Oracle Hyperion Planning is defined as a Web-based planning, budgeting, and forecasting software. We'll understand these three terms in this section with the help of some casual conversation between two gentlemen: John and Sam, given as follows:
John: Sam! Congratulations on your newly-bought apartment. How did you manage to buy it, considering it's a very expensive apartment worth 80,000 USD?
Sam: Thanks John. I have been saving money for some time to buy an apartment and managed to save 30,000 USD. The rest I got by taking out a home loan of 50,000 USD over a period of 15 years. I am pretty sure that apartment rates are going to increase in the near future.
John: That's good. But, how advisable is it, financially, to take such a huge home loan, considering you are going to re-pay a lot of money in the form of EMI's (Equated Monthly Installment to bank) every month? I hope, you don't end up paying more money to the bank.
Sam: Yes, you are right and that's the reason I am planning to repay the whole home loan amount in eight years rather than paying all 15 years and I forecast that the apartment price will appreciate from 80K USD to 100 K USD in three years. To save more money, I have started cutting down my personal expenses such as shopping, travel, and so on.
John: That's smart, so you have done all your planning already! Good luck.
This is a conversation that we might have heard or engaged in. The important observation from this conversation is that Sam has been 'planning'. Yes, the keyword is planning.
He planned and as per his plan, he saved money, and approached a bank for a home loan. He also planned to repay the loan amount quickly and he forecasts that his apartment price will appreciate by 20K USD in the duration of three years.
It would have not been possible for Sam to achieve his goal of buying an apartment without proper planning. If Sam has been living his life as if there is no tomorrow, then there is no plan and there is no prosperity too.
Therefore, individuals such as Sam plan and so do the corporate organizations. No organization is in the business with an objective to achieve nothing or make losses. The common goal is profit making that is generating more revenue. To achieve so, organizations plan.
Now, let us understand the definitions of planning, budgeting, and forecasting, and also understand the hidden, subtle differences between them.
The process of preparing for the future is planning. As a part of planning, Sam has to firstly set his goal. His goal was to purchase an apartment. To achieve it, Sam has to do initial research of his preferred location to buy an apartment, find out the market price, figure out the reputed builders, and many other such factors.
After rounding an apartment to buy, he'll start his financial plan to save and approach a bank for home loan. This is a simple plan. Now, let us try to relate the same to an organization.
Organizations initially set their goals or targets and plan accordingly. Hence, we define planning as the set of activities to achieve goal in preparing the future.
As a part of planning, generally, an organization has two types of plans:
Strategic planning : A strategic plan includes the goals and objectives of an organization. It looks into its current business and aims by setting goals of what it wants to be in future. It includes a comprehensive strategic plan of how to achieve and it is at a very high level of an organization.
Operational planning : This is a set of detailed guidelines or a detailed plan to be executed to achieve the strategic plan. This planning involves the granular details of setting the responsibilities of people, departments and divisions. Hence, it's rightly called 'operational'.
We'll learn more about these plan types from the Oracle Hyperion Planning application perspective in Chapter 4, How to create an Oracle Hyperion Planning Application.
We might have seen news papers printing in bold "United states budget for fiscal year 2010..." These are the budgets by the government of US, hence, it's defined as the 'government budget'. Likewise, organizations do budgeting, which is defined as a 'corporate budget', which is where our interest lies.
Note
What is a budget?
A budget in an organization is a formal plan that may be short term (one year) or long term (three years or more) and it's aimed to control its operations and help the management in decision making process.
In short, budgeting in an organization is planning how to spend money or how to allocate money to different departments or divisions. In the previous example, Sam had initially set the goal of buying an apartment and made a plan, and as part of his planning, Sam budgetted to allocate more money to bank savings and less money to personal expenses such as travel.
Therefore, we can say that budgeting is a part of planning and without budgeting the planning cannot be successful in achieving the organizational or strategic goal.
Forecast is to predict the future. We need to realize the fact that planning deals with future as well.
We know that the future is always uncertain and we cannot make any planning in uncertainty. Therefore, we make few assumptions about the future, which is called forecasting. In our previous example, Sam assumes that the price of the apartment will increase in near future and his forecast is appreciation of his apartment's price from 80K USD to 100K USD.
We clearly see that forecast indicates the probable course of future events, whereas planning looks at actions in terms of what is to be done, how to do it, and when it should be done.