Published on March 11, 2014
2013 ANALYTICS SYMPOSIUM February 12, 2013 Grand River Center Dubuque, Iowa INSERT YOUR LOGO HERE Best Practices in Financial Planning & Analysis Dave Pooley – 617 797 2949 firstname.lastname@example.org Vice President - Peloton Group
3 Personal Overview • 20+ year career - Industry & Consulting • Accounting and Finance background • Enterprise wide solution selling, delivery, and high client satisfaction track record • Key developer of culture and community in various start ups • Team Player, Team Builder and Entrepreneurial Sprit Background • Professional for fee based external training – hundreds of students thru planning and reporting tool training • Center of Excellence programs & leading practice sharing • Client ―Chalk Talk‖ and knowledge dialogue leader and contributor • Entrepreneur program at private high school • Group facilitation and team building Expertise • Dashboard – Wal-Mart (BSCOL concepts, KPI, and Standard Reporting) • Planning – EMC (driver based rolling planning P&L model using headcount and capital modeling) • Profitability – Fidelity (driver based allocation modeling and enterprise wide reporting) Solutions • Fairfield University – Fairfield, CT • Bowater – Pulp & Paper • Navigator Systems / Painted Word • Peloton Group / Balanced Scorecard • Fidelity Investments • Peloton Group • Entrepreneur, Volunteer, and Contributor Credentials
4 Concepts and key points serve as flexible guides – they are not rigid rules Approach & Background Guiding Principles An approach that meets your needs I can share You should adopt Around which
5 Agenda • What the experts are saying • What does the data tell us • What frameworks exist • What are the leading practices • What does success look like • Q&A
6 What are ―experts‖ saying?
7 It's clearly a budget. It's got a lot of numbers in it. — George W. Bush
8 Never base your budget requests on realistic assumptions, as this could lead to a decrease in your funding. — Scott Adams, Dilbert
9 The budgeting process in many companies has become costly, time-consuming, and inflexible control system for rewarding and punishing business managers. — Robert Kaplan & David Norton
10 The budget is an exercise in minimalization. You‘re always getting the lowest out of people because everyone is negotiating to get to the lowest number. – Jack Welch, GE Chairman & CEO
11 CFO Top Concerns Consumer Demand Global Financial Instability Maintain Margins Ability to Forecast Results
12 I want to see the forest, the trees, the branches and individual leaves – Lee Scott, CEO Wal-Mart Other Key Executive Thoughts Senior executives want scenarios and simulations that provide immediate guidance on the best actions to take when disruptions occur.
13 What does the data tell us?
14 Dark reality 93% of finance managers are swimming in spreadsheets
15 Accuracy, Timeliness and Relevance Seen as Greatest Weakness 33% 39% 43% 50% 47% 44% 14% 12% 16% 2% 2% 3% 0% 20% 40% 60% 80% 100% Relevance of forecasts Timeliness of forecasts Accuracy of forecasts Needs improvement Acceptable Excellent Not sure
16 AQPC Study Shows the Need to Eliminate Talent Waste
17 Best Practice Firms Metrics and Practices Source: Hackett Group
18 Best Practice Firms Reduce Effort and Focus on Analysis
19 What frameworks are in place to guide my journey?
20 Budgeting and Planning Shareholder Value Better Company Forecast Accuracy Better Strategy Formulation and Execution More Time & Cost Efficient Planning and Budgeting Market Expectations Performance vs. Expectations Actual Performance Communicate with Investor Management Credibility Improved Management Managing Market Perceptions Company Performance Reproduced from ―Driving Value Through Strategic Planning and Budgeting‖, Accenture in association with Cranfield University The guide highlights a few potential purposes of the planning process
21 Best Practice Planning Process – Level 1 Capital Assets Planning Workforce Planning Long-Term Financial Planning Financial Detail Operational Detail Predictive Modeling & Simulation Cost Analysis Planning, Budgeting & Forecasting Project Financial Plans
22 Run models based on key strategies Set targets Seed targets to annual operating plan Start annual process Update strategic plan with latest forecast Evaluate resource and capital requirements A typical World Class Planning Process – Level 2 Strategic plan Annual budget / plan Include operational details Evaluate workforce and capital Monthly / rolling forecast Update strategic plan Include operational detail and model variability of financial plan Update forecast with latest budget and actuals
23 Detailed World Class Planning Process – Level 3 Basic Planning Steps Prepare Develop Sign off working plan Review Provide access/ distr. plan Input plan Submit plan Consolidate plan Review plan Revise submitted plan Set planning structure Populate plan Set global constants Set baseline/ default plan PS01 PS02 PS03 PS04 PS05 PS06 PS07 PS08 PS09 PS11 PS10 Iterative Modeling
24 Companies capture efficiencies from new planning solutions and can add value to the firm. Eventually optimizing and driving strategy execution. Step 1 Step 2 Step 3 Maximum Productivity of Available Resources More Cost & Time Efficient Planning and Budgeting (decentralized inputs & global plan consolidation) Better Company Forecast Accuracy (driver-based modeling) Better Strategy Execution (rolling forecast, continuous resource allocation & relative performance targets)
25 What are the success stories?
26 What results are firms achieving Uncovered estimated annual cost savings of $1.2M in missing shipping charges Shortened budget cycle. Replaced 1000‘s of Excel spreadsheets Reduced monthly forecasting cycle by 48% . 21 – 11 days. Reduced forecast error by 20% Standardized process globally and improved forecast accuracy by 30% Cut Sales Forecasting cycle from 2 weeks to 3 days. Reduced annual budget cycle by 50% Cycle time Accuracy Effort & Cost Standardization Simplification Continuous Improvement
27 What are the leading practices?
28 Leading Practices 1 Measure financial impact of strategic objectives 3 Focus on drivers, not details 5 What-if scenario analysis 2 Develop rolling forecast process 4 Link human resource and capital allocation plans 6 Mitigate risk and uncertainty 7 Anticipate management reporting changes
29 Evaluate strategic projects and initiatives Simulate effects of M&A Develop a culture of analytics Use analytics and planning to facilitate the conversation Set annual targets 1 Measure the financial impact of key business strategies
30 Successful strategy execution requires linkage between strategy and operations. The planning process provides the bridge … Strategy OperationsThe planning process is at the core of linking strategy to operations The planning process is how an organization can translate the strategy into action 60% of organizations do not link operational plans to strategy
31 Strategy Scorecard • Revenue • Cost • Margin • Ratios (ROIC) • Satisfaction • Engagement • Loyalty • Market Share FINANCIAL CUSTOMER Is your strategy clearly articulated and measured? What outcomes are you trying to achieve? Consider a strategy execution framework to link strategy to operations
32 Event-based Lightweight process Fast and flexible Dynamic and integrated with business drivers 2 Develop rolling forecast process
33 Rolling Forecasts Require Process Change
34 If rolling forecasts are interpreted as just another control system, they then will be perceived as just another reporting burden and only spurious data will result Beyond Budgeting
35 The traditional budgeting and forecasting cycle does not provide visibility and insight into the future Q1 Q2 Q4Q3Annual Plan Forecast One Q1 Q2 Q4Q3 Forecast Two Q1 Q2 Q4Q3 Forecast Three Q1 Q2 Q4Q3 Annual Plan Q1 Q2 Q4Q3 Q1 Q2 Q4Q3 2013 2014 2015 Actual Results No information beyond the current fiscal year • Is the organization making progress towards longer- term financial and non-financial objectives ? • Is their an opportunity to deploy / redeploy resources given expected financial performance ? • Are there opportunities / threats on the horizon that necessitate action today ? • What is the longer-term impact of near-term decisions being made today (eliminate programs, defer hiring, etc.) ? Forecast Results
The rolling forecast provides a continuous, extended view of expected performance Forecast Two Forecast Three Q3 Q4 Q2Q1 2013 2014 2015 Q3 Q4 Q4 Q1 Q3Q2 Q4 Q1 Fcst Four / Annual Plan Q2Q1 Q3 Q4 Q2Q1 Forecast One Q2 Q3 Q4 Q2Q1 Q3 • The rolling forecast supports strategic planning efforts including strategy refreshes Q1 • The rolling forecast supports target setting activities by with estimates of expected financial performance based on known assumptions • The rolling forecast provides the baseline for the annual plan Actual Results Traditional Forecast
Rolling forecasts focuses on root cause analysis around business drivers and action plans to address performance gaps Inbound Calls per Month 200,000 225,000 12.5% Working Days per Month 20 20 Calls per Agent Per Day 75 66 - 12.0% Capacity per Agent per Day 1,500 1,320 - 12.0 Peak / Absence Factor 1.2 1.1 - 8.3% Agents Required 160 188 17.2% Cost per Agent per Month $ 2,500 $ 2,500 Salary Expense $400,000 $468,750 17.2% $400,000 $468,750 17.2% Plan Actual Variance Plan Actual Variance Driver-Based Root Cause Analysis Traditional Analysis Variance analysis based on driver-based forecasts provides insight into both what happened and why it happened. • What: Salary expense 17.2% above plan • Why: (1) Call volume 12.5% above plan (2) Agent productivity 12% below plan (3) More agents required • Corrective Action: How do I address the performance shortfall ? Detailed Causal Analysis • Investigate the significant above plan call volume variance • Timing, scope, and effectiveness of Marketing programs • Other external demand drivers • Agent Productivity • Training program effectiveness • Enabling tools / technology • Agent proficiency, tenure, motivation, absenteeism • Customer service metrics Corrective Action Plans Actions Owner Date • Initiate forecast improvement project around Marketing Program response rates • Provide remedial training for existing agents • Engage placement services for new hiring • Complete assessment of agent talking scripts Marketing Training 10/1 12/1 Driver Model Variable Values
38 Drivers should be logical, actionable and relevant Leverage external indicators Evaluate model sensitivity of new drivers 3 Focus on drivers, not details
39 Building Driver-Based Models Logical – valid and coherent relationship Actionable – ability to influence outcomes Statistically Relevant – strong correlation between driver and result Simplifying Drivers Improves Agility and Increases Flexibility to Change Assumptions and Re-Forecast
40 Outcome Strategy Driver Win Games (World Championship) RUNS Moneyballby Michael Lewis The Art of Winning an Unfair Game (baseball) Speed Weight/ Build Arm Strength Expected Run Value Slugging PctOn Base Pct
41 Striking the Right Balance on Detail • Typical conversation. Finance - We don‘t have enough data…. Operations - We don‘t have the relevant data… • 50 account lines by major product group and entity should be sufficient
42 4 Link human resource and capital allocation plans Incorporate the appropriate level of detail in the enterprise planning process Ensure you have the right amount of workforce staffed Ensure you have incorporate the right amount of capital required
43 Assess Resource and Capital Assets Requirements Workforce Plan Financial Plan Capital Asset Plan Detailed Headcount, Staff Expenses, Salary & Compensation Detailed Depreciation, Asset Purchase/Sell, Asset Expenses
44 Models should be modular based
45 Create sandbox for BU‘s to test new assumptions Define process for extending analytical models Go beyond spreadsheets; keep process light Create and enabling technology platform 5 What-if scenario modeling thru technology advancements
46 Without an integrated Information Architecture Legacy CRM SAP Oracle Analytics Query and Reporting Financial Management Planning Destination/End-UsersDisparate SystemsData Sources Data Warehouse
47 With an integrated Information Architecture Destination/End-UsersData Sources Data Warehouse Legacy CRM SAP Oracle OPERATIONAL PLANNING INTERACTI VE DASHBOAR D FINANCIAL REPORTIN G
48 6 Mitigate risk and uncertainty Move from ‗possibility‘ to ‗probability Review full range of outcomes Quantify the risk of not achieving your goals Know the probability of a particular outcome Understand key factors impacting your business
49 Uncontrollable External Factors Most Likely to Lead to Variances to Actual Performance
50 Quantify Risk and Uncertainty • Only 3 possible outcomes • Limited view of risk • What are most important risk factors? • What are the odds I‘ll miss the target? • Which outcome is most likely? • Full range of outcomes • Illustrate probability of outcomes • Immediate visibility into inherent risk • True risk analysis for financial models Conventional Single Point Scenarios Advanced Thinking in Ranges
51 Develop strategy for governing change in reporting structures Centralize change management process into a hub Provide what-if visibility into new structures before implementation 7 Anticipate management reporting changes
52 Organizations must invest in and develop strategies and processes to address all of the major planning levers Functional Process Flows Governance Model / Management System Users & Security Reports & Data Outputs Data Sources, Input Templates & Commentary Statistical Measures, Allocations, & Adjustments Financial Accounts, Dimensionality, & Consolidation Strategic Intent Results Project Leadership & Controls Change Mgmt & Communication
53 High Level Road Map Establish the ―Blue Sky‖ vision up front Continuously make trade-off‘s • Balance short term desire to ―get it done‖ with long term platform needs Adopt a modular based approach • Build out the ―Blue Sky‖ vision over time Select and standardize on the best of breed vendors & tools • The whole platform as vendors products span the information platform Establish standards and knowledge sharing forums early in the process Build the environment with the vision to handle large data volumes • Driver based applications can mean more, volumes and types of data, not less • Technology can ripple impacts through the details quickly to derived new insights
54 How the books described it How it sounded at the conferences How the speaker explained it What it feels like at my firm What we really need What happened the last time
55 Thank You!
56 Q & A
57 Sample Case Study
58 About Friendly‘s Based in Wilbraham, Massachusetts Founded in 1935 with the intention to provide warm, caring, neighborly service to all who visit Serving handcrafted ice cream treats and classic comfort foods for 77 years Over 130 Restaurants Held in Private Equity Recently went thru bankruptcy
59 The Business Challenge Friendly‘s planned to rapidly deploy a robust solution to support the budgeting and forecasting needs of the business • Existing P&L budget and forecast process were facilitated through a combination of database files and ~60 Excel workbooks that performed complex calculations • The planning process was manually intensive, leaving limited time to perform value added analytic activities • Lacked the ability to perform what-if modeling and analysis within the existing solution • Budget owners were not held accountable to their plans due to a lack of visibility and clarity Restaurant Plan Corporate G&A Plan Franchise Plan Manufacturing Plan Distribution Plan Retail Plan Eliminations Sales Food Cost Labor G&A Expense Store Planning 60 + Excel Workbooks
60 • Planning: Provide the ability to develop the restaurant P&L (129 Stores, 50 Line P&L, etc), as well as the ability to load in the budget for Manufacturing, Retail, Custom Pack. Develop the G&A Model on a simplified level – excluding Headcount/Compensation Planning • Efficiency: Remove repetitive and unnecessary work from the existing planning process, with a focus on providing more time for value added analysis • Visibility: Provide enhanced visibility to the P&L, allowing planners to see the impact real-time as they update their forecast in the solution • Clarity & Accountability: Drive clarity and accountably for the forecast/plan into the business process -- specifically with Restaurant Operators • Scenario Modeling: Provide the ability to perform what-if/ad-hoc planning, where required Objectives Project Charter
61 Nightly Load of Actuals Sales Planning 1 2 • Clear Actual Scenario • Load Metadata • Load Actuals from .csv • Load Actuals from Lawson • Calculate and Aggregate the Database • Load Demand Data • Input Cust Count & Guest Check % Change • Review current variances • Input % Bump to Customer Count • Calculate Sales Plan InputsActivities Account | Organization | Actuals (.csv) | Actuals (Lawson) Demand Load | Input % Change | Input Customer Count % Bump Labor Planning – Hourly | Salary Food Cost Planning Taxes | Fringes | Benefits 3 5 • Calculate Price Change by store • Input Global Commodity Change and Other • Input Gap by store • Calculate final FC % of Sales and dollar amount • Load Hourly data from Labor Model • Load Salary data from HR • Manually input additional expenses • Calculate Labor Expense • Data copy from LY Actuals • Input % Drivers • Calculate expenses • Manually override if necessary • Calculate final expenses 4 LY FC % of Sales | Price Change | Cmdty Change | Other | Gap Data Load - Labor Model | Data Load - HR | Manual Input Copy in LY Actuals | Manually input % Drivers Friendly‘s Planning Process
62 MaintenanceSupplies Utilities Administrative Expenses 6 8 9 • Data copy from LY Actuals • Input % Drivers • Calculate expenses • Manually override if necessary • Calculate final expenses • Data copy from LY Actuals • Input % Drivers • Calculate expenses • Manually override if necessary • Calculate final expenses • Data copy from LY Actuals • Input % Drivers • Calculate expenses • Manually override if necessary • Calculate final expenses • Data copy from LY Actuals • Load data from files • Input % Drivers • Calculate expenses • Manually override if necessary • Calculate final expenses InputsActivities 7 Copy in LY Actuals | Data Load | Manually input % Drivers Copy in LY Actuals | Data Load | Manually input % Drivers Copy in LY Actuals | Data Load | Manually input % Drivers Copy in LY Actuals | Purchasing & IT Data Load | Manually input % Drivers Non-Controllable Expense – Advertising | Rent 10 • Data copy from LY Actuals • Load data from files • Input % Drivers • Calculate expenses • Manually override if necessary • Calculate final expenses Copy in LY Actuals | Finance, RE, & Accounting Data Load | Manually input % Drivers Friendly‘s Planning Process
63 Store Planning – Opening Store Planning – Closures Store Planning – Remodel 13 14 • Input # of new stores for each format • Input average yearly sales for each format • Input expense drivers by format • Calculate new store P&L • Data form to select stores to close • Ability to close at a monthly level • Reverse out P&L line items • Calculate closed stores • Data form to select stores to remodel • Ability to remodel at a monthly level • Increase sales evenly by % Sales Lift • Calculate remodel stores InputsActivities 12 # Store Openings by Format | Avg Sales by Format | Expense Drivers Select stores to close with date | Input other closing expenses Select stores to remodel with date | Input % Sales Lift Driver CC5000 Planning • Manually input expenses into CC 5000 • Calculate expenses 11 Manual Input of data Friendly‘s Planning Process
64 Realized Benefits • Eliminated the manual effort needed to update all 60 Excel workbooks when the sales plan or labor plan changed • Provided clarity into the drivers and calculations used to build the Annual Budget • Drove the accountability of the Departments for the Annual Budget • Decreased the amount of time needed to update and maintain key management reports • Eliminated the manual effort needed to perform “what-if” modeling • Reduced the level of effort and cost to the Annual Budget and the solution is supportable by Friendly‘s IT
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