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

Strategic planning

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenues...

 and operational planning

Operational planning

An operational planning is a subset of strategic work plan. It describes short-term ways of achieving milestones and explains how, or what portion of, a strategic plan will be put into operation during a given operational period, in the case of commercial application, a fiscal year or another given...

 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.

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

Chase (bank)

JPMorgan Chase Bank, N.A., doing business as Chase, is a national bank that constitutes the consumer and commercial banking subsidiary of financial services firm JPMorgan Chase. The bank was known as Chase Manhattan Bank until it merged with J.P. Morgan & Co. in 2000...

, DuPont

DuPont

E. I. du Pont de Nemours and Company , commonly referred to as DuPont, is an American chemical company that was founded in July 1802 as a gunpowder mill by Eleuthère Irénée du Pont. DuPont was the world's third largest chemical company based on market capitalization and ninth based on revenue in 2009...

, General Electric

General Electric

General Electric Company , or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States...

, PricewaterhouseCoopers

PricewaterhouseCoopers

PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....

, Shell

Royal Dutch Shell

Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...

 and the Williams Company, Dr. Whitehair captured expert knowledge from numerous disciplines and introduced an application for business analysis that empowered decision makers.

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

Business intelligence

Business intelligence mainly refers to computer-based techniques used in identifying, extracting, and analyzing business data, such as sales revenue by products and/or departments, or by associated costs and incomes....

 and performance management

Performance management

Performance management includes activities that ensure that goals are consistently being met in an effective and efficient manner. Performance management can focus on the performance of an organization, a department, employee, or even the processes to build a product or service, as well as many...

 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.

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.

Analyses

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
  Balance sheet
  In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
  
  , profitability
  Profit (accounting)
  In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
  
  , NPV
  NPV
  NPV can refer to:* Net present value, an economic standard method for evaluating competing long-term projects in capital budgeting* Negative predictive value, in biostatistics, the proportion of patients with negative test results who are correctly diagnosed...
  
  , cash flow
  Cash flow
  Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
  
  , etc.
• Intelligent sensitivity analysis
  Sensitivity analysis
  Sensitivity analysis is the study of how the variation in the output of a statistical model can be attributed to different variations in the inputs of the model. Put another way, it is a technique for systematically changing variables in a model to determine the effects of such changes.In any...
  
  
• Modeling infeasibilities
• Understanding of unique performance driver relationships
• Opportunity costs and marginal economic value

Benefits

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
  Strategic planning
  Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenues...
  
   and resource allocation
  Resource allocation
  Resource allocation is used to assign the available resources in an economic way. It is part of resource management. In project management, resource allocation is the scheduling of activities and the resources required by those activities while taking into consideration both the resource...
  
  
• 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
  Customer profitability
  Customer profitability is the difference between the revenues earned from and the costs associated with the customer relationship in a specified period....
  
  
• Capital expenditures
• Manufacturing operations
• Supply chain
  Supply chain
  A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
  
  
• Business processes (human and information-based)
• Business policy
• Market demand curves
• Competitive strategy

External links

• Advise CIO CIO Magazine: Integrated Business Planning - Transformation through Sales and Operations Planning.