Over the past few years, utilities companies have seen an unprecedented shift in global behavior. Whether it’s the plunge in power demand, increased costs for materials such as PPE, greater need for digital transformation funding, unpredictable labor costs, or the shift in demand for water from commercial buildings to residential homes, making strong financial plans and adjusting them on the fly has become increasingly difficult.
Utilities with the ability to quickly and accurately analyze their financial data and make changes in real-time can remain successful through making targeted investments, controlling costs, and proactively staying in line with regulations. But to do this, utilities require reliable software that accommodates complex operational business processes and rapidly shifting plans, while providing key stakeholders and regulators with the data they need to improve planning and remain compliant.
Edison Ridge, America’s Utility Company
Consider a typical utility—let’s call it Edison Ridge—that’s is entering its budgeting cycle for each of its three operational units, Transmission, Distribution, and Generation. Historical actuals and budget data are currently housed in on-premises legacy systems. Planning is done in Excel, with multiple worksheets for each business unit.
Current State of Edison Ridge Corporation
First, when generating the baseline O&M budget, finance receives headcount data from HR—which tends to be delayed by data cleanliness issues. As a result, budgeting is behind schedule before it’s even started. Once the data is received, business leaders manually generate and update the budget in Excel worksheets, and then share them with finance managers from each segment for approval. Whether the Vice President approves a document titled FINAL BUDGET_v1.xlsx or FINAL FINAL BUDGET_v5.xlsx will depend on the year, making it hard to tell which version is really final! Each operational unit has a different way of calculating costs but is hesitant to change their formulas given that these worksheets have been configured the same way for the past 10+ years, and the source systems are very slow to begin with.
If planning only based on the past is difficult in such a system, trying to make predictive plans is even harder. Edison Ridge has no formal process to account for external drivers, such as changes in local tax rates, using the current budgeting and forecasting systems, and any informal attempt to change plans based on the facts on the ground are complicated by the cumbersome process described above. With these challenges all around, Edison Ridge understands the need for a new system. They’d like to be able to run custom calculations and configure a solution in house to better address uncontrolled variables—but they don’t know where to start. Does this sound familiar?
Edison Ridge’s Pain Points
The pain points in Edison Ridge’s current situation could quickly be alleviated through a digital transformation to a cloud-based solution. Let’s take a look at how this could work:
1. Data Consolidation and Planning using Legacy Systems is Inefficient
Compared to legacy systems like the one Edison Ridge uses, cloud-based planning solutions can accelerate the business planning process by minutes, hours, or even days.
Consider a situation where Edison Ridge’s Operations department is updating their budgeted labor and vehicle expenses in preparation for a severe storm season on the horizon. Due to the company’s outdated software and workflow, these updated budgets will only be reflected when the spreadsheets are submitted and consolidated. The finance department can only analyze the bottom-line impact through a one-off budgeting whirlwind or at the end of the month. This process forces finance VPs to schedule around when the consolidation and reconciliation will be complete, and actual time to perform strategic analysis is lost.
Now consider the same planning scenario but this time, the Operations department is reforecasting using cloud-based connected planning tools. Because cloud solutions are live and constantly recalculating, changes to data points are documented, reflected, and consolidated instantly, allowing for real-time analysis. As a result, finance executives can evaluate and plan as soon as changes are made, reducing the length of the budgeting cycle, and increasing operational efficiency. Cloud-based Finance VPs have a competitive advantage as they are enabled to perform strategic analysis whenever variables call for it.
2. Connected Planning Eliminates Departmental Silos
It’s not unusual to see silos arise in organizations where different teams, operational units, and departments budget and plan separately from each other. However, organizations work best with more transparency and more awareness between teams, and cloud-based technologies can break down these silos to increase transparency, reduce data inaccuracy, and automate planning and analysis. As a result, departmental planning turns into connected planning, where all parties involved can see accurate data reflected in real-time and collectively make informed decisions.
Cloud-based planning solutions build a bridge between departmental data sets such as forecasts, budget/actuals, and variables that affect the business. A connected planning solution for Edison Ridge can simplify a wide range of business planning processes, such as:
- Personnel planning. Rather than waiting to receive headcount plans in an Excel worksheet from plant leaders and HR, O&M forecasts can be developed and automated using cloud-based headcount plans as they stand. Any changes will be reflected instantly in the forecast without manual data input required.
- Capital planning. Drivers-based capital project planning is automated with efficient analyses available across projects to strategically determine which set of projects will be undertaken this year.
- Capital forecasting. As capital plans are developed, financial data is used to generate capital forecasts, and the process becomes streamlined.
By integrating data and analytics into one common platform, the manual work of organizational planning is diminished. The finance department no longer has to wonder how their O&M forecast will be affected when HR hires additional meter readers next month, or how their capital budget will be altered when an engineer extends their project timeline by one month. The impact of these decisions is now instantly visible, and finance leaders can plan accordingly.
As updated information is shared enterprise-wide and departments are united, teams can communicate more efficiently, act simultaneously, and promote cohesive decision making. Organizations can say goodbye to the email threads of “final” worksheets and departments can spend their time focusing on value-add activities.
3. Process Standardization Improves Productivity and Clarity
Standardized forecasting and budgeting processes allow businesses to simplify and streamline calculations for multiple departments, improving forecast accuracy across the business and simplifying data consolidation. Cloud based platforms can be built entirely customized, both to accommodate for consistencies and standardization, and to incorporate business-specific needs.
At Edison Ridge, when forecasting the total cost of capital budgets at, for example, each nuclear plant, every engineer would calculate costs offline and independently. Implementing a standard process using a structured template with consistent methodologies within a cloud-based solution results in standardized total capital calculations across business units and increased transparency for all business users. As a result, not only can engineers easily see a clear cost of capital, but the treasury department can simultaneously understand the CWIP and AFUDC Debt and Equity implications for debt management.
How Long Does This Transformation Take?
For one utility, a transformation of OPEX and CAPEX planning took only 4 months, and not only significantly reduced the manual efforts and time spent on consolidation and reconciliation but also opened doors to implement connected planning processes in other areas of the business, breaking down even more silos and giving leaders even more insights into the business.
By partnering with Spaulding Ridge, utilities get experienced consultants and cloud-based connected planning solutions and offerings that both solve the obvious pain points and improve other business processes that had been previously overlooked. On top of that, we partner with multiple cloud-native business technology companies, providing deep technical expertise and best practices solutions for forward-thinking organizations.
Spaulding Ridge delivers industry experience and a dedicated team to provide an easy-to-use solution, drive efficiency, reduce costs, and decrease time spent on budgeting/forecasting. Contact Jen at [email protected] or Tyler at [email protected] if you’d like to learn more about how Spaulding Ridge can help your company through FP&A. Utilities deserve to benefit from automation and streamlined processes, and our team is here to advise and enable you through your digital transformation.
Manager, Anaplan, Spaulding Ridge
About the Author
Jenn joined Spaulding Ridge’s first analyst class in 2018 and has made a significant footprint on the Anaplan practice. Now, she is an Engagement Lead and Master Anaplanner leading teams focused on FP&A transformations for Fortune 100 and Fortune 500 companies.
About the Author
Tyler is an Associate in our Anaplan practice with expertise in the Energy & Utilities industry.