My Friend Stan Uses ‘What If” Analysis to Stop Guessing and Start Achieving!
Thanks to my colleagues for letting me use their BI problems as lessons. Here’s another lesson for my readers. My friend, Stan is CFO for a consumer goods company. Stan needed a better way to develop marketing strategies and budgets for marketing campaigns. He does a lot of guessing (sound familiar?) and never gets the results he targets.
Every year, Stan makes recommendations to management for annual targets. He projects sales and profits and works within the forecasted budget to achieve these targets. Stan manually compiles labor costs, manufacturing and raw material costs, direct expenses, salaries and indirect costs for operations and global locations.
This year, he used spreadsheets and custom reports created by IT, and estimated a 15% annual turnover and a 5% annual profit increase. Stan needs to know if changes to resources, budgets, processes, pricing, products or sales will produce results, but he doesn’t have a concise view of reliable information.
I recommended a BI solution with a ‘what if sensitivity analysis’ module. It provides simple, swift integration and analysis and is easy and cost-effective to implement. Stan created scenarios and predicted results for each – adjusting parameters to determine the effect on the bottom line. He created a short list of options to discuss with management.
The company began an aggressive marketing campaign with increased marketing and promotion in regions that ensure the best results. They changed suppliers to reduce raw material and indirect costs, and increased the employee incentive program by 5%.
BI ‘what if’ and sensitivity analysis’ gave them a clear picture of results before the strategy was implemented so they can stop guessing and start generating revenue!