In the capital-heavy oil and gas industry, a 5-year planning outlook just won’t cut it, says Joe Householder, SVP, controller, and chief accounting officer of Sempra Energy. In a recent interview with blogger Steve Player, Householder explained how a new business performance management (BPM) system is transforming the energy giant’s planning, reporting, and cost management processes.

Steve Player: In what ways have you been able to transform finance at Sempra?

Joe Householder: One of the things that we’ve been doing this year is that we, like many companies, have a 5-year planning process, and we decided that for the long term we will be building a lot of natural gas infrastructure, and these projects are very expensive. We’re just finishing two liquefied natural gas (LNG) receipt terminals; one was completed a few months ago, the other one’s going be completed next year. They’re around a billion dollars each, and they take about 4 years to build.

Well, the 5-year planning horizon isn’t long enough to deal with that. Some of the acquisitions like this EnergySouth one have some pretty long-term capital expenditures, too, so we decided that we needed to step out. We’re making our 5-year plan both a living plan and a 10-year plan. Now, that’s a little ambitious — you know, what you do in that latter 5-year period, it’s pretty far out there. But we’re doing that so that we can see what the effects of some of these projects are on our long-term growth and profitability. So that’s one step change that we’re making.

The other thing that we’ve done sort of in a transformational way is that we certainly have a lot of data in our systems. In the past, a lot of that has been reported — consolidated and reported — in a paperbound notebook to people, to executives and other senior managers within the businesses. It always takes so long, and when you look at it, if you have a question, then you have to go to somebody in finance and ask it.

We’ve created an executive portal that uses this data and allows for drill-down capability. I know that a lot of companies are moving in this direction. We’ve finally just finished this project and are rolling it out to people, and it has two components. One is just to take the normal data that we’ve been giving to people, but we give it to them electronically and they can actually drill down on a number and go straight down all the way to the general ledger and see what is in that number. If we have a business unit, they can see it by subsidiary if they go across, or they can drill down and see what the components of that number are.

So this is giving all of our finance people a better tool that they can use. As a result, we’re not chasing around and asking a lot of questions. It also gives our executives a tool that they can use so that they can look at something quickly and then not have to wait for a day or something for somebody to get back to them on it.

The other thing we did is about the fact that there’s always this concern that corporate overhead is high. Some of the business units want to know what their charges are. So we created as part of this portal a little tool where they can actually drill down and see what they are being charged for, from whom, and so forth. They can see some visibility and transparency in that. And I think that this just goes back to how we’re trying to help the executives who are running the business understand what their bottom line is. They can look at it and put some pressure on corporate overhead to control our costs.

SP: What about in the planning process? We’ve seen a lot of companies moving beyond traditional budgets to a continuous planning and rolling forecast, things like that …

Householder: What we were doing with our 5-year plan is turning it into a kind of living plan. We do an outlook process so that the 1-year plan is called our outlook and we update that twice a year — once right before the 2nd quarter earnings, and once right before the 3rd quarter earnings. This helps us to get our effective tax rate right based on what we believe our plan is. We have been moving as much as possible away from Excel into using Hyperion tools for both our financial reporting and now planning.

I think that this is an area I keep wanting to stress and push on. Excel’s a great tool, but it’s usually not the most efficient tool and it doesn’t allow for easily shared access in the same way that these other tools do.

For more on Sempra’s finance transformation, click here.

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