Checkers Drive-In Restaurants accelerates financial planning cycle

Optimizing budgets and forecasts with IBM Cognos TM1

Published on 26-Jul-2011

"The three primary benefits we are seeing from TM1 are speed, performance and power... When you combine these advantages with the fact that we will achieve full return on investment in one to two years, it’s obvious why moving to TM1 was the right move for our business." - David Royle, Manager, Financial Planning and Analysis at Checkers Drive-In Restaurants

Customer:
Checkers Drive-In Restaurants

Industry:
Retail

Deployment country:
United States

Solution:
BA - Business Intelligence, Optimizing IT, Optimizing IT

IBM Business Partner:
Perficient

Overview

Checkers Drive-In Restaurants Inc. is the largest chain of double drive-thru restaurants in the United States, operating under the Checkers Drive-In and Rally’s Drive-In brands. The company employs more than 5,000 staff at 300 restaurants, and operates a franchise model that contributes a further 500 locations, extending its reach across 26 states. Checkers achieves total annual sales of around $625 million, of which $280 million is generated by the company-owned restaurants.

Business need:
Financial planning processes at Checkers relied on spreadsheets and could take up to three months each year. The company wanted to find a faster, more flexible solution that would help it manage financial performance in a very dynamic environment.

Solution:
Working with Perficient, an IBM® Business Partner, the company implemented IBM Cognos® TM1 in order to better manage the budgeting process and provide a single platform to analyze performance and identify trends across 300 company-owned restaurants more efficiently.

Benefits:
Accelerates the annual budget process from three months to around three weeks. Supports the introduction of monthly forecast updates, enabling faster, more effective response to changing economic conditions. Delivers return on investment in one to two years by eliminating the need for dedicated finance resources and enabling more robust food and labor cost management. Increases agility by enabling dynamic adjustment of financial models to align with business growth and structural changes.

Case Study

Checkers Drive-In Restaurants Inc. is the largest chain of double drive-thru restaurants in the United States, operating under the Checkers Drive-In and Rally’s Drive-In brands. The company employs more than 5,000 staff at 300 restaurants, and operates a franchise model that contributes a further 500 locations, extending its reach across 26 states. Checkers achieves total annual sales of around $625 million, of which $280 million is generated by the company-owned restaurants.

A moving target
Checkers’ business is constantly growing and developing. From an operational perspective, the company currently has seven field directors who are responsible for 18 different markets. Each market contains a number of districts, overseen by district managers; and each district contains between four and eight restaurants. As restaurants are opened, acquired, relocated or sold, this operational structure necessarily changes – and with the pace of changes in the company’s markets Checkers found that its spreadsheet-based annual planning and budget process was not agile enough to keep pace.

“Our ability to respond to changing conditions wasn’t just an organizational challenge; it was also an issue for a number of other reasons,” comments David Royle, Manager, Financial Planning and Analysis at Checkers Drive-In Restaurants. “In the quick service restaurant business, margins are always very tight, and there are two major expenses to worry about: food and labor. As commodity prices shift, the cost of ingredients can vary significantly from previous forecasts, which has an effect on margins. Equally, local menu and eating patterns can affect staffing levels in different markets, which has a direct impact on labor requirements.

“If you are only doing your planning processes on an annual basis and there are significant changes in either of these factors, you can end up with budgets that no longer make sense – and major variances by the end of the year. Being able to update budgets each period gives managers more confidence in the data and provides a greater sense of buy-in.”

A lengthy process
The company wanted to move to a new model that would allow for updates to forecasts each period (each fiscal year is composed of 13 four-week periods) – but its existing financial planning processes were too cumbersome to support this. The annual budgeting process relied heavily on complex spreadsheet work, which was performed by limited finance and accounting resources. The whole process took up to three months each year, so the idea of providing more frequent updates was simply not a practical proposition.

“As well as being complicated, slow and inflexible, our existing process was expensive in terms of time,” says David Royle. “We realized that if we could find a solution that could eliminate our reliance on our internal team’s dedicated time to develop a budget that was stale by the time it was finished, it would potentially deliver return on investment quite rapidly.”

Finding a solution
Checkers’ senior finance team began defining requirements and evaluating potential solutions from a number of different providers, and quickly assembled a shortlist of options. After further evaluation, the company selected IBM Cognos TM1.

“Our CFO had used Cognos TM1 in a previous job, and was very enthusiastic about its capabilities,” explains David Royle. “When we saw demos of what it could do – compared to our old spreadsheet-based processes – there was no question that it could deliver a dramatic improvement in our planning processes.”

The right partner
The next stage was to find a partner that could provide insights on financial processes as well as plan and execute the TM1 implementation. The Checkers team chose Perficient’s Enterprise Performance Management group.

“Perficient had a lot of experience of financial planning solutions in our industry, and we felt that their expertise would be pivotal to our success,” comments David Royle. “Their approach to project management was also very impressive. At first, when they said they could do the whole implementation in three or four weeks, we just laughed – but they delivered exactly what they promised. We really can’t speak highly enough of them.”

Online analytical processing
The initial implementation revolved around the creation of a number of online analytical processing (OLAP) cubes. These cubes are multi-dimensional data structures that enable very rapid manipulation and analysis of information from multiple perspectives. The first project was to create a general ledger cube for financial planning, while subsequent projects added further cubes for analyzing food and labor costs and HR statistics.

“One of the best things about Cognos TM1 is that it marries a database back-end with a familiar Microsoft® Excel® user interface,” comments David Royle. “This means that our users were able to pick it up and use it with minimal training – but at the same time, it’s so much more powerful, flexible and reliable. If a restaurant opens or closes, or we need to redefine our districts or markets, we can make the change in TM1 almost instantly. These types of changes would have taken hours in our old spreadsheet environment, especially if you wanted to go back and see historical positions.”

Accelerating the budgeting process
The solution has simplified the annual budgeting process to the extent that Checkers can use internal part-time resources instead of dedicated support, and the whole process can be completed in three weeks rather than three months. Crucially, since it is now so much easier to make changes and updates, the company has been able to introduce a monthly forecast update cycle – so it can respond much more effectively to changing market conditions, food costs and labor requirements.

“Moving to a monthly forecasting model that utilizes the most current assumptions means we can provide our restaurant managers with budgets that they can believe in, which is critical for effective operations,” explains David Royle. “Moreover, since we no longer need to dedicate our internal staff for our annual budget process, we are seeing significant savings: as a result, we will achieve a full return on investment for this project within one to two years.”

Enhanced operational insight
The company has also enhanced its insight into its main costs – analyzing ‘ideal” food cost and ‘ideal” labor cost against actual performance by restaurant. IBM Cognos TM1 generates reports on these key performance indicators, which are reviewed by the company’s operations directors. This helps Checkers understand which restaurants are performing best, and take action to correct those that are under-performing.

“We’ve given the restaurants a system for prescribing how much labor they should be using, based on analysis of sales patterns by hour,” says David Royle. “That gives us our measuring stick. We can analyze the data restaurant by restaurant and hour by hour using data from our POS, and also measure improvement over time with the help of TM1. Doing this would be very complicated in Excel, but is very easy to do leveraging the TM1 cube structure”.

“TM1 gives us the insight we need to identify variances to budget quickly and take appropriate actions. We can’t claim that the software gives us the ability to turn around a restaurant in distress – that comes down to the skill and leadership of the people in the field – but it certainly helps us see where the issues are and understand where to focus our resources. As a result, we’ve seen significant improvements in profitability in terms of tighter food and labor costs and overall P&L cost management.”

Scenario analysis
IBM Cognos TM1 also enables Checkers to create and analyze different scenarios to enable the company to answer ‘what if’ questions. In late 2009, the company decided to acquire around 70 restaurants from franchisees. Ahead of the acquisition, the finance team was able to create an alternative scenario that included the last two years’ sales and costs from those locations, enabling senior managers to make a fair comparison with Checkers’ own restaurants and better understand the implications of the blended financial results in more detail.

Speed, performance and power
David Royle concludes: “The three primary benefits we are seeing from TM1 are speed, performance and power. We can process large amounts of data very quickly – we have around 200,000 data fields in each scenario, and we have several scenarios. The cube structure gives us an efficient way of managing our complex and ever-changing organizational landscape – we have around 275 accounts and 400 business units. Compared to our old spreadsheet-based process, there’s also much more flexibility: we can consolidate the numbers in real time and deliver budgets to the field much more efficiently. When you combine these advantages with the fact that we will achieve full return on investment in one to two years, it’s obvious why moving to TM1 was the right move for our business. I can’t speak highly enough of it. It does everything an analyst needs that Excel can’t do.”

About Perficient
Perficient is a leading information technology consulting firm serving Global 2000 and enterprise customers throughout North America. Perficient’s professionals serve clients from a network of offices in North America and three offshore locations in Eastern Europe, India and China. Perficient helps clients use internet-based technologies to improve productivity and competitiveness, strengthen relationships with customers, suppliers and partners, and reduce information technology costs. To learn more about solutions from Perficient, visit: perficient.com

About IBM Business Analytics
IBM Business Analytics software delivers actionable insights decision-makers need to achieve better business performance. IBM offers a comprehensive, unified portfolio of business intelligence, predictive and advanced analytics, financial performance and strategy management, governance, risk and compliance and analytic applications.

With IBM software, companies can spot trends, patterns and anomalies, compare “what if” scenarios, predict potential threats and opportunities, identify and manage key business risks and plan, budget and forecast resources. With these deep analytic capabilities our customers around the world can better understand, anticipate and shape business outcomes.

For more information
For further information or to reach a representative please visit ibm.com/analytics.

Products and services used

IBM products and services that were used in this case study.

Software:
Cognos TM1

Legal Information

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