best practices in financial planning and analysis | 2013 business analytics symposium
TRANSCRIPT
2013 ANALYTICS SYMPOSIUMFebruary 12, 2013
Grand River Center
Dubuque, Iowa
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Best Practices in Financial Planning & Analysis
Dave Pooley – 617 797 2949
Vice President - Peloton Group
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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
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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
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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
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What are ―experts‖ saying?
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It's clearly a budget. It's got a lot of
numbers in it.
— George W. Bush
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Never base your budget requests
on realistic assumptions, as this
could lead to a decrease in your
funding.
— Scott Adams, Dilbert
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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
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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
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CFO Top Concerns
Consumer Demand Global Financial Instability
Maintain Margins Ability to Forecast Results
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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.
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What does the data tell us?
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Dark reality
93% of finance managers
are swimming in
spreadsheets
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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
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AQPC Study Shows the Need to Eliminate Talent Waste
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Best Practice Firms Metrics and Practices
Source: Hackett Group
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Best Practice Firms Reduce Effort and Focus on Analysis
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What frameworks are in place to guide my journey?
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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
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Best Practice Planning Process – Level 1
Capital AssetsPlanning
Workforce Planning
Long-Term Financial Planning
FinancialDetail
OperationalDetail
Predictive Modeling & Simulation
Cost Analysis
Planning, Budgeting & Forecasting
ProjectFinancial
Plans
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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 planAnnual 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
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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
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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)
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What are the success stories?
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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
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What are the leading practices?
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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
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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
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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
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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
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Event-based
Lightweight process
Fast and flexible
Dynamic and integrated with business drivers
2 Develop rolling forecast process
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Rolling Forecasts Require Process Change
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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
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The traditional budgeting and forecasting cycle does not provide
visibility and insight into the future
Q1 Q2 Q4Q3Annual
Plan
Forecast
OneQ1 Q2 Q4Q3
Forecast
TwoQ1 Q2 Q4Q3
Forecast
ThreeQ1 Q2 Q4Q3
Annual
PlanQ1 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 PlanQ2Q1 Q3 Q4 Q2Q1
Forecast
OneQ2 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
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Drivers should be logical, actionable and relevant
Leverage external indicators
Evaluate model sensitivity of new drivers
3 Focus on drivers, not details
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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
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Outcome
Strategy
Driver
Win Games
(World Championship)
RUNS
Moneyball by Michael Lewis
The Art of Winning an Unfair Game (baseball)
SpeedWeight/
Build
Arm
Strength
Expected Run Value
Slugging PctOn Base Pct
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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
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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
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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
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Models should be modular based
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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
4
Without an integrated Information Architecture
Legacy
CRM
SAP
Oracle
Analytics
Query and Reporting
Financial Management
Planning
Destination/End-Users Disparate SystemsData Sources Data Warehouse
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With an integrated Information Architecture
Destination/End-Users Data Sources Data Warehouse
Legacy
CRM
SAP
Oracle
OP
ER
AT
ION
AL
PLA
NN
ING
INT
ER
AC
TI
VE
D
AS
HB
OA
RD
FIN
AN
CIA
L
RE
PO
RT
ING
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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
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Uncontrollable External Factors Most Likely to Lead to Variances to Actual Performance
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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
ConventionalSingle Point Scenarios
AdvancedThinking in Ranges
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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
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Organizations must invest in and develop strategies and processes to
address all of the major planning levers
Functional
Process
FlowsGovernance
Model /
Management
SystemUsers
&
SecurityReports
&
Data Outputs
Data Sources,
Input Templates
&
Commentary
Statistical
Measures,
Allocations,
&
Adjustments
Financial
Accounts,
Dimensionality,
&
Consolidation
Strategic
IntentResults
Project Leadership & Controls
Change Mgmt & Communication
53
5 ©2006 Balanced Scorecard Collaborative, a Palladium company • bscol.com
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
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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
5 ©2006 Balanced Scorecard Collaborative, a Palladium company • bscol.com
Thank You!
56
Q & A
57
Sample Case Study
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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
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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 ExpenseStore
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
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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
Inp
uts
Activitie
s
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
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MaintenanceSupplies UtilitiesAdministrative
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
Inputs
Activitie
s
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 –
OpeningStore 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
Inputs
Activitie
s
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
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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