Loras College is proud to present our annual Business Analytics Symposium on March 27, 2014 at the Grand River Center in Dubuque, IA. Industry experts will share their insights about the evolving field of business analytics opportunities. Learn about everything from best practices when analyzing data to the importance and benefits of building a culture of analytics within your organization.
To learn more, secure your seat or to take advantage of group discounts visit www.loras.edu/bigdata.
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Best Practices in Financial Planning and Analysis | 2013 Business Analytics Symposium
1.
2. 2013 ANALYTICS SYMPOSIUM
February 12, 2013
Grand River Center
Dubuque, Iowa
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Best Practices in Financial Planning & Analysis
Dave Pooley – 617 797 2949
dpooley@pelotongroup.com
Vice President - Peloton Group
3. 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. 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. 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
7. 7
It's clearly a budget. It's got a lot of
numbers in it.
— George W. Bush
8. 8
Never base your budget requests
on realistic assumptions, as this
could lead to a decrease in your
funding.
— Scott Adams, Dilbert
9. 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. 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
12. 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.
20. 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. 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. 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. 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. 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)
28. 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. 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. 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. 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
34. 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. 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
36. 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
37. 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. 38
Drivers should be logical, actionable and relevant
Leverage external indicators
Evaluate model sensitivity of new drivers
3 Focus on drivers, not details
39. 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
41. 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. 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. 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
45. 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. 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. 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. 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
50. 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. 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. 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. 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. 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
58. 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. 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. 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. 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. 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. 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. 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
Editor's Notes
Consistent with what FEI shows as top concerns for CFO’s, Oracle sees these as the most salient issues.Externally – how can we better understand consumer demand and model scenarios that factor in market instability.Internally – how do we prepare for growth while maintaining margins.
Unfortunately, what we see consistently is finance managers swimming in spreadsheets. Each forecast is a push. Massive amounts of time spent gathering and not analyzing.