OIS Phase II is the “bridge” Phase between Phase I’s success and Phase III’s implemention which discontinues the traditional budget.  And, in so doing established a new corporate culture; one focused on profit improvement and not cost containment.

As such, there are a number of objectives that must be achieved before Phase II can be implemented:

• Objective 1: ZS will provide future casting support for OIS’s response functions as required
• Objective 2: OIS will improve profit beyond what traditional budget had planned for Year 1 by:

a) updating OIS Phase I’s model, appropriately, with changes from Year 1’s budget including:

1. • 1. the budget’s annual forecast and annual future forecast for the S of SG&A
     2. changes envisioned for next year’s COGS + G&A
   • optimizing the new model. The result is a new forecast and income statement that provides  most profit possible.
   • creating Year 1’s more profitable budget by simply adding Year 1’s strictly fixed costs to OIS and summing the activity costs of each department to create the departmental budgets for Year 1

Unfortunately, OIS and the traditional budget are the same for only a very few weeks as unpredicted economic dynamics unfold:

1. 1. making the budget’s forecast increasingly “out of step”
   2. making, in turn, the demands placed on the departments’ budgets’ just as “out of step” with the unpredicted demands that will be placed on them
   3. also, firm’s profit is only updated-able during Year 1 at the highest levels of aggregation: Revenue – costs = profit.

b) Fortunately, OIS Phase II provides the CFO/CEO with a forecast and income statement during Year and for future years that is always current because the forecast is updated whenever the current OIS’s forecast assumptions change importantly.

For example:

• • important new product delivery  slips
  • more aggressive competitive pricing announced
  • strike
  • economic outlook improves or deteriorates
  • et al.

Another update also occurs at the end of each of the current year’s quarter:

• • a comparison is made of the demand OIS had forecast-ed for that quarter with that quarter’s actual demand.
  • for those differences deemed significant, the associated response functions are updated.
  • OIS then computes a new income statement including a new most profitable forecast

Thus any new profit opportunities are identify as they occur!  So, if the new profit warrants pursuing during OIS Phase II, the CFO/CEO have all the information at the income statement line item detail they need to make the necessary budget changes to achieve the new profit.

• Objective 3: Forecasting department should work for the CFO. If not, the forecasting department will provide the CFO with a forecast upon his request.

NOTE: Achieving Objective 3 is essential because, of all the analytic advantages OIS provides the CFO/CEO, the most important one forecasting for which OIS establishes a new best practice.

• Objective 4: Begin implementing a new form of the rolling forecast, the “rolling OIS.”  It is, in fact, the OIS implemented in OIS Phase III and will allow the CFO/CEO to achieve Objective 5.

NOTE: As a frame of reference, See IBM for traditional rolling forecast’s detail.

• Elaborating, at the end of the first quarter of the Year 1, a forecast is developed for first quarter, Year 2. Included will be a future forecast for the response functions required to relax the forecast’s assumption of a fixed forecast and the assumptions supporting the forecast incorporated into the new quarter’s OIS.
• That process continues for the next three quarters. Then, at the end of Year 1, the 4 quarters of the rolling forecast are replaced by the budget for Year 2  and the process described in Objective 2 begins anew as does the process described in Objective 4.
• Objective 5: Enough time will be provided before implementing Phase II for CFO/CEO to familiarize themselves with Phase III’s  functionality by experiencing OIS’s rolling forecast as described above.
• Objective 6: The CFO/CEO team will also be working out all the additional details involved in eliminating the traditional budget in Phase III including bonuses which are frequently associated with the departments’ budgeted expenditures.

An additional benefit for discontinuing the budget. 

Budgets generically have a variety of objectives. So, developing an OIS-based plan in Phase I to address them is an essential part of preparing for Phase II’s implementation. As a perspective, AccountingTools cites seven. Here is a generic mapping of OIS’s functionality to address the seven.  Importantly, it enhances all of them.

Finally, for other financial opportunities of possible interest to the CFO/CEO during Phase I:  See”Additional advantages for client’s CFO/CEO” tab on OIS home page