Vocus Sells Information and software to public relations professionals on a subscription basis. What-if scenarios and variance analyses are crucial to the company's senior decision-makers, but until recently the company managed and analyzed all internal management information in Excel. BPM Magazine spoke with the company's VP of FP&A about how the move to performance management software has affected his job.
Vice president, financial planning & analysis
Company Size: $77 million
G/L & revenue recognition: Softrax
Budgeting & management reporting: Adaptive Planning
External financial reporting: FRx
BPM Magazine: How does a growing business like Vocus keep on top of its financials?
Bas Brukx: Our accounting and external financial reporting are done on a separate system from our budgeting, planning, and internal monitoring. The software we sell is on the SaaS [software as a service] model — it has annual subscriptions, where we have to recognize revenue over the time period of the contract. So for our accounting processes, we use a Softrax operations application that keeps track of the contracts and the revenue, and is integrated with a Softrax G/L system. On top of that we have FRx, the financial statement tool.
BPM: But Softrax is not where you manage the budgeting process and keep an eye on actuals?
Brukx: No. A couple times a month, I take actuals from Softrax and import that information into Adaptive Planning, which is really our tool for planning and internal management reporting. So I input financial actuals from Softrax, as well as operational metrics (from salesforce.com and the Softrax operations application) such as the number of contracts, sales, and head count. It all goes into Adaptive Planning, where it is available for analysis and planning.
BPM: How does your planning and budgeting process work?
Brukx: We have an interesting approach. We have what we call our “live model.” It's a version in Adaptive Planning that's always up to date; we make changes to it as they become available. When a person gets hired, we'll enter that person. When a person gets fired, we take them out. When we sign an agreement with a certain financial commitment, we make that change. It gives us a real-time view of the business, you might say.
We also keep our forecasts and budgets in Adaptive Planning, but they're separate from the live model. Quarterly, before providing our earnings guidance, we go through a formal process of evaluating what's in the live model. Once everybody agrees that it's a good forecast, we save a version of the live model as the quarterly forecast and set it aside so we can compare to it in the future. We do the same thing for the annual budget. From November through mid-January, we'll go through and scrub all the financial data in Adaptive Planning. At the end of January, we'll say, “OK, this is it. This is our annual budget. Everybody agrees.” We'll save a copy of that, and then the live model will live on; we'll keep making changes to it so we can get the real-time pulse of the business.
I've been at Vocus almost eight years, and we've used the live model method this entire time. It gives us the immediate ability to react. If something happens and we expect our revenue to be higher than budget, that will be reflected in our live model, so we can say, “OK, maybe we should invest in a project because our revenue is higher.” Or if the revenue is lower, we might have to hold off on certain things. We know on a day-to-day basis how we're performing against milestones.
BPM: Do people continuously make small tweaks, or do you make changes to the live model only when there's something big like a staffing change or a new financial commitment?
Brukx: My department is notified of every staffing change — which is usually one or two changes a day. We get that information from our HR department as the change happens. And we're copied on all legal agreements, so we know right away if somebody finalizes a commitment. Other people come in and notify us of changes, or we go seek them out when we see an agreement from legal.
BPM: Who is involved in the planning and performance monitoring process?
Brukx: The live model is typically visible only to the CEO; the CFO; and my department, the financial planning department. When the end of the quarter comes and we close our books, I take the actuals that accounting provides to me and compare those against the current version of the live model. The numbers should be very close, because the live model should include all the changes in the business that affected the actuals that quarter. Then I compare that to our original forecast from the beginning of the quarter to evaluate what happened. Where were we off? Did we know we were off? I look at what our assumptions were and whether they held true.
We compare to the annual budget in basically the same way, since everyone in the company is held accountable to the annual budget, so budget owners get access to the actuals for their respective departments. We'll set up the reports and say, “Hey, go into Adaptive Planning. Your budget-versus-actuals is available.” They can go in and drill down and look at the data in a million ways. Then they can say either “Here I'm off, and it doesn't make sense” or “Here I'm off, and I knew I would be, because this circumstance came up which wasn't in the budget.”
BPM: Do the CEO and CFO look at the live model every single day?
Brukx: I have ownership of the model. The CEO and CFO will come to me and ask, “How are we doing? We want to do XYZ. Can we do it? Can we not do it?” We like to do a lot of what-if scenarios, like “What if we add X number of salespeople in this area or that area?” We'll also evaluate things like the potential for a merger or acquisition. For all kinds of business decisions, we can do what-if scenarios in real time in the live model to see the impact on our financial forecast.
BPM: You mentioned that Vocus has used the live model process for at least eight years. Has it always been supported by dedicated performance management software?
Brukx: No. We started using Adaptive Planning about a year and a half ago. Before that, we were pretty much Excel-based. We had a forecast model based in Excel, which worked basically the same way. I would input actuals, and the plan would be developed off the actuals. But it was all contained in one Excel model, which made it hard to give people access to pieces without having to cut and paste information out of it. And it was hard for more than one person to work in it at the same time. As my department grew, we had to coordinate who could be in the model at certain times. We would call one another and say, “Are you done? Are you still in it? When can I be in it?” For many years it wasn't a problem, but as we gained more financial analysts, it became difficult to manage.
Another challenge was that what's really important to us is version-to-version comparison, comparing actuals or even the live model to the annual plan or the quarterly forecast. But in Excel it was almost impossible to line up different versions because we'd add G/L accounts and departments and then the live model wouldn't match up to the budget spreadsheet. Also, as our company grew, it became unwieldy to keep all that data in one Excel model. It was getting to the point where I could see Excel just not working anymore.
BPM: Did the fact that your organization was going public impact the decision to move away from Excel?
Brukx: Yes. Going from a private to a public company, our margin for error went down significantly. As a private company, you answer to a couple of private equity investors — you are still responsible for hitting your numbers — but there's not the quarter-to-quarter focus. So we felt the pressure to get our performance management processes tied down. I also think the fact that our budget managers now have more timely and more efficient access to the actuals makes them feel more engaged in the planning process and accountable for their spending. If we were still a private company we probably would have looked for performance management software for the reasons I mentioned before, but the fact that we're public and “live” from quarter to quarter puts an additional urgency in it. Definitely.
BPM: What's an example of a variance that you were able to discover more easily once you moved off of Excel?
Brukx: One thing that we're able to identify quickly is the impact on our business of exchange rates. Ten percent of our revenue is from abroad, so when the dollar drops 20 percent, it makes a difference to our bottom line. I can put in the new exchange rate, and Adaptive Planning will come back and restate everything, and I can quickly see what the weakening dollar does to our sales, to our revenue, to our expenses. That would have been tough to pick up in Excel. Deriving the same conclusions would have taken us a lot longer and required a lot more analysis.
BPM: What would you say to someone who is using Excel and sees the limitations of spreadsheets, but doesn't know if it's worth investing the time to find a better way to do things?
Brukx: Well, we got a lot more benefit out of Adaptive Planning than we expected. For me, the difference is night and day. To generate reports, like a head count report, now is a push of a button for me. In Excel, if somebody wanted to see new hires for last quarter, or the future hires (for that matter) in a quarter, I would have to take the head count spreadsheet, sort it by what I was looking for, cut and paste, etc., etc. That's just one example, but it goes for everything I do. It's more of a time investment than a money investment from our perspective. The less time I have to spend manipulating data in Excel — formatting, sorting — the more time I can spend looking at the bigger picture, taking the daily overview of our live model and really questioning whether the numbers make sense. Nobody wants to be in Excel sorting, cutting, and pasting. It's just a waste of time.