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Holzer & Associates: Advocating quarterly rolling plan
- 1. BUDGETING/FORECASTING FACTS AND ISSUES: ADVOCATING FOR A QRP
- 2. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! 4 main barriers to success! QRP removes the four main barriers to success that an annual planning process erects. The only thing certain about an annual target is that it is definitely wrong, it is either too soft or too hard for the trading conditions.! ! Annual funding regime ! Where budget holders are encouraged to be dysfunctional! Reporting regime base! Around monthly targets that have no relevance! Three months period! Where management are taken away from making money! Remuneration system! Based on an annual target resulting from the annual funding regime! CORPORATE PERFORMANCE MANAGEMENT! 2!
- 3. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Facts and issues! Poor tools and expediency! Due to poor tools and expediency the forecaster (budget holder or FP&A) uses the budgets of the remaining months as a guide to future expenditure! Top-Top Forecast! Poor involvement of the budget holders. It would be a nightmare to use the budget Excel models so they are prepared centrally by the finance team with little consultation. We call these top-top forecasts! Much number noise! Updated monthly, an unnecessary timeframe creating much number noise! Focus on year end! forecasts only go up to year end the new business year may be starting in the near future! CORPORATE PERFORMANCE MANAGEMENT! 3!
- 4. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Facts and issues! Creates the annual plan goal posts! Lets get one thing straight, the standard annual planning process takes too long, is not focused on performance drivers, is not linked to strategic outcomes or critical success factors, leads to dysfunctional behavior, builds silos and is a major barrier to success.! CORPORATE PERFORMANCE MANAGEMENT! 4!
- 5. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Facts and issues! Creates the annual plan goal posts! We can use a rugby analogy to demonstrate how the QRP solves these problems. The annual plan is the establishment of goal posts at the end of the pitch, the budget process is where we set 12 X 10 meter lines to report against, see diagram. The two problems about the current situation is that firstly, the 10 meter lines (the monthly budgets) are wrong as soon as the year has started, and secondly, there is no need to pass the agreed appropriation on to budget holders based on their annual plan. ! CORPORATE PERFORMANCE MANAGEMENT! 5!
- 6. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Facts and issues! Encouraging dysfunctional behavior! Some organizations are recognizing the folly of giving a budget holder the right to spend an annual amount, while at the same time saying if you get it wrong there will be no more money. By forcing budget holders to second-guess their needs in this inflexible regime you enforce a defensive behavior, a stock piling mentality. In other words:! ! ! You guarantee a dysfunctional behavior ! from day one!! CORPORATE PERFORMANCE MANAGEMENT! 6!
- 7. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Facts and issues! An appropriate planning tool! Excel is a great tool for an expense claim at the airport. It is not and never should be a building block for your company‟s key systems! ! 1. For every 150 lines in your forecasting model there is a 90% chance of a logic error (from a recent study)! 2. it has no proper version control, we have all burnt the midnight oil pulling our hair out wondering whether all spreadsheets are the correct versions!!! 3. cannot accommodate changes to assumptions quickly. How could you cope if the SVP asked: ! “What is the financial impact of splitting the “freestanding” stores from their current segment?”! ! “I need to know by close of play today”! ! CORPORATE PERFORMANCE MANAGEMENT! 7!
- 8. PART 1! PART 2! PART 3! PART 4! PART 5! Bigger picture 6 quarters out! The quarterly forecasting process is where management sets out the required expenditure for the next 18 months. Each quarter, before approving these estimates, management sees the bigger picture six quarters out.! Never a cold start! Budget holders are encouraged to spend half the time on getting the detail of the next 3 months right as these will become targets, on agreement, and the rest of the time on the next 5 quarters. Each quarter forecast is never a cold start as they have reviewed the forthcoming quarter a number of times.! 4 forecasts reduced to 5 weeks! The overall elapsed time of the four forecasts is as little as five weeks. Compare this to your annual planning cycle that on average takes 8-12 weeks!! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 8!
- 9. PART 1! PART 2! PART 3! PART 4! PART 5! Bigger picture 6 quarters out! Creates a Q-by-Q funding mechanism! The key is to fund budget holders on a rolling quarter-by-quarter basis. The “ground staff” then draw these lines on the pitch and management become very accountable about progress.! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 9!
- 10. PART 1! PART 2! PART 3! PART 4! PART 5! Bigger picture 6 quarters out! Creates a Q-by-Q funding mechanism! In this process the management asks, “yes we know you need $1bn and we can fund it, but how much do you need in the next three months”. It will come of no surprise that a budget holder can be much more precise for the funding requirement for the next three months. Say in this case $225m. This process means that the approval process through the SMT will be quicker as the SMT are only approving the funding of the next quarter and can adjust the quarter by quarter funding as the conditions and environment dictate. ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 10!
- 11. PART 1! PART 2! PART 3! PART 4! PART 5! QRP is the solution! Quarter-by-Quarter! budget holders‟ provide an annual plan through the bottom-up quarterly rolling forecasting regime but are not assigned those funds, this is done on a quarter-by-quarter funding! Meaningful monthly reporting! monthly reporting is more meaningful as it measures performance against the most recent forecast and not a monthly split of the original annual plan! Always looking forward 18 months! each subsequent forecast is still expected to put the ball through the annual plan goal posts the difference being the ball carries on to the next pitch (into next year). e.g. always looking forward 18 months ! Appropriate planning tool! Forecast carried out on an appropriate planning tool that can handle a bottom-up forecast once a quarter based on an annual target! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 11!
- 12. PART 1! PART 2! PART 3! PART 4! PART 5! QRP is the solution! Based around key drivers! One of the key issues of a forecasting tool is that it needs to be based on the key performance drivers that management may need to know:! ! • What if we contract e.g. stop production of one product t! / 23! u! line, sell a business! • What if we grow through acquisition ! • Business from key customers and supply requirements from suppliers! • Key economic indicators, interest rates, inflation, DSO! • Exposure to volatile markets ! • Suppliers’ plant capacity limits! CORPORATE PERFORMANCE MANAGEMENT! 12!
- 13. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Recognizing and admitting! This is a bottom-up process! Most forecasting models, built in Excel, tend to be a top-top approach, what we mean by that is that consultation is often restricted to people who are removed from the work face and thus tend to have a very skewed view of the future, and in some cases simply reiterating the misconceptions that the head office wish to believe.! This requires a proper rolling forecast regime! A proper rolling forecasting regime is one which is a bottom up process and which is consistent between the various different functions, in other words, production is being based on forecast demand rather that the other way around. A bottom-up process also helps ensure that there is a general consensus in the longer-term view.! CORPORATE PERFORMANCE MANAGEMENT! 13!
- 14. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Financial Performance Management Processes! CORPORATE PERFORMANCE MANAGEMENT! 14!
- 15. PART 1! PART 2! PART 3! PART 4! PART 5! Financial Performance Management Processes! Hyperion Planning is one, integrated Planning Platform that can address different planning requirements! • Revenue planning • Full Income Statement planning • Balance Sheet / Cash Flow planning • Rolling forecasting • Capital planning • And others Hyperion Planning is built on the Hyperion Essbase engine! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 15!
- 16. PART 1! PART 2! PART 3! PART 4! PART 5! Integration with Oracle Hyperion Workspace! Workspace is the common portal for all Oracle Hyperion Applications. In addition, BI+ repository contains different reporting objects (Financial reports, Dashboards, etc.) ! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 16!
- 17. PART 1! PART 2! PART 3! PART 4! PART 5! End user task lists (I)! Task lists detail current status and steps needed to complete the different processes! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 17!
- 18. PART 1! PART 2! PART 3! PART 4! PART 5! End user task lists (II)! Task lists detail current status and steps needed to complete the different processes! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 18!
- 19. PART 1! PART 2! PART 3! PART 4! PART 5! Web Forms (I)! Web forms provide a consistent, web-based data entry input. Web forms can be opened in Smart View in Excel. Calculations can be launched from forms. ! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 19!
- 20. PART 1! PART 2! PART 3! PART 4! PART 5! Web Forms (II)! Data can be adjusted (increase / decrease by amount, percent) and spread. Check totals to targets can provide feedback. ! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 20!
- 21. PART 1! PART 2! PART 3! PART 4! PART 5! Web Forms through Smart View ! Users can input, adjust, edit and submit their financial data via Smart View in Microsoft Excel. Form can be taken ‘offline’ and input (such as Template Bulk Files, for one-shot submission)! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 21!
- 22. PART 1! PART 2! PART 3! PART 4! PART 5! Supporting details! Supporting detail can provide textual information behind assumptions, changes or data elements. ! ! t! / 23! u! CORPORATE PERFORMANCE MANAGEMENT! 22!
- 23. PART 1! PART 2! PART 3! PART 4! PART 5! t! / 23! u! Basic Web Analysis! Web Analysis dashboards for ad-hoc, dashboard analysis.! ! CORPORATE PERFORMANCE MANAGEMENT! 23!