The FP&A Paradigm - A Shift From Budgeting to Strategic Planning

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Video/Presentation: http://www.proformative.com/resources/video-presentation-fpa-paradigm-shift-budgeting-strategic-planning

CFOs today know their team must transition from pure data gathering and budgeting, to providing insights which will enable the business to make critical decisions. While responsible for providing information critical to building the strategic plan, finance is still rolling up numbers, sweating out the details from multiple roll ups, stressing from minimal visibility into the decisions behind the numbers ? all of which allows little time for real analytics. In this educational session you will learn how to engage and empower all users in the budgeting process to overcome the barriers of the past and to become financial experts driving critical decisions. Understanding the pitfalls as well as best practices will help to empower your team to move from budgeting to more of strategic planning.

Speakers:
Jason Webster, CEO & Founder, Archetype
Ted Dacko, CEO, XLerant, Inc.

Presentation delivered at CFO Dimensions 2013 - http://www.cfodimensions.com
Track: Finance Technology | Session: 2

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  • So Tempered Exhuberance…I am not sure where I heard it the first time…But if you google it, it seems to be up there with tweeting, apps and refudiate as the 2010 phrase of the year… When I think of tempered exhuberance, I think of an orangatan in a jewelry store or my three year old at the ballet…Theres a natural incongruency…But such is life in Finance in US business today…The IMF has forecasted global economic growth for 2011 at 4.4%. That sounds ok, but when you factor in the US growth at 3-3.5% and China at almost 10% that reflects a huge swing that needs to be accounted for in plans for consumer spending, sales & marketing, manufacturing, supply chains and so on
  • So here is the DEMONSTRATION SEQUENCE THAT LARRY’S GOING TO TAKE YOU THRUHe is going to show you an INTERACTIVE BUDGET MAP --- or the Budget GPS --- Where you can SEE EVERYTHING YOU WANT TO DO (short of reporting) --- in a SINGULAR SCREEN He’s going to demonstrate SITUATIONAL BUDGETING --- which is an intuitive way that your Dept. Heads can budget to their individual needs --- and in line with the way they thinkHe’s going to show you how you can take your Annual Budget and spread it by Month and apply Seasonality from Last Year’s Actuals – if you want toHe’s going to demonstrate ACTIONPAKS --- which is a unique way that your Department Heads can easily budget for their individual Department projects, programs and initiativesHe’s going to demonstrate the comprehensive Headcount and Salary capabilities of BUDGETPAKAnd how you can do your REVENUE PLANNING using a combination of DRIVERS and PRE-CALCULATED accounts He’s going to show you how you can address two challenges when Budgeting for Assets: [1] being able to COLLECT, TRACK and COMMUNICATE the Asset request from each Department -- so you can create a consolidated list of -- What assets are needed? -- Who needs it? -- and When they need it? --- AND [2] the challenge of handling the proper Accounting of the Asset during the Budget year.He’s going to show you the electronic Approval Workflow and Signoff features of the systemAnd Finally, he’ll demonstrate examples of the Rich Production and Custom Reports you can produce with BudgetPakAre there any questions?<<ENTER>>
  • Okay, just a little housekeeping. First of all, all participants are in listen only mode so we’re not all talking over one another. If you do have a question during the webinar just type it into the question box in your GoToMeeting panel. We’ll be collecting those and answering as many as we can at the end. We have a pretty packed agenda, so if we don’t get to all of them today we’ll be following up with you directly.I did want to mention that we will be showing you some of our budgeting application today called BudgetPak, but this is not really intended to be a full demo of the product. If you’re interested in that just let us know and we’d be happy to arrange something for you.
  • Okay, just a little housekeeping. First of all, all participants are in listen only mode so we’re not all talking over one another. If you do have a question during the webinar just type it into the question box in your GoToMeeting panel. We’ll be collecting those and answering as many as we can at the end. We have a pretty packed agenda, so if we don’t get to all of them today we’ll be following up with you directly.I did want to mention that we will be showing you some of our budgeting application today called BudgetPak, but this is not really intended to be a full demo of the product. If you’re interested in that just let us know and we’d be happy to arrange something for you.
  • So here is the DEMONSTRATION SEQUENCE THAT LARRY’S GOING TO TAKE YOU THRUHe is going to show you an INTERACTIVE BUDGET MAP --- or the Budget GPS --- Where you can SEE EVERYTHING YOU WANT TO DO (short of reporting) --- in a SINGULAR SCREEN He’s going to demonstrate SITUATIONAL BUDGETING --- which is an intuitive way that your Dept. Heads can budget to their individual needs --- and in line with the way they thinkHe’s going to show you how you can take your Annual Budget and spread it by Month and apply Seasonality from Last Year’s Actuals – if you want toHe’s going to demonstrate ACTIONPAKS --- which is a unique way that your Department Heads can easily budget for their individual Department projects, programs and initiativesHe’s going to demonstrate the comprehensive Headcount and Salary capabilities of BUDGETPAKAnd how you can do your REVENUE PLANNING using a combination of DRIVERS and PRE-CALCULATED accounts He’s going to show you how you can address two challenges when Budgeting for Assets: [1] being able to COLLECT, TRACK and COMMUNICATE the Asset request from each Department -- so you can create a consolidated list of -- What assets are needed? -- Who needs it? -- and When they need it? --- AND [2] the challenge of handling the proper Accounting of the Asset during the Budget year.He’s going to show you the electronic Approval Workflow and Signoff features of the systemAnd Finally, he’ll demonstrate examples of the Rich Production and Custom Reports you can produce with BudgetPakAre there any questions?<<ENTER>>
  • Budgeting is a discreet process, meaning that as you are doing your budgeting, you do not have to be connected to other systems…. BUT when you need to, It does interact with the transactional systems in your organization ….. so at the beginning of the process you want to load history from your GL– example might be 2 years of actual data and last years budget data into BP so Dept Heads can have a frame of reference … they can also look at things like seasonality … and expenditures from prior years …. and then they can understand how the budget they are preparing compares with last years budget or the last couple of years of actual …. You also want to bring in Headcount and Salary information .. since generally 60%- 80% of your costs are people costs…. -you can load information on EACH INDIVIDUAL Person by DEPARTMENT, THEIR SALARY INFORMATION, BENEFITS, FICA, SALARY GRADE, ETC…..SO YOU CAN PLAN FOR HEADCOUNT CHANGES, ADDITIONS & REDUCTIONS, RAISES AND BONUSES Same thing goes for Fixed Assets …. People want to know who wants what assets, when they need it, and how many by department. They also want to be sure that the assets are properly accounted for during the budget year … there are assets that need to be expensed, DEPRECIATED, ETC, … so we want to allow your people to say … I think I need to purchase some assets as part of my budget request for next year .. and then let BP use the right method to deal with that expense … Once the budget is finalized, these numbers can all be electronically put back into the GL, HR and FA systems to await the arrival of the actuals… and this process can be completely controlled by the finance team without need for IT support.
  • Budgeting is a discreet process, meaning that as you are doing your budgeting, you do not have to be connected to other systems…. BUT when you need to, It does interact with the transactional systems in your organization ….. so at the beginning of the process you want to load history from your GL– example might be 2 years of actual data and last years budget data into BP so Dept Heads can have a frame of reference … they can also look at things like seasonality … and expenditures from prior years …. and then they can understand how the budget they are preparing compares with last years budget or the last couple of years of actual …. You also want to bring in Headcount and Salary information .. since generally 60%- 80% of your costs are people costs…. -you can load information on EACH INDIVIDUAL Person by DEPARTMENT, THEIR SALARY INFORMATION, BENEFITS, FICA, SALARY GRADE, ETC…..SO YOU CAN PLAN FOR HEADCOUNT CHANGES, ADDITIONS & REDUCTIONS, RAISES AND BONUSES Same thing goes for Fixed Assets …. People want to know who wants what assets, when they need it, and how many by department. They also want to be sure that the assets are properly accounted for during the budget year … there are assets that need to be expensed, DEPRECIATED, ETC, … so we want to allow your people to say … I think I need to purchase some assets as part of my budget request for next year .. and then let BP use the right method to deal with that expense … Once the budget is finalized, these numbers can all be electronically put back into the GL, HR and FA systems to await the arrival of the actuals… and this process can be completely controlled by the finance team without need for IT support.
  • So here is the DEMONSTRATION SEQUENCE THAT LARRY’S GOING TO TAKE YOU THRUHe is going to show you an INTERACTIVE BUDGET MAP --- or the Budget GPS --- Where you can SEE EVERYTHING YOU WANT TO DO (short of reporting) --- in a SINGULAR SCREEN He’s going to demonstrate SITUATIONAL BUDGETING --- which is an intuitive way that your Dept. Heads can budget to their individual needs --- and in line with the way they thinkHe’s going to show you how you can take your Annual Budget and spread it by Month and apply Seasonality from Last Year’s Actuals – if you want toHe’s going to demonstrate ACTIONPAKS --- which is a unique way that your Department Heads can easily budget for their individual Department projects, programs and initiativesHe’s going to demonstrate the comprehensive Headcount and Salary capabilities of BUDGETPAKAnd how you can do your REVENUE PLANNING using a combination of DRIVERS and PRE-CALCULATED accounts He’s going to show you how you can address two challenges when Budgeting for Assets: [1] being able to COLLECT, TRACK and COMMUNICATE the Asset request from each Department -- so you can create a consolidated list of -- What assets are needed? -- Who needs it? -- and When they need it? --- AND [2] the challenge of handling the proper Accounting of the Asset during the Budget year.He’s going to show you the electronic Approval Workflow and Signoff features of the systemAnd Finally, he’ll demonstrate examples of the Rich Production and Custom Reports you can produce with BudgetPakAre there any questions?<<ENTER>>
  • The FP&A Paradigm - A Shift From Budgeting to Strategic Planning

    1. 1. 1© 2013 The FP&A Paradigm: A Shift From Budgeting to Strategic Planning
    2. 2. 2© 2013 Excel: The Predominant Tool Everyone agrees that Excel is not an effective platform for corporate budgeting and planning Yet, most companies, large and small, still rely heavily on Excel throughout the budgeting/planning process Where is the outrage? Is the grass really any greener?...
    3. 3. 3© 2013 There Must Be Something Better… SCOREKEEPER FINANCIUS TROGLODYTES BUSINESS PARTNER FINANCIUS ILLUMINATUS
    4. 4. 4© 2013 We All Have the Same „Evolutionary‟ Goal In Mind
    5. 5. 5© 2013 Where‟s the ROI on Enterprise-Wide Planning Solutions? Companies that implement „world-class‟ corporate- wide solution enjoy market returns 2.4 times those of their peer group (Hackett, 2007) Those who implemented such a solution scored significantly higher on finance value creation metrics Implementing a corporate-wide budgeting tool (beyond finance) is worth it
    6. 6. 6© 2013 What is Finance Value Creation? Finance Value Creation (Return on Capital) is typically found In the following areas: • Ensuring projects/investments have an IRR greater than their WACC • Divesting project/investments that don‟t • Find ways to make existing capital more efficient o Aligning demand, capacity, and inventories o Reducing unnecessary expenses o Increasing working capital
    7. 7. 7© 2013 What is Finance Value Creation? (cont.) • Cash flow forecasting (CEB/Duke/CFO) • Forecast accuracy (CEB) • Risk management (CEB) • Decision Support (CEB) • Effective capacity utilization (Duke/CFO) • Merger and acquisition activity (CEB/Duke) • Planning and maintaining margins • Meeting rapidly changing consumer demand (Duke /CFO) • Changes (or lack of changes) to Federal/Government Policy (Duke /CFO) • Price Pressure (Duke/CFO) • Global Instability (Duke/CFO) • Maintaining Margins (Duke/CFO) • Tax reform (WSJ) • Tying performance to cash flow (WSJ) • Innovation & Modeling/Feasibility (WSJ)
    8. 8. 8© 2013 In Other Words… Where‟s the ROI on Enterprise-Wide Planning Solutions? Companies that implement „world-class‟ corporate-wide solutions enjoy market returns 2.4 times those of their peer group (Hackett, 2007) Pervasiveness was identified as a critical success factor… The two largest obstacles to success in the deployment of a enterprise-wide planning system are; • Lack of accountability, and • Lack of readiness to support a measurement driven system
    9. 9. 9© 2013  Self-evident, business driven process  Alignment of accountability & leverage  Integration with Strategy and Operations Success: Marked vs. Marginal Marginal Success driven through standardization and automation Marked Success (Value Creation) driven through accountability, alignment and adoption  Creating web-based templates  User level security  Task lists  Consolidating results  Reporting  Excel Integration?!?!?
    10. 10. 10© 2013 Traditional View (i.e. Vertical) • Based on hierarchy of units, departments, etc. • Collection of the individuals’ projections of revenues and expenses for which they are responsible Process View (i.e. Horizontal) • Causal relationships that run horizontally across an organization • Based on operational drivers that cross functions WHERE CAUSAL RELATIONSHIPS AND COLLABORATION TRUMP A HIERARCHICAL VIEW Business Driven Process
    11. 11. 11© 2013 Alignment of Accountability and Leverage Visibility See what is coming to know when change is needed Responsiveness Respond quickly and efficiently Leverage Know which actions will most effectively drive the desired change Ready… Aim… Fire!
    12. 12. 12© 2013 Integrated Business Planning: An approach to business modeling (planning) in which businesses integrate strategic, operational and financial planning processes. Sales & Operations Planning Strategic Planning Financial Planning Integration with Strategy and Operations
    13. 13. 13© 2013 Integration with Strategy and Operations (cont.) IN TODAY’S ECONOMY, THAT HAS VALUE  Greater financial and operational integration against a longer horizon  Improved modeling and simulations to help develop and manage contingency plans  Easier translation from detail to aggregate and aggregate to detail  Improved decision-making through an integrated reconciliation process to keep decisions at the lowest practical level.  Improved trust throughout the management team with one process, clear accountability, and commitment to the right priorities
    14. 14. 14© 2013 Ted Dacko, CEO Energizing a Culture of Budget Accountability August 2013 Welcome
    15. 15. 15© 2013 If budgeting is a financial application, why are 90% of your users non-financial people? Here‟s a Question…
    16. 16. 16© 2013 Philosophy… Solve Problems
    17. 17. 17© 2013 Everything currently done in Excel Excel is cumbersome, need more integrity in the numbers , eliminate errors Ease of use/User experience - Budget entry that makes sense to the budgeter (not just plugging numbers into a spreadsheet) Can‟t see how budget ties to strategy Can‟t budget different accounts different ways for different departmental needs Need quick implementation GL can‟t handle budget process All headcount planning done in Excel Workflow, approval process is non-existent Variance reporting, reporting is inflexible This Is What We Typically Hear…
    18. 18. 18© 2013 Excel =(AssumptionsW!14/12)*SUM(X5:X15)/(SUM(Assumptions(T63:T65)
    19. 19. 19© 2013 Is Excel Really Free? • Time to build macros • Time lost when spreadsheets don’t come in on time • Time to manage incoming spreadsheets • Time to check for spreadsheet changes • Time to consolidate • Time to transfer data for reporting purposes • How do you assign cost to an error in a spreadsheet?
    20. 20. 20© 2013 Is This You?
    21. 21. 21© 2013 ERP
    22. 22. 22© 2013 Department Heads Fear the Budget Process Easy P o w e r f u l
    23. 23. 23© 2013 What Good Is A Feature If It Can‟t Be Used?
    24. 24. 24© 2013 Survey of 100‟s of Organizations….. Survey says……. Senior Executives Finance Department Heads
    25. 25. 25© 2013 The process takes too long (36%) The numbers are not reliable (28%) Questions are not answered fast enough (21%) The budget does not tie to strategy (41%) Top Complaints of Executives
    26. 26. 26© 2013 The mechanics takes too much of my time. I don't have enough time to analyze the numbers (50%) I don't want to be an Excel programmer or manually manage data (32%) Department heads hate the budget process. They simply do not put enough thought into it. (50%) I am tired of department heads trying to change the budget templates (21%) No complaints. Everything works just fine (6%) Top Complaints of Finance
    27. 27. 27© 2013 The system is too hard to use 26% The process is too complex 29% The process is not fair 15% I do not recognize the final budget number as mine 44% The budget templates do not let me budget the way I think 38% Top Complaints of Department Heads
    28. 28. 28© 2013 We Try To Show... For Senior Executives  Tie the Budget to the Strategy  Shorten the Budget Process  Make the numbers more reliable  Answer Budget questions quickly For Finance  Greater participation and ownership from Dept. Heads  Get out of the programming business  Improve Communications up and down the organization For Department Heads  Ownership of the numbers  Not complex…KISS  Budget the way they think  Visibility into thinking/exceptions
    29. 29. 29© 2013 If You Don’t Budget to Strategy…. You budget to politics You budget to history
    30. 30. 30© 2013 5 Pillar Strategy… CEO Linda Cahill 5 Pillar Strategy 101. Focus on New Product Innovation 102. Staff Development 103. Improved Use of Technology/Automation 104. Retention of Key Employees 105. Improve Margins…Do More With Less Resources
    31. 31. 31© 2013 Ideas for Budgeting to Strategy  Communicate the strategy  Focus on the needs of the Department Heads  Usability, functionality  Submit and approve plans, not numbers  Justify all revenues and expenses with documentation  Focus on organizational communications  Support “Situational Budgeting”  Review and Approval Workflow to make sure all budgets have been approved by Chain-of-Command  Support Practical “What if?”  Support anytime, anywhere budgeting  No programming  Avoid RFP process..This promotes a checklist of useless features
    32. 32. 32© 2013 energizing a culture of budget accountability Info@XLerant.com 203/883-4380 Thank You!
    33. 33. 33© 2013 Thank You! The FP&A Paradigm: A Shift From Budgeting to Strategic Planning
    34. 34. 34© 2013 Thank You Sponsors! PLATINUM GOLD SILVER DIAMOND

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