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BA 003-SPRING 2000 Punitive Budgets

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BA 003-SPRING 2000 Punitive Budgets

  1. 1. Punitive Budgets <ul><li>Budgets usually mean spending constraints </li></ul><ul><li>“Financial Plan” is more appropriate </li></ul><ul><ul><li>Revenue goals </li></ul></ul><ul><ul><li>Spending support plan </li></ul></ul><ul><li>Standard element of overall financial mgt. </li></ul>
  2. 2. Driving the Complete Planning Process <ul><li>Also known as “Integrated Planning” </li></ul><ul><li>Defining the process </li></ul><ul><li>Timetable </li></ul><ul><li>The planning environment </li></ul><ul><li>Planning for Operating Results </li></ul>
  3. 3. The Integrated Planning Process SP $P MBO PARTICIPATION INTEGRATION COMMITMENT
  4. 4. Financial Planning: Setting the Scene <ul><li>Emphasize Use as Management Tool </li></ul><ul><li>Focus on Reality </li></ul><ul><li>Focus on Teamwork </li></ul><ul><li>New Priorities Selected </li></ul><ul><li>Reinforce No Gamesmanship </li></ul><ul><li>Pump the Organization Up! </li></ul><ul><li>Eliminate the “B” Word </li></ul>
  5. 5. Remember the F.A.T. Factor <ul><li>F uture in Direction </li></ul><ul><li>A ction in Orientation </li></ul><ul><li>T rackable in Design </li></ul>
  6. 6. Role of the CEO <ul><li>Sets the Tone </li></ul><ul><li>Leads All Group Meetings </li></ul><ul><li>May Delegate but Not Abdicate </li></ul><ul><li>Supports Planning Urgency </li></ul><ul><li>Can Make or Break the Process </li></ul>
  7. 7. Top-down--Bottom-up Debate <ul><li>Classic Delimma </li></ul><ul><li>Strength and Weaknesses: Both Ways </li></ul>
  8. 8. Top-down <ul><li>Strengths </li></ul><ul><ul><li>Speed </li></ul></ul><ul><ul><li>Assured Results </li></ul></ul><ul><ul><li>Cost Effective </li></ul></ul><ul><li>Weaknesses </li></ul><ul><ul><li>Gamesmanship </li></ul></ul><ul><ul><li>Loss of Morale </li></ul></ul><ul><ul><li>Loss of Commitment </li></ul></ul><ul><ul><li>Ineffective Decisions </li></ul></ul><ul><ul><li>Lack of Accountability </li></ul></ul>
  9. 9. Bottom-up <ul><li>Strengths </li></ul><ul><ul><li>Participative </li></ul></ul><ul><ul><li>Creates Ownership </li></ul></ul><ul><ul><li>Creates Commitment </li></ul></ul><ul><ul><li>Fosters KTT </li></ul></ul><ul><ul><li>Better Decision Making </li></ul></ul><ul><li>Weaknesses </li></ul><ul><ul><li>Time Consuming </li></ul></ul><ul><ul><li>Possible TMT Override </li></ul></ul><ul><ul><li>Some Morale Issues </li></ul></ul>
  10. 10. Soft Side of Financial Planning <ul><li>People Issues </li></ul><ul><li>Forced Numbers = Unrealistic Results </li></ul><ul><li>Unrealistic Goals = Games </li></ul><ul><li>Poor Incentive Comp. Plans = Inaccurate and/or Ill-advised Action </li></ul><ul><li>Focus on Human Resource Value </li></ul><ul><li>Motivated Employees Create Incredible Results </li></ul><ul><li>Expect Baggage and Some Discontent </li></ul>
  11. 11. Simplified Plan Schedule <ul><li>ACTION RESPONSIBILITY DUE DATE </li></ul><ul><li>1. KICK OFF MEETING CEO, CFO, MGRS -12 </li></ul><ul><li>2. PRELIM SALES CEO, MKTG -11 </li></ul><ul><li>3. MACRO-SCENARIO CEO, CFO, STAFF -10 </li></ul><ul><li>4. PLAN PACKAGE FINANCE -9 </li></ul><ul><li>-MACRO-SCENARIO </li></ul><ul><li>-BASELINE ANALYSIS </li></ul><ul><li>-ACTUALS </li></ul><ul><li>-SCHEDULES A, B & C </li></ul>
  12. 12. Simplified Plan Schedule-II <ul><li>ACTION RESPONSIBILITY DUE DATE </li></ul><ul><li>5. FINAL REVENUE CEO, MKTG -8 </li></ul><ul><li>6. MFG RESPONSE MFG -4 </li></ul><ul><li>7. INPUT #1 ALL -4 </li></ul><ul><li>REVIEW #1 STAFF -4 </li></ul><ul><li>8. ITERATIONS #2-4 ALL -4 TO -1 </li></ul><ul><li>FINAL REVIEW STAFF/BOARD -1 </li></ul><ul><li>9. PUBLICATION STAFF/FINANCE 0 </li></ul>
  13. 13. Kick-off Meeting <ul><li>CEO Driven </li></ul><ul><li>Corporate Tone Reinforced </li></ul><ul><li>M/S and Values Discussed </li></ul><ul><li>Key Issues and Strategies Reviewed </li></ul><ul><li>Integration Changes Discussed </li></ul><ul><li>Calendar Presented </li></ul><ul><li>Major Assumptions Discussed </li></ul><ul><li>Major Attribution Algorithms Discussed </li></ul>
  14. 14. Preliminary Sales <ul><li>CEO-VP Sales/Marketing Driven </li></ul><ul><li>Negotiated Level of Achievement </li></ul><ul><li>Several Weeks in Process </li></ul><ul><li>Compiled from Multiple Sources </li></ul>
  15. 15. Revenue Consideration <ul><li>Backlog </li></ul><ul><li>Direct Customer Contact </li></ul><ul><li>Strategic Plan </li></ul><ul><li>Product Development and Timing </li></ul><ul><li>Capacity </li></ul><ul><li>Historic Trends </li></ul><ul><li>Competitive Reaction </li></ul>
  16. 16. Macro-Scenario Model Financial Plan <ul><li>ABC COMPANY </li></ul><ul><li>STRATEGIC PLAN MACRO-SCENARIO </li></ul><ul><li> FY 1996 </li></ul><ul><li>Q196 Q296 Q396 Q496 1996 </li></ul><ul><li>$ % $ % $ % $ % $ % </li></ul><ul><li>SALES 10 100 20 100 30 100 40 100 100 100 </li></ul><ul><li>COGS 5 50 10 50 15 50 20 50 50 50 </li></ul><ul><li>GM 5 50 10 50 15 50 20 50 50 50 </li></ul><ul><li>R & D 1 10 2 10 3 10 4 10 10 10 </li></ul><ul><li>SALES 2 15 3 15 4 15 6 15 15 15 </li></ul><ul><li>G & A 1 5 1 5 1 5 2 5 5 5 </li></ul><ul><li>OP. EXPS 4 30 6 30 8 30 12 30 30 30 </li></ul><ul><li>PRE-TAX 1 20 4 20 7 20 8 20 20 20 </li></ul>
  17. 17. Some Financial Planning “Adders” <ul><li>Baseline Spending </li></ul><ul><li>Zero-Based Spending </li></ul><ul><li>Productivity Improvement Plans </li></ul>
  18. 18. Baseline Spending Plan <ul><li>Comparison with Last Year’s Spending </li></ul><ul><li>Only Salary Changes Allowed </li></ul><ul><li>No Change in Discretionary Spending </li></ul><ul><li>One Time Items Eliminated </li></ul><ul><li>No New Headcount or Capital Equipment </li></ul>
  19. 19. Zero-based Spending <ul><li>Authorized $ Reset to Zero </li></ul><ul><li>Each Expenditure is Justified </li></ul><ul><li>Recommended Every 4-5 Years </li></ul><ul><li>Time Consuming </li></ul><ul><li>Potentially Confrontational </li></ul>
  20. 20. Productivity Improvement Plans <ul><li>Makes Planning a Value-added Activity </li></ul><ul><li>Leads to Control or Reduction in Spending with Same or Higher Output </li></ul><ul><li>Includes Operational Guidelines </li></ul><ul><li>Eliminates Built-in Inflation </li></ul>
  21. 21. Final Revenue and Manufacturing Response <ul><li>Preliminary Sales in Direct Cost Detail </li></ul><ul><li>Will Vary by Company </li></ul><ul><li>Completion Should Provide for 4 Weeks Production Analysis </li></ul>
  22. 22. Interim Review <ul><li>Chaired by CEO </li></ul><ul><li>Functional VP Driven </li></ul><ul><li>CEO and CFO Compile Action Items and Summarize </li></ul><ul><li>Open to Financial/Operational Trade-offs </li></ul><ul><li>Interative and Inter-active </li></ul>
  23. 23. Financial Plan Package Content <ul><li>Narrative </li></ul><ul><li>P & L </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Cash Flow Statement (Receipts and Disb.) </li></ul><ul><li>Headcount </li></ul><ul><li>Department Expenses </li></ul><ul><li>Capital Asset Analysis </li></ul>
  24. 24. Role of Financial Executive <ul><li>Leadership </li></ul><ul><li>Innovation </li></ul><ul><li>Experimentation </li></ul><ul><li>Analysis </li></ul><ul><li>Compilation </li></ul><ul><li>Reality Check </li></ul><ul><ul><li>EVA analysis </li></ul></ul><ul><li>Catalyst </li></ul>
  25. 25. Planning Traps and Risks <ul><li>Operations Abandonment </li></ul><ul><li>Poor Assumptions and Allocations </li></ul><ul><li>Lack of Reality </li></ul><ul><li>Analysis Paralysis </li></ul><ul><li>No Contingencies </li></ul>
  26. 26. Bringing the Plan to Life: Monitor and Adjust <ul><li>Yuck #2 </li></ul><ul><li>Sales Opportunities </li></ul><ul><li>Cost Opportunities </li></ul><ul><li>Productivity Opportunities </li></ul><ul><li>When To Revise </li></ul>
  27. 27. Modified MNC Planning <ul><li>Complete HQ Strategic Plan </li></ul><ul><li>Complete Subs. Strategic Plan (1-3) </li></ul><ul><ul><li>Situational Analysis & Subs. SWOT </li></ul></ul><ul><li>Complete Subs. Financial Plan (4) </li></ul><ul><li>Collect Data (Monitor) (5) </li></ul><ul><li>Adjust (6) </li></ul>
  28. 28. Effective Mgt. Control <ul><li>Goal Congruence </li></ul><ul><li>Communication of Plans </li></ul><ul><li>Communication of Results </li></ul><ul><li>Communication of Feedback </li></ul>

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