Considering Risks in Planning and Budgeting Process - A Prototype Implementation in the Automotive Industry

Corporate budgeting, planning and risk management are crucial functions in today's organizations. Yet, these important functions are often separated in different departments although both rely on similar information. This paper suggests connecting the underlying data structures by means of a software prototype. The suggested solution is based on a planning and budgeting solution running in a major European automotive company. The current Business Intelligence system is extended by hierarchical risk and value driver model that follows the organization's structure. It utilizes a risk-adjusted corridor planning approach based on Monte Carlo simulations. Instead of common point estimates the approach uses ranges that consciously represent uncertainty. As a result budgeting and forecasting are informed by additional knowledge. Hence, behavioral risk that is immanent in any planning activity can be managed.