Budgeting, Forecasting, and Closing Process


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Presentation by Jason Lundell on budgeting, forecasting, and improving the closing process

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Budgeting, Forecasting, and Closing Process

  1. 1. Budgeting, Forecasting, and Closing process<br />Presented by Jason Lundell<br />
  2. 2. Budgeting Techniques<br />Rolling Budget (typ. 12-18 mo. out)<br />Zero-based<br />Activity Based<br />SALY (Same As Last Year)<br />Fixed Incremental (last yr + %)<br />Flex<br />Bracket (best/worst case scenario)<br />
  3. 3. Budget Reporting<br />Budget Variance Report<br />Assumed: Budget is always right<br />Problems:<br />Doesn’t clearly define purpose<br />Confusion, many don’t trust it<br />Seasonality mismatch, not trended<br />Budget may be wrong<br />Report only in $ (need rates, %, units, etc)<br />Timing<br />
  4. 4. Strategic Planning Cycle<br />
  5. 5. Problem<br />If compensation is based on company performance or meeting certain target levels, it undermines any strategic plan<br />
  6. 6. Beyond Budgeting<br />Book by Jeremy Hope, Robin Fraser<br />Examined mostly non-US companies<br />Conclusion: Working with budgets, as practiced in most corporations, should be abolished. <br />
  7. 7. Beyond Budgeting<br />Organizations of any size and industry can use Beyond Budgeting<br />Examples<br />Toyota<br />SvenskaHandelsbanken (Swedish bank)<br />Aldi (German retailer)<br />Southwest Airlines<br />Ahlsell (Swedish building materials wholesaler)<br />ISS (Danish facilities service group)<br />World Bank<br />Sightsavers International (UK charity)<br />
  8. 8. TraditionalHierarchical Control<br />
  9. 9. TraditionalFixed Process<br />
  10. 10. AdaptiveDevolved Network<br />
  11. 11. AdaptiveDevolved Network<br />Six principles for Devolution<br />Provide a governance framework based on clear principles and boundaries<br />Create high-performance climate on relative success<br />Give people freedom to make local decisions that are consistent with governance principles and the organization’s goals<br />
  12. 12. AdaptiveDevolved Network<br />Place responsibility for value creation decisions at front line teams<br />Make people accountable for customer outcomes<br />Support open and ethical information systems that provide “one truth” throughout the organization<br />
  13. 13. AdaptiveAdaptive Process<br />Radical Devolution<br />Adaptive Processes<br />
  14. 14. AdaptiveAdaptive Process<br />Six principles for Adaptive Management<br />Goals are based on maximizing performance potential<br />Base evaluation and rewards on relative improvement contracts with hindsight<br />Make action planning a continuous and inclusive process<br />
  15. 15. AdaptiveAdaptive Process<br />Make resources available as required<br />Coordinate cross-company actions according to prevailing customer demand<br />Base controls on effective governance and on a range of relative performance indicators<br />
  16. 16. Beyond Budgeting<br />Commonality: All successful companies examined in Beyond Budgeting adopted the balanced score card<br />Focused on four broad categories (FCIL)<br />Financial<br />Customers<br />Internal<br />Learning<br />
  17. 17. Beyond Budgeting<br />Balanced Score Card<br />Linkage<br />Cause & effect<br />Drivers & outcomes<br />Leading vs. lagging<br />
  18. 18. Beyond BudgetingBalanced Score Card example<br />
  19. 19. Beyond Budgeting<br />Identify what matters to company<br />Must be measurable, quantifiable<br />Hindsight<br />Numbers need to be flexible<br />Relative<br />
  20. 20. Planning<br />How do you document your planning assumptions?<br />Need minimum of 3 (per experts):<br />Source of information (where did you get it?)<br />What are the interdependencies between various assumptions? (sale are dependant on…, cost of sales depend on…)<br />Timing issues (when is it going to happen, how long will it take, etc)<br />
  21. 21. Forecasting information flow and level of detail<br />
  22. 22. Forecasting Trumpet<br /> Next 12 months Strategic Plan <br />Harvard: Cone of Uncertainty<br />Larger the cone, greater the uncertainty and precision<br />Cone of Uncertainty is inevitable<br />
  23. 23. Forecasting<br />U.S. National Average:<br />Predict, plan, and forecast with 90% accuracy only 90 days in advance<br />Intel model<br />Budgets in 90 day increments<br />90 – 100 – 90<br />Forecast a year out<br />
  24. 24. Final Thought<br />Budgeting is a poor attempt at micromanagement<br />
  25. 25. 10 Tools for More Effective Close<br />Motorola<br />Identified 10,000 defects in closing process<br />10 day close<br />Finance & Accounting costs: $140 million or 2.4% of annual revenues<br />
  26. 26. 10 Tools for More Effective Close<br />Flow chart the close process<br />Check sheet for recording instances and frequencies of defects<br />Brainstorming – ask questions and scrutinize the process (why is this taking so long?, etc)<br />Nominal group technique – through process of discussing & voting, prioritize and narrow down list of reasons why things take so long<br />
  27. 27. 10 Tools for More Effective Close<br />Line chart / graphical analysis<br />Scattergrams for regression analysis<br />Pareto chart – 80 / 20 law – “law of the significant few & insignificant many”<br />
  28. 28. 10 Tools for More Effective ClosePareto Chart<br />
  29. 29. 10 Tools for More Effective Close<br />Stratification – cure the disease once and for all, don’t just treat symptoms<br />Cause & effect – “ishilowa” or fish bone<br />
  30. 30. 10 Tools for More Effective CloseCause & Effect – fish bone<br />Man<br />Machine<br />Defect # 1<br />Method<br />Material<br />
  31. 31. 10 Tools for More Effective Close<br />Force field analysis – focuses on goal<br />Assume goal is 2 day close. List support and constraints<br />
  32. 32. 10 Tools for More Effective Close<br />Motorola<br />End result at end of six year study and enhancement to closing process:<br />Reduced defects to 200<br />95% reduction in overtime hours<br />Finance & Accounting costs reduced to 1% (U.S. benchmark)<br />