As context, it is essential to understand how OIS differs from the traditional budget’s income statement. These differences are the essence of what makes OIS’s functionality so compelling starting with it’s forecast which is the most profitable one.v

1. Budget’s foundation: It is the firm’s department’s budgets while OIS’s is the activities of those departments. This distinction favors OIS enormously:
   1. Budgets can’t be modeled; activities can which makes much more relevant and profitable planning possible, as described below
   2. Those budgets provide no value for the firms’ customers; activities are what the firm does that create value for its customers
   3. Those budget’s are widely understood to be deeply flawed; activities are not.
   4.  Those budgets give the managers no knowledge of how to contribute to the firms’ profit other than under-spend their budgets, not a particularly likely recourse. Activity-based analyses show the managers how to make their activities more productive, tying their efforts directly to the firm’s profit.
   5. When the firm’s volumes are foretasted to improve or decline,  the budget has no professionally reasonably way to adjust the increase or decrease the departments budget for volume changes.  All that’s available is the percentages changes in the volume.

Conversely, the departments’ activities have been modeled as a function of volume! SO, if one can multiply, it doesn’t get any easier than to that accurately update the departments’ budgets!  See (1) above.

2.  Cause and effect: The traditional income statement is an effect; it is a derivative of the budget. OIS is the opposite; it causes the operational budget (OB) = OIS + firm’s strictly fixed costs

3.   Detail of forecast-ed profit: The budget’s departments’ budgets can’t be modeled. So, the budget’s detail is only valid on day 1 of each new year. After that, the only way to update profit is predicatively at the grossest level. Profit outlook = revenue minus total costs. Conversely, OIS’s profit is always current at the line item detail of the firm’s income statement.

4.  Analytics: The budget’s is predictive: What is result if X happens. OIS’s is prescriptive: what is the best possible result

Phase I:

Organization: The CEO and CFO will be using OIS to provide insights into improving both the firm’s profit and related aspects of the firm’s financial performance without disrupting the traditional budget’s process and utilization. The author’s suggestion is that OIS support should be provided by a small CHQ department reporting to the CFO. It’s a small department because OIS is a model and it’s simple to formulate the changes necessary in current model to address the CFO/CEO’s issue.

Another way to think about the department is that it becomes, in effect, a prescriptive analytics “wheel house” for the CFO/CEO.  In fact, such a function was out-looked in 2014 by the then CEO of Deloitte. In addition, in 2016 Thomas Davenport published another article in CMO describing Finance as currently behind in advanced analytics’. Certainly, something OIS addresses authoritatively!