An Adaptive Planning Sheet is a structure for displaying and/or entering data related to your Budget and Forecast.  It looks a great deal like a spreadsheet, but is much more powerful since it has an enterprise level database behind it.  Adaptive Planning (AP) includes four basic types of sheets for use in your Budget and Forecast modeling.  Each has unique characteristics and therefore should be used for specific purposes.  The four types are listed below with information about their common usage and how to create and view each:

1. Standard Sheets are the most commonly used type of sheets and are for displaying or entering data that requires the Time dimension (months, quarters, and years) across the columns with Accounts down the rows.  Please see the document entitled “Adaptive Planning Accounts and Their Usage” on our website for an explanation of the various Account types.  Standard sheets have a third dimension that allows the Account and Time data to be included for each Plan (Department).  Once a Standard sheet is created, it is available for any Version (set of budgeted or forecasted data) defined in your system.  So a Standard sheet contains data by Account, by Time, by Plan, and by Version.  Common uses of the Standard sheet include Financial Statements like the Income Statement, the Balance Sheet, and the Cash Flow Statement.  They are created under Admin>Create a Standard Sheet.  You can view all Standard Sheets under Planning>Sheets (tab).
2. Modeled Sheets are for cases where you will need to enter information that the system will then base calculations on.  For example, Modeled sheets are commonly used for Personnel, Fixed Asset (Capital), Revenue (Sales), and Prepaid Expense calculations.  To illustrate the usage of these sheets and their modeled accounts, when you add your individual employees to the Personnel Modeled sheet, you will also need to add their salary and the State in which they operate.  This allows the system to calculate Medicare, Social Security, Unemployment Taxes, and any State payroll taxes for that employee.  This is a very powerful type of sheet that allows you to define the data attributes that you require for the particular usage.  For example in defining Revenue you might need Product or Service, Customer, Invoicing method, Revenue Recognition method, and Units.  This would allow the system to calculate and forecast your revenue recognition and your cash collections related to revenue, for each of the attributes supplied.  Please see the document entitled “Adaptive Planning Accounts and Their Usage” on our website for an explanation of the Modeled Account type.  Modeled sheets are created under Admin>Create a Modeled Sheet and can be viewed under Planning>Sheets (tab).
3. Cube Sheets are a hybrid between Standard and Modeled sheets with one very powerful distinction.  You can add any custom dimension(s) to a Cube Sheet.  So just like a Standard sheet, a Cube sheet will hold data (input or calculated) by Account, by Time, and by Plan and is available by Version.  However, you can also add other dimensions to a Cube sheet like Customer or Product or Employee or any other dimension you deem appropriate.  This allows you report on a slice or cross section of dimensional data from a Cube Sheet.  For example you could report Sales data by Customer, by Product, by Region, by Sales Person from a Sales Cube sheet.  These sheets are like Modeled sheets in that they allow for Cube Calculated accounts, just like Modeled Calculated accounts in Modeled sheets.  Please see the document entitled “Adaptive Planning Accounts and Their Usage” on our website for an explanation of the Modeled Account type.  Cube sheets are under Admin>Create a Cube Sheet and can be viewed under Planning>Sheets (tab).
4. Plan-Independent Sheets are commonly referred to as Assumption sheets.  The unique thing about these sheets is that they typically do not have Plan (Department) as a dimension.  So data in an Assumption sheet is considered Global and therefore the same for all departments.  If an Assumption sheet needs to have the Plan dimension, then Custom Accounts should be used instead of Assumption Accounts.  Please see the document entitled “Adaptive Planning Accounts and Their Usage” on our website for an explanation of the various Account types.  Assumption sheets are really special Standard sheets in that their columns contain Time and their rows contain Accounts.  These sheets make it very easy to change a common assumption. Changing an Assumption on a single sheet, will cause the change’s impact to ripple through an entire version, wherever that assumption is used.  For example, this is where your rates would be maintained for common Payroll related items like Social Security, Medicare, Health Insurance, and Pension plans.  You define these Assumptions in one place and reference them as many times as needed which simplifies maintenance.  Plan-Independent or Assumption sheets are created at Admin>Manage Plan-Independent Sheets – Restricted by User and then by selecting the New Sheet button at the bottom.  They are viewed and managed at Planning>Assumptions (tab).

Adaptive Planning (AP) includes five basic types of accounts for use in your Budget and Forecast modeling.  Each has unique characteristics and therefore should be used for specific purposes.  The five types are listed below with information about their usage and how to create each:

1. General Ledger Accounts (GL Accounts) are for your chart of accounts and should correspond to the account structure in your Accounting System.  This is generally the level at which you will budget in Adaptive Planning (P&L and Balance Sheet Accounts), and the level at which you can map actual data from your accounting system into your budget and forecast to update it with actuals.  GL Accounts are created at Admin>Manage Your General Ledger Accounts, by selecting the New Account button at the bottom.  GL Accounts are usually a subset of your Accounting System’s account structure since most businesses do not typically budget at the GL Account level found in their accounting system.  The level of detail you decide to use for Budgeting and Forecasting will define the GL structure you create in Adaptive Planning.  General Ledger Accounts will always be displayed as Currency, thereby being subject to currency conversion if your model uses multi-currency.  There is an entire Article on tips for GL Accounts under Adaptive Planning Tips>Chart of Accounts – Best Practices on our website.
2. Modeled Accounts are created to facilitate the use of Modeled Sheets.  These Accounts are unique in that you create them as you create or edit a Modeled Sheet, whereas most types of accounts are created first as part of a list and then added to a sheet.  Modeled Accounts can be added to other types of sheets after they have been created, but can only be created while editing a Modeled Sheet.  These accounts are used to store or calculate values associated with a Modeled Sheet.  To view Modeled Accounts along with their calculated or stored values, simply right click a row on a modeled sheet and choose Row Details.  This Row Details selection provides the values for all Modeled Accounts for the selected row related to the Modeled Sheet being viewed.  Modeled Accounts are created by selecting the New Calculated Account button in the bottom left portion when looking at the edit view of a Modeled Sheet.  You can alter certain account attributes of a Modeled Sheet at Admin>Manage Your Modeled Accounts, like the Data Privacy level or the number of decimal places.  Modeled Accounts can be displayed as Currency (subject to currency conversion), or as a Number or Percent.
3. Metric Accounts must always contain a formula.  When you create a Metric Account at Admin>Manage your Metric Accounts, and choose the New Metric button at the bottom of the page, you must add a formula before you can save the new account.  Metric Accounts evaluate their formulas differently in terms of their handling of Plan (Department) data.  A Metric Account will sum (i.e. rollup) the variables of the formula to the plan level where it is being used and then perform the math (i.e. divide or multiply).  This differs from other kinds of accounts where the formula would be evaluated (i.e. do the math) at each plan level and then the results at each plan level would be summed across plan level (i.e. rolled-up).  This kind of account is very useful and in fact necessary for metric calculations that require division and span Plans.  Metric Accounts can only be displayed as a Number or a Percent, although they automatically handle currency conversions if any currency variables are used within their calculations.
4. Custom Accounts can contain either non-financial (operational) data or financial data not accounted for in another account.  They are often used to create summary data for reporting.  The Custom Account type is the “catch-all” type – that is, they are used when there is a need to capture a data element that doesn’t fit into one of the other Account types.  These are created at Admin>Manage your Custom Accounts by selecting the New Custom button at the bottom.  Custom Accounts can be displayed as Currency (subject to currency conversion), or as a Number or Percent.
5. Assumption Accounts are unique since by definition, they are not plan specific.  All other account types are plan specific – that is, they can be defined by plan and either have a unique value by plan or no value by plan.  Assumption Accounts are global and are available for use at any plan level.  Assumption Accounts are typically used to create Plan-Independent Sheets for Assumptions, where a change to an assumption will ripple through the entire model.  These are created at Admin>Manage your Assumptions by selecting the New Assumption button at the bottom.  Assumption Accounts can only be displayed as a Number or a Percent.

Properly modeling the conversion of sales to cash is a critical part of creating an accurate financial model for budgeting and forecasting purposes.  This requires modeling all of the stages of your revenue cycle – from the booking of sales to the collection of the cash associated with each sale.  The accuracy of the modeling will directly impact your forecasted P&L, Balance Sheet, and Cash Flow Statements.

Typically, the revenue cycle can be modeled using four stages: Booking, Revenue Recognition, Invoicing, and Cash Receipt.  These can be defined as follows:

• Booking:  when the sale occurs (i.e. when the sales is legally a sale, with paperwork signed)
• Revenue Recognition:  how and when the revenue associated with a sale is recognized as income
• Invoicing:  how and when the sale is billed to the customer
• Cash Receipt: how and when the cash associated with an invoice is received

Best practices require that the modeling of these stages be customized in order to properly reflect a given organizations’ real world for forecasting purposes.  Some companies will not have any difference between their booking and revenue recognition, while others recognize revenue ratably during the delivery of services.  Similarly, some companies Invoice for their products or services up front where others create a reoccurring revenue stream for each sale that is different from their revenue recognition, thus creating a balance sheet entry.

Whatever the specific modeling for each company needs to be, there must be enough flexibility to set specific revenue recognition and invoicing patterns for each revenue stream.  These could be by product, revenue type, or customer or whatever the primary revenue source breakdown happens to be.  On the other hand, it is the best practice to model the cash receipts for all invoicing using a generic model like Days Sales Outstanding (DSO) or simple monthly percentages for the receipt of receivables.  This generic approach is used for two reasons – 1) it reduces the maintenance effort compared to managing an individual cash receipts pattern for each customer or revenue source (since these may change over time), and 2) it is very efficient since the collection experience for all customers / revenue sources is built into the model keeping the accuracy high and the maintenance low.

The revenue cycle, however it ends up being modeled for a given business, should be applied to all types of Revenue. Revenue Types could include closed business (i.e. booked), sales pipeline business where the targeted customers are identified, and forecasted business where the customers have not been identified yet.   A probability can be applied to the pipeline and forecasted business to affect the forecasted amount of each sale and therefore the forecasted amount of cash received from each sale.  If desired, revenue can also be classified as existing business, renewal business, or new business.  This may be necessary for proper analysis and reporting.

The bottom line is that proper planning and thought can ensure that your budget and forecast Revenue modeling accurately reflects your organizations’ real world.  When the modeling is done correctly, you can focus on the sales forecast and allow the financial impact of the sales to fall into place automatically.

The General Ledger (GL) account numbers set up in Adaptive Planning (AP) as the Chart of Accounts (COA) not only define the level at which you can model financial activity, but also the level at which you can import actual data from your accounting system.  So spending the time up front to think through your needs and build your Chart of Accounts accordingly, is certainly worth the time and effort.

So here are some tips…

First of all, be sure to use a “clean” copy of your Accounting System COA.  Don’t include GL Accounts that aren’t used by your accounting system or ones that you don’t intent to use for budgeting or forecasting in Adaptive Planning.  And remember, if you need to add or delete accounts later (next month or next year), it is very easy to do in Adaptive Planning so you don’t have to have a “perfect” COA to get started.  Also, keep in mind which accounts you will need for importing actual data from your accounting system for Budget/Forecast to Actual reporting purposes – these should all be included.  Actual data is mapped from your accounting system into AP on an account level basis – this can be one to one or many to one.

The next thing to consider is the GL account naming convention.  To some degree this depends on the primary users of the system.  Each GL account in AP has two primary attributes – a “Name” and a “Code”.  The “Name” is what you will see on sheets and reports.  The “Code” is what the system uses behind the scenes – it is easily seen too, but not automatically presented to the user.  Typically each GL account has a number that indicates the type of account within the hierarchy (i.e. an expense would be in the 6000 range) and a name that indicates the use of the account (i.e. Office Supplies).  So if the primary users are Accountants that are very familiar with the numbers you might include the account number and name in both the AP “Name” and “Code”.  On the other hand (and I think this is the best practice) if the system will be used by a variety of users, include only the account name in the AP “Name” attribute and include both the account name and number in the AP “Code” attribute.  Then you have the best of both worlds – if you are looking at a sheet it is less cluttered because it doesn’t have all of the account numbers, but if you want to know the number of an account, simply hover the cursor over the account name on a sheet and the number will be revealed in a pop-up.

Another important aspect of the GL structure is the use of the Parent Child relationship within the hierarchy.  A best practice is to use Parent accounts to facilitate reporting.  In other words, since a Parent Account is a built in roll-up account, used these where you would want to be able to expand or collapse the level of detail on a report or on a sheet.  Another tip to remember about Parent accounts is that they cannot contain formulas or input data – they are simply rollups.  So if you periodically need an account to hold “miscellaneous” or “other” charges, simply create a child account with this distinction (i.e. Other Office Supplies), since you cannot just add data to the Parent account.  Also, to remind us that the Parent accounts cannot hold unique data or be used to import data into, it is best not to assign a GL account number to Parent accounts in the AP “Code”.  This way, at a glance it is easy to tell which accounts are Parents and therefore are not available for input or import data.

Finally, be sure to take advantage of the ability to import your GL structure into AP.  Simply use the system generated import template as a tool to create your GL structure in Excel and then with the push of a button, you can import it.

A Rolling Forecast is the most effective approach to budgeting and forecasting for most businesses.  In general, creating an Annual Budget takes a considerable amount of effort.  If this budget is then out of date (due to economic or environmental changes) and therefore useless 45-90 days after its completion, the value of this annual exercise is questionable.  However, if you create a Rolling Forecast you will always have an accurate view of at least 12 months of forecasted financials.

To begin this process, create your Annual Budget as an Adaptive Planning version that includes 2 years.  The first year is your official Annual Budget and the second year is an out year forecast.  Once this Annual Budget is approved by your board, the version should be locked, so the data cannot be changed.  This keeps it consistent for use as the benchmark to compare with all other scenarios through the rest of the year.  Then on a monthly basis, update your Actuals version with the most recent month’s actual data and create a new version that is a copy of the prior month’s version.  For example, if your fiscal year is the calendar year, in February once you update your Actuals version with January actual data, you would copy your locked Annual Budget to create a new version.  Then set the Start of Plan variable for this new version to February of the budget year.  This will allow the January actual data to be seen within this new version.  At this point, your new version is the Annual Budget updated with January Actual results.  Continue this process during the year – in March you would copy the February version, and then so forth each month.

Each month when you update with actuals and create your new version, you should tune or update this new version with any changes that are required to reflect any changes in your business.  These could be as simple as a new employee or additional sales or as complex as a new division.  This allows you to keep tuning your forecast each month, but at the same time maintain your prior monthly forecasts and your original Annual Budget.  Any or all of these are available for comparison to one another.

As a best practice, you should develop a naming convention to allow you to easily distinguish the various versions, since by year end you’ll have at least 12 versions.  This could be as simple as naming the Annual Budget, “2012 Annual Budget”, and then naming each forecast, “2012 Forecast 1-11”.  The 1-11 in the forecast name indicates the months of actual data (1) and months of forecast data (11).

To continue the Rolling Forecast process, at the beginning of the next budget cycle, simply create a new version from the latest forecast version, and extend the planning horizon one year by moving the End of Plan variable out one year.  Then use this new version as the starting point for your next Annual Budget.  Since you have been updating each Forecast version, this new version will be pretty accurate and should mostly need tuning in the new out year.

This Rolling Forecast process is easy to maintain and provides tremendous flexibility for reporting variances between your Annual Budget and various monthly Forecasts or other scenarios.

A Rolling Forecast is the most effective approach to budgeting and forecasting for most businesses.  In general, creating an Annual Budget takes a considerable amount of effort.  If this budget is then out of date (due to economic or environmental changes) and therefore useless 45-90 days after its completion, the value of this annual exercise is questionable.  However, if you create a Rolling Forecast you will always have an accurate view of at least 12 months of forecasted financials.

A Rolling Forecast is the process of creating a budget and forecast beyond the next fiscal year, or normal Annual Budget period of 12 months.  This can be as little as 13 months or as much as several years.  The idea is to always have at least 12 months of forecasted data in addition to actual data through the most recently completed actual month.  This can be accomplished by starting with a 24 month forecast – the first twelve of which is your Annual Budget, and the rest is a forecast that you will use as the basis for your Rolling Forecast.  Then on a regular basis, usually monthly, you update your Rolling Forecast with the most recent actual month’s data and then review the remaining forecast in order to “tune” it and keep it as accurate as possible.  This creates your Rolling Forecast.

By reviewing and tuning your Rolling Forecast regularly, you will adjust it for the latest economic an environmental impacts.  Also, this regular exercise spreads the overall effort of budgeting and forecasting out over time.  This minimizes the time consumed on the Annual Budget process by reducing it to a review and tuning effort.  When the Annual Budget time draws near, you simply take the next fiscal year from your Rolling Forecast, extend it out a month or more, and you have a great starting point for your next Annual Budget that is accurate, due to your monthly tuning. Then once your Annual Budget is approved, you use it as the basis for your next Rolling Forecast and repeat the process, always maintaining at least 12 months of forecasted data.

Another huge benefit to a Rolling Forecast is that it keeps the planners (whether they are full time planners or department Managers) in touch with the data, and therefore the forecast.  This makes the analysis of why expectations were not met or hopefully exceeded a regular by-product of the process.  And that is the real reason we budget and forecast – to understand where our business is headed and why; and to understand what needs adjusting if our business is not headed in the desired direction.