Amex Ends Budgeting as UsualAmex Ends Budgeting as Usual

The typical budgeting process, with its annual back-and-forth dance between departments and finance, "takes too long, is too detailed and doesn't focus on succeeding in the market." So said American Express senior vice president of corporate planning and analysis Vince Nerlino, speaking at Cognos's Business Performance Summit in New York in late January.

American Express started moving away from what Nerlino called "the march of a million spreadsheets" three years ago. In its place it has adopted a continuous planning and budgeting approach. "Each month, I meet with the divisional CFOs to understand the trends," he explained. "We've built driver-based models linked to financial outcomes that allow us to project where the trends are going. If we see opportunities or shortfalls, we can take action."

In addition to these monthly flash forecasts, American Express does three rolling forecasts per year that go deeper, and the company continually revises targets, investment decisions and forecasts looking out over a 24-month horizon.

Discussing the application of performance management theory, Nerlino said the concept of visibility isn't about having a clear vision of the future so much as "having really good contingency planning for a range of scenarios." He said Cognos's BI suite has supported dynamic planning with much less cycle time at American Express, as when the Gulf War and the SARS scare in Asia forced the company to "dig down to get to deeper performance targets" to offset losses in underperforming areas.

Nerlino said the best way to move to performance management isn't a "big bang," rather, it's a two- to three-year journey in which you institutionalize change. "You go for early wins, and you align [more and more departments and activities] with winning in the marketplace," he said. "We were able to gain several hundred more million dollars [in revenue] and drive performance metrics higher. That will get your general manager's attention."