The model of the Financia International Airport is a very simple example of an Integrated Planning Model that exhibits many of the features of a larger, more complex model of an actual organization. The model is developed using Lotus 123 spreadsheet software. Such software is used simply as a free-form calculation and number management tool. The process of building the model is like fitting the pieces of an operational and financial puzzle together.

The model takes the general form of an accounting income statement, with a Revenue section followed by Cost and Profitability sections. Two other sections, Critical Variables and Measures of Performance, are added to manipulate the important factors of the model and view their impact on the organization. This particular model is set up to be a budgeting and three-year planning tool. The first column shows the results of the most recent year of completed financial and operational information. The second column shows the plan for the first or budget year. This is followed by a percent change computed to guide the planning process. Years two and three, in columns five and six, are then computed by entering percentage rates of increase in the fourth column. Such a structure is specifically designed for growing organizations that need to track future effects of current decisions.

The Revenue section develops an estimate of total revenues from operational variables and related fees. Red and blue values are inputs to the model, while all other values are computed. The blue values are simply entered in their respective cells in the model. The red values are considered to be Critical Variables and are actually entered at the end of the model, as explained below. Revenue components are computed directly from operational factors and fees in such a way that a simple reading of each line of the model should make clear how each component is derived. This tight logic makes the model a “white box,” through which understanding takes place easily and efficiently. When the model is used by a management team for budgeting and planning, this shared understanding facilitates focused dialogue and informed decisions.

The Cost section develops variable and fixed costs associated with each functional area of the organization. Again, costs are developed from operational variables. One of the natural byproducts of an operational model is a series of efficiency and capacity utilization ratios or percents that show the health of the operational aspects of the organization. The compelling reason for using operational factors as the basis of a budget or plan is the fact that a plan can only be implemented by what people do. Revenues and costs simply follow from activities and factors both within and outside the organization. Those activities that are controllable within the organization become the basis of the plan and function as measures of performance for managers and supervisors during the planning period.

The Profitability section can be set up in a variety of ways. Here, the profitability of each functional unit is computed separately and then aggregated for the total organization. This can only be done if each unit generates revenues and costs independently of other units. If this is not true some cost allocation process might be developed.

Just as an aircraft has controls, such as a stick and throttle, and measures of performance, such as directional and air speed indicators, the model has Critical Variables to control the results, and Measures of Performance to view them. Scenarios can be quickly developed that achieve the objectives of top management with maximum effectiveness and efficiency. IMS Quantum specializes in creating budgeting and planning tools for top management that can help yield successful strategies in complex environments.