Introduction: 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 processes. The author’s suggestion is that OIS’s support be provided by a small CHQ department reporting to the CFO. It’s a small department because OIS is a model and it’s straight forward to formulate the changes necessary in a current model or develop a new one to address the issues in which the CFO/CEO are interested.

Another way to think about the department is that it becomes, in effect, an advanced analytics “wheel house” for the firm under CFO/CEO leadership.

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 Chief Marketing Officer magazine describing Finance as currently behind in advanced analytics’. Certainly, something OIS fixes definitely.

Among the variety of advanced analytic advantages OIS provides the CFO/CEO, the most important is its forecasting capability. It sets a new best practices forecasting standard by providing a forecast and associated income statement that is the most profitable one possible. 

There are a variety of opportunities for the CFO/CEO to consider looking for profit other than what’s budgeted.

A. Profit opportunities include:

1. Last year’s profit not realized: First step in creating an actionable OIS model is to create a model of last year’s financial results. It is called the base line model and insures the model’s results are within 1-2% of last year’s results.  The next step is to relax that model’s assumption of a fixed forecast. The result is all the profit opportunities left on the table last year.  See technical details.
2. Incorporate all profit opportunities identified in forecast planned for next year’s budget:
   1. First step is for the forecast team to review the results of (1) as they formulate next year’s forecast
   2. Next step is to update the baseline model with all operational changes the budget introduced for next year
   3. The OIS model created with (1) and (2) is then run and the result is next year’s operational budget since Operational Budget (OB) = OIS + all the firm’s strictly fixed costs.
   4. Finally, the the traditional budget is created by summing OIS’s activity costs to create each department’s budget.
3.    Profit opportunities that emerge during the next year: Unfortunately, OIS and the traditional budget are the same for only a very few weeks as the traditional economic dynamics unfold:
   1. Making the budget’s forecast increasingly “out of step”
   2. And its profit only updated-able during the year at the highest levels of aggregation: Revenue – costs = profit

Fortunately there may be other applications’ forecasts within the firm that are being updated:

1. 1. Sales & and operations planning
   2. Integrated business planning
   3. Advanced production planning

If so AND an OIS model can be built of any of these these applications,  then:

1. 1. OIS and its most profitable forecast will supplant the application,  making it significantly more profitable
   2. Also, comparing OIS’s forecast with the budget’s forecast can determine if the profit opportunity is worth updating portions of the budget that are affected to achieve the additional profit.
   3. And the cycle repeated whenever OIS’s forecast is updated

B. Other financial opportunities of possible interest to the CFO/CEO:  See”Additional advantages for client’s CFO/CEO” tab on OIS home page

C. Plan for supplanting the budget in Phase II: Budgets generically have a 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.