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Any BPM strategy should be joined at the hip with the company's strategic plan. Consistency and visibility of an agreed-upon data set are key.
For companies looking to adopt a performance-minded culture, moving away from ad hoc, manual budgeting-and-planning processes is a good starting point. BPM involves more staff in budgeting-and-planning, and thus broadens accountability for company performance, from the bottom up. "Nobody wants to expand the budgeting process when it's Excel-based," notes BPM Partners' Schiff, but he also encourages companies to think strategically from the outset. The key to the bigger BPM picture, says Schiff, is threefold: continually revisit the overarching enterprise strategy, make sure the right stakeholders are involved, and identify the metrics that matter most to them. "When you have a dashboard with an appropriate number of key metrics, say, 12 to 20, then BPM is doing its job," he says.
Princess Cruise Line, a wholly owned subsidiary of Miami-based, $11 billion Carnival Corp., first pursued BPM out of tactical necessity, but the cruise company has since realized strategic value as well. Princess Cruises was initially driven to update its largely manual Excel- and Access-based budgeting system after Sept. 11, when the company was forced to quickly revise ship schedules that were linked tightly to airline schedules, all massively disrupted in the days and weeks following the attacks. According to Director of Financial Planning Greg Bozigian: "Changing our annual budget and projections in the face of such a radical shift highlighted the fact that, as our business was getting bigger and more complex, the manual approach was not going to cut it anymore."
The events of Sept. 11 also forced Princess Cruises to improve its cost structure across the board, as demand for cruises waned following the attacks. It was a hugely complex process. Princess Cruises currently operates 17 ships under its own brand, plus has financial planning and operational responsibility for two additional ships under the Cunard brand. Adding to the complexity, the cruise business is actually several businesses in one: Princess Cruises' key business lines include hotel operations, fleet operations, technical operations, port operations and more, each with its own revenues and cost drivers. Before implementing BPM, each department relied on a separate set of assumptionsnumber of voyages, length of voyage, number of port stops, and the likewhen preparing its budget. Says Bozigian: "Prior to moving to an accurate, common, Web-based planning system, we lacked adequate visibility into all the pertinent players, and we lacked accountability."
To gain better control over costs, revenues and profitability, and to consolidate individual financial and operational business-activity plans into a single system, Princess Cruises purchased Cognos Planning in 2002. One key requirement was that the system be easy to use and maintain, since it is owned and managed by Princess Cruises' finance department, not IT. The company put the application into service in 2003, with help from Cognos Services, as part of its 2004 budget process. The cruise line purchased two license types: Contributors (the bulk of users) access the Web-based application to input their data, make changes and review their models, while a smaller number of finance analysts do the heavy lifting, such as building models.
In February 2003, Princess Cruises' planning staff members were trained on the application, and preliminary planning models were developed. By July roughly 200 end users were trained, and the models went live. The Cognos Planning application has since been expanded to other business areas, including tour planning, HR, and the onboard boutiques and restaurants that are a key revenue source for the company.
Today, using a common set of assumptions provided by the finance team, Princess Cruises can project its budget using real-time data while also taking past actuals into account. Says Bozigian: "We have more visibility into the data, so we can do much more detailed analysis in both finance and operations, say, by month or by ship." Princess Cruises can also better manage key cost driverssuch as fuel consumption and port stopsby analyzing historical trends, performing what-if scenarios, incorporating external data such as global fuel rates, and more.
Bozigian notes other benefits of BPM: "By making budgets and forecasts tighter and leaner, there tends to be less sandbagging, and people spend less," he says. Princess Cruises' financial-planning group has been freed up from consolidating and aggregating data. "We used to spend 80 percent of our time coming up with the number and making sure it was correct, and 20 percent analyzing the business. Now the reverse is true," he adds. And the finance team is operating with fewer analysts, despite having responsibility for more ships as well as the Cunard brand.
The yield-management and market-planning departments may be the most strategic beneficiaries of Princess Cruises' more accurate, collaborative and accountable budgeting-and-planning processes. With a clearer picture of the actual cost structure, these departments are better able to plan voyages and determine the price to charge for various cabins on different ship classesboth critically important for maximizing profitability.
Ask your CEO:
What are the key performance metrics that our executive management monitors the most?
Ask your heads of operations:
How can budgeting-and-planning processes be used to increase accountability and monitor operations performance?