Integrated business planning

Integrated business planning

Integrated business planning (IBP) refers to the technologies, applications and processes of connecting the planning function across the enterprise to improve organizational alignment and financial performance. IBP accurately represents a holistic model of the company in order to link strategic planning and operational planning with financial planning. By deploying a single model across the enterprise and leveraging the organization’s information assets, corporate executives, business unit heads and planning managers use IBP to evaluate plans and activities based on the true economic impact of each consideration.__TOC__

Components of IBP

As illustrated right, planning is integrated across the enterprise, which enables decision makers to identify the activities that deliver the greatest financial impact across the company.

Recent developments and successes in the areas of business intelligence and performance management are accelerating the adoption of integrated business planning. While IBP has been a vision for many years; the technology required for modeling, optimization and scaling was non-existent. Dr. Robert C. Whitehair of River Logic, considered to be the father of IBP, used constraint-oriented reasoning (COR) and knowledge-based rules engines to generate mathematical representations of planning constraints and variables; thereby making IBP a reality.

Dr. Whitehair, working in collaboration with scientists in the U.S. and the Russian Academy of Science, solved the problem of scaling real-life situations in mathematical equivalents. Today, IBP software easily runs thousands of analyses of a mathematical representation of ~1,000,000 equations, each in excess of 1,000,000 variables, in a typical solve.Fact|date=June 2008

In broad terms, the use of mathematical representations and extensive knowledge bases enable users to build the massive, multivariable models required for Integrated Business Planning.

Companies use IBP to translate insight into financial impact by providing analyses such as:
Identification of top financial (profit) drivers
- Answers to “what-if” questions
- Simulation
- Optimization to any variable or ratio, including balance sheet, profitability, NPV, cash flow, etc
- Intelligent sensitivity analysis
- Modeling infeasibilities
- Understanding of unique performance driver relationships
- Opportunity costs and marginal economic value

IBP transforms planning into a decisive competitive advantage by:
* Providing an integrated planning platform across marketing, operations and finance
* Generating a holistic understanding of performance drivers
* Quantifying the financial impact and interdependencies across planning alternatives
* Optimizing strategic planning and resource allocation
* Balancing sales and operations planning for profitability
* Quantifying financial risk
* Increasing business flexibility

IBP Applications
IBP has been used to successfully model and integrate the planning efforts in a number of applications, including:
- Product profitability
- Customer profitability
- Capital expenditures
- Manufacturing operations
- Supply chain
- Business processes (human and information-based)
- Business policy
- Market demand curves
- Competitive strategy

History of IBP

The roots of IBP date back to 1996 where Dr. Robert Whitehair, working at the University of Massachusetts, developed technology for capturing and exploiting expert knowledge. Dr. Whitehair worked in close collaboration with several colleagues, including Professor Igor Budyachevsky of the Russian Academy of Science, to develop a technology now called COR (Constraint Oriented Reasoning). COR technology was used to capture expert knowledge; then embed it in applications that allow users to leverage it through a natural language interface. Using grant funding from corporate giants such as Chase, DuPont, General Electric, PricewaterhouseCoopers, Shell and the Williams Company, Dr. Whitehair captured expert knowledge from numerous disciplines and introduced an application for business analysis that empowered decision makers.1

As stated below, industry analysts such as Aberdeen and Gartner, believe Integrated Business Planning evolved from Sales and Operations Planning (S&OP). In 2006 Nari Viswanathan, Research Analyst at Aberdeen, identified the top five pressures for improving S&OP processes as: rising customer order fill rate expectations, better return on net assets, shrinking profit margins, customer retention pressures, and extended lead-times due to global sourcing. Viswanathan compares the key differences between traditional IBP and S&OP in the table below:

Area Traditional S&OP Integrated Business Planning
Business Objective Supply/demand balancing Not simply about matching demand and meeting customer needs. Considers several plan alternatives and chooses one that best represents the business drivers. Objective is revenue and profit.
Process Rigid and prescriptive Process is more rules and exception based
Technology Weak and non-integrated Technology enables the processes through workflows
Frequency Monthly and quarterly Still monthly in many cases but with the ability to rapidly handle exception situations
Focus Inward focused Collaborative and outward focused

"Sales and Operations Planning has evolved to become Integrated Business Planning. It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy."2

"The sales and operations planning (S&OP) process has always been a battleground for synchronizing supply constraints with demand opportunities. The measure of a successful S&OP process is its ability to create an actionable consensus plan that provides the operational blueprint for profitably matching supply to demand. Traditionally, S&OP was viewed as a senior management decision-making process that ensured tactical plans in all business functions—sales, marketing, and demand and supply management—were aligned and loosely supported the overall business plan. But recently, it has evolved into the concept of integrated business planning, which is the process of constantly realigning decisions within these business functions as well as synchronizing with the strategic financial plans to create a consensus operational plan for supply and demand matching.3"

"IBP is the strategic modeling the strategic planning and consistency framework that unifies the plans across business functions and integrates those plans to the corporate key performance indicators. One of its key outputs is to convert the strategic plans into meaningful financial plans that show the impact of the high-level strategies on the key financial reports of the organization. IBP, therefore, has a very strong connection into the company's CPM strategy and processes. The S&OP process sits under the IBP layer and connects the integrated, and financially validated, strategic plans (an output of the IBP process) with the operational plans at the functional/business operations level in the company. Having these three process layers (CPM, IBP and S&OP) in place provides an integrated top-down and bottom-up performance management and planning environment that will significantly improve the overall supply chain performance of an enterprise through shared metrics, strategic what-ifs, evaluations and alignment, and integrated operational planning.4"

"Integrated Business Planning will enable companies to model and align business strategies, ensuring significantly improved supply chain and business performance."5

Ventana Research
"Ventana Research believes that managing business performance effectively requires the right software to align people, resources and business processes. Just addressing performance issues in just one or two areas will not fulfill on the complete needs for business performance management. To complete the three-step performance management process – the Ventana Research PerformanceCycle Align, Optimize and Understand - companies need software that not only identifies constraints and root causes of individual problems but goes one step further, modeling the impact of all strategic actions simultaneously."6

Related materials

*Six Levels of Financial KnowledgeDr. George E. Manners, Jr., Professor of Accounting and Management, Kennesaw State University
CIO Magazine: Integrated Business Planning - Transformation through Sales and Operations Planning
[ Advise CIO]


1 Whitehair, Robert C. Ph.D., (1996). “"A Framework for the Analysis of Sophisticated Control"”
University of Massachusetts

2 Viswanathan, Nari, (2006). Aberdeen Group, “Technology Strategies for Integrated Business Planning Benchmark Report”

3 McNeill, William and Tohamy, Noha (2008). AMR, “S&OP Technology Landscape: Evolution to Integrated Business Planning Is a Work in Progress”

4 Payne, Tim, (2008). Gartner, “Integrated Business Planning Fills the Gap Between Strategic Planning and S&OP
5 Gartner, Hype Cycle for Business Intelligence and Performance Management, 2007
6 Ventana Research Notes, Article ID: M07-34 , VentanaMonitor

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