a loss for the company. So it's clear that a well thought out, precise and transparent financial planning is critical for the existence of our company.
As for most of the small companies, our budgeting started out using Microsoft Excel spreadsheets, because they are indeed very flexible and there were not many other options out there. Even at the very beginning we tried to build a representation of our business model in those spreadsheets. We succeeded, but the result was a huge file with many sheets, formulas, macro scripts, and all this goodness was linked to many other files that contained historical data. In short, it was a big mess, and some years down the line we were not even sure we can trust the data anymore, as nobody had a real understanding on how all of it was generated.
It’s not hard to imagine that the budgeting and everything related to it became quite unpleasant. There were multiple years when we finished planning next year’s budget but a month later the situation had changed to the extent where all the work we’d done was completely irrelevant. Then we proceeded to make a new version of the budget. And then another one. In the end there were a bunch of budgets, all created and tracked by one person (our CFO). If he went on a holiday or got sick, we had no way to check the current financial status of the company. Not a good place to be for a business technology company that advises others on how to do things smarter and easier. So it was clear that we have to change the system and so we did. It took a lot of experimenting, but over time we’ve come up with a financial planning process we’re using today. It consists of three main steps – planning, execution and evaluation, and all of those are enabled by smart and integrated use of innovative business technology solutions.
We are preparing the budget using the Cognos TM1 instrument from IBM. Once again we’ve modelled all our business processes within this system. This enables us to clearly see how every little thing we do is connected and to identify possible resource bottlenecks.
Every November our CFO initiates the budgeting process. Every head of department is involved and receives an automated email notification when their input is required. First, the Sales department estimates the planned sales volumes, then our Service department plans required human resources for the sales estimation, and lastly Administration allocates the necessary admin resources. This process is timely, transparent, structured and centralized, no documents are exchanged or compiled via e-mail or paper at any point. Every participant of this process only has access to the information he needs, at the same time this person can see how the changes in each separate number affect the company as a whole.
One of the best benefits that come from using of Cognos TM1, is the option to play with different “what-if” scenarios. This feature allows us to model and clearly see how the availability of resources, cash flow and profitability of our company will be impacted, if certain important parts of our initial estimation change. For example, what will happen if one of our largest customers decides to cancel the contract? If some invoices are paid later than expected? If a competitor manages to poach 3 of our experts at the same time? When we know the likely answers to these questions before those situations occur in real life, it’s possible to develop specific action plans to deal with them, thus avoiding panic and bad decisions due to time pressure, or worse - ultimately going out of business when it can be avoided.
IBM Cognos TM 1
During execution phase we mostly rely on two systems – JIRA and Horizon (Latvian only site).
JIRA is a software development oriented resource management and issue tracking system where our consultants and developers are planning their specific tasks for each project. Every task is allocated a certain amount of time, budget and other resources. This is also where we keep track of the time spent for any task and knowledge that’s been acquired in the process.
JIRA is directly integrated with our financial management and accounting system Horizon and thus there we can oversee how our projects are as whole are doing budget wise. All our financial accounting and payroll is done within this system.
The main tool that Digital Mind CEO, COO and CFO are using for everyday evaluation of our business is IBM Watson Analytics – simple, powerful and easy to use cloud-based business analytics and data visualization system. We’ve plugged in multiple data sources to this system and created several dashboards and reports which displays real time information about the key aspects of our business – signed contracts, due invoices, cash flow, status of sales leads and many more.
This ability to clearly see the difference between what was planned and what’s actually happening, and to immediately track down the cause of any discrepancies has allowed financial planning in Digital Mind to undergo a magnificent change that is now widely known as digital transformation. From a reactive company that used to be surprised by our own quarterly results, we’ve become a business that knows exactly where it stands at any given time, where executives always have enough time and information to react to unforeseen circumstances before they create a serious issue.
Introduction to IBM Watson Analytics business analytics tool
Of course, we are well aware of the fact, that no two businesses are exactly alike, so not everything that works well for us will have the same results elsewhere. And yet, by going through this transformation process for our financial planning, we’ve come to a conclusion, that, by digging into the details of their business and by applying the best suited technological tool for each task, every company can move away from a situation where budgeting and financial planning is a long, arduous and imprecise exercise, to a situation, where this becomes a fast, simple and transparent activity, which produces results that easily adapts to the ever changing reality of doing business. Good luck!