Power Paragon, a division of defense-industry giant L-3 Communications, achieves a competitive advantage by combining an extremely detailed forecasting process with the rapid, widespread dissemination of information about how actuals compare with the forecasts. This open and efficient environment is made possible by a business performance management (BPM) software tool.

BPM Magazine: How does your forecasting process work?

Craig Hogan: In the first part of the year, we look at our five-year operating plan. It's a strategic-vision type of document. The process is heavily based on words and concepts. Financial metrics' involvement is limited to a detailed orders forecast, detailed capital R&D requirements, etc. They're very simple financial forecasts, but one of the most important meetings we have in our planning process is the up-front orders forecast meeting, where we dictate how big the company is going to be. The nature of our business is that we have high unit costs and low-volume production. So we go forward and consider the marketplace, our competitive position, where we think we are going to be strong or weak. Based on that, we make our decisions on which orders we're going to include in our revenue forecast.

Once we have identified the goals as laid out in the strategic plan, we talk about the factors of direct production that we're going to need. We spend a lot of time forecasting our direct components of labor and materials by individual project in a very detailed fashion. Any capital we need is thrown into the mix, along with R&D. Once those things are established, then we have in place how much direct capacity we need, so we do our manpower forecasts at that point in time. And then we start working on the supporting functions, how much indirect supervision we're going to need in support of that amount of labor, etc. When we're through with those pieces of it, we've already done some of the journal expenses -- how much we need for R&D, for example -- but we talk about how much we need for G&A to support the balance and the size of the business.

So we start from the top down, the orders we're planning to pursue, and develop the R&D and capital budgets. Then we go after a very low level of detail, bottom-up, explaining how we're going to support that vision.

BPM: How do you manage all the data that is part of such a rigorous forecasting process?

Hogan: Our business rules and data are stored in an Oracle database, and we use forecasting software from KCI Computing called CONTROL as a centralized access point. From CONTROL we can carve out sections of our data, look at it in spreadsheet format, make changes, and store the revised data back in an Oracle database. Having a forecasting tool with a spreadsheet interface is extremely useful -- think about how many people can look at data that is stored in Excel more easily than they can learn to use a new tool. We consolidate all of our forecasted general ledgers into a single master general ledger by rolling that information up into CONTROL. We also use CONTROL to forecast our expenses.

Only about half of our costs are tracked directly to the endeavor that we're doing, either direct labor or direct materials. The other half of our costs is for support functions. This would be somewhat different in a commercial enterprise, but this is typical of how the defense industry is organized. So the expense forecast is a critical component in the overall forecasting mix. Having a BPM software tool is important because it lets us track our expenses per person for the entire year: What is that person going to be doing? How much fringe are they going to need? How much are they going to have in direct charges? Where will they be charging on an ongoing basis? We accumulate this information for our staff -- we have several hundred people -- and roll that into our payroll forecast. Now that we've gotten to the top, we slice that back down into the component parts for where they're going to be going into the individual projects.

That sounds like a lot when you think about how difficult it would be to keep track of several hundred people crossing over several hundred programs, and to track them manually or in a spreadsheet. Because all the business rules, interrelationships and calculations are managed within our CONTROL solution, it only takes about half a day to do.