This post was originally published on FP&A Trends here.
Throughout my experience, I have found that both startups and mature organizations can benefit from installing a financial planning tool regardless of stage of maturity. In each organization I have worked at, they all ended up having significant forecasting growth and/or cost issues because they either did not have a financial planning tool, or they under-invested in the tools they had in place. I believe that getting started on installing a planning tool early, regardless of the stage of the company, is a good idea despite the investment required. You just need to make sure that the investment matches the organizational need.
Many next-generation planning tools have been recently developed for Finance teams (think Vena, DataRails, Cube, Pigment, etc…). They are lightweight and flexible enough to both aggregate multiple data sources and create a single source of truth to enhance an organization’s forecasting and reporting capabilities compared to the more established offerings like Hyperion, Anaplan and Adaptive Planning. These tools advertise multiple bells and whistles but are not always everything to every organization, as each tool has its own pros and cons. Prioritizing the right criteria based on organizational need using a checklist of criteria will be helpful to compare all the different tools in the market to see what best suits the organization.
Selecting the criteria
When evaluating a financial planning tool, I find that there are three types of criteria: 1. integrations & installation, 2. product functionality & usability, and 3. price. Integrations and installations are important as you need to understand how efficiently you can get up and running, and you don’t want to be spending a significant amount of time trying to make the data flow instead of troubleshooting once you are live. The product and usability needs have to closely match what you need organizationally, i.e. how many ways do you want to pivot on the data, functionality for month end/forecasts, etc… And price is always dependent on what your organization can afford; however if your needs are met with the right system, the return on the investment should always pay itself several times over.
The following is a set of criteria within the three themes that can help guide your finance team in its decision making process.
| Theme | Criteria | Considerations |
|---|---|---|
| Integrations / Installations | Native or ETL integrations from your data sources | Does the vendor provide a direct integration from your data source, or is it a 3rd-party ETL? The key point here is: are you going to spend all your time ensuring that the data from your sources flows into the tool without error? A native integration usually provides a better connection as it has been tested rigorously, limiting data flow errors, whereas ETLs are likely more generic which may have mapping inconsistencies that need to be continually customized for you. |
| Integrations / Installations | Validating data once it is loaded | How can you prove that the data loaded in from your sources are the same as what is loaded into the tool? Specifically, is there an automated process that validates the mapping of the data sources? i.e. does the Balance Sheet in the ERP tie out to the financial planning tool, and if not, can the tool pinpoint the problem so that it can be addressed ASAP? |
| Integrations / Installations | Consulting team or in-house? | Will there be a consulting team hired to do the installation, or will the vendor itself perform the installation? This is important as there is an incentive perspective here – as most companies will not have every detail specified out in the sales cycle. Will the consulting team charge for add-on services and bill for every little detail not specified, as they are by the hour? An in-house team is usually more incented to provide a flat rate to ensure your success, rectifying issues that arise as opposed to charging for every change. |
| Integrations / Installations | Business Software Integration | How will your organization interact with the tool? Are there add-ins for MS-Office / GSuite to ensure that your organization seamlessly integrates with the office productivity tools of the organization? |
| Product | Dimensions | How many dimensions can you pivot on? Are they unlimited, and will those dimensions be fixed after initial installation? It’s important to understand how you want to analyze different cuts of your business, and those dimensions also may change over time. Examples of dimensions include geography, entity, product offering, business line, marketing channel, supplier, scenario / version, etc… |
| Product | Consolidation speed | How long does it take to upload data from all the sources into the tool and produce a month-end result? Once you update a forecast, to ensure that all other data rolls up together, how long does it take to consolidate? Seconds, minutes, or hours? That is, if you are going to make an update, do you need to wait 2 hours for the roll-up to consolidate before you see the results, or is it more instantaneous? This is usually dependent on the scope of data volume in your business but working this out with the vendor will help provide context to determine the usability during the forecast and close phases. |
| Product | Month-end and Forecast Version Control | In many situations, the Accounting team will close the month and create a V1 so that the FP&A team can review, provide feedback back to Accounting so they can make adjustments and close the month to create a V2. Understanding the variances between these V1 & V2 versions are important to ensure that adjustments were booked appropriately; similar needs are required for a forecast process. |
| Product | Projecting deferred revenue from bookings | In businesses where bookings are not directly translated to revenue, does the tool provide simple forecasting of deferred revenue? This is important in SaaS businesses as well as Marketplaces with owned inventory for proper revenue recognition and cash flow management. |
| Product | Sales Operations | If there is a strong sales management component in your organization, can the tool provide an integration with your CRM and perform Sales Operations work? i.e. Commissions calculations & quota management where they can easily integrate with sales bookings. |
| Product | Balance Sheet and Cash Flow | Income statement modeling is important for operational trends but understanding cash flow is very critical to project the business, especially for startups since timing for the next fundraise is important. |
| Product | Headcount (HC) management | For HC integration, many organizations look at snapshots of HC at the end of the month. Can the tool provide month-end snapshots, and potentially realign cost centers as well? Is there database field-level security to ensure that employee salaries and other PII data is hidden from tool users? |
| Product | SSO | Is there an SSO (secure single sign-on) integration such that security is maintained while also making it easy for users to log into the application? i.e. direct integration with Okta or OneLogin? |
| Price | Price will always vary on the size of the organization, the complexity of the installation and the number of users. Many vendors will use your organization’s revenue as an input to set your price point. In addition, negotiation is always an option; ensure that you have options and work the vendors, as they know you are doing your due diligence with others as well! For a mid-sized company of ~500 employees with average complexity and 15-20 users, expect to pay annually between $40K-$80K USD annually with a similar amount for a one-time installation. |
Conclusion
There will always be tradeoffs between what your organization needs and what tools out there offer you. Prioritize the criteria most important for your organization and determine what workarounds you can afford to make, so you can close the gaps that exist with the tool you choose.