Enterprise Planning: Integrating the Strategic Plan with the Annual Budget and Forecast Process
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Edgewater Ranzal presented lessons learned and best practices in producing and integration the strategic plan with the annual budget and forecast process, at the Association for Finance Professionals (AFP) 2013 Annual Conference.
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Enterprise Planning: Integrating the Strategic Plan with the Annual Budget and Forecast Process
- 1. Enterprise Planning: Integrating the Strategic Plan with the Annual Budget and Forecast Process Andrew Starks Director, Strategic Planning Practice Edgewater Ranzal Tuesday, October 29th 2:00 to 3:00 PM South Seas Ballroom H
- 2. Agenda • Enterprise Planning: What is it? Why it’s Essential • Problems with Typical Budget and LRP Processes – Budget Process shortfalls – LRP Process shortfalls – Lack of integration between the Budget and LRP • Solutions to Integrate the LRP and Budget Processes – Well designed budget and LRP solutions that anticipate integration points – Technology that enables seamless integration – LRP process should provide targets and guide the annual budget process • Demonstration of Integrated Solution
- 3. Enterprise Planning Defined • Enterprise Planning is a methodology (backed up by technology) that assists an organization with creating and linking their strategic, financial, and operational plans into one cohesive system. • The methodology allows organizations to set goals, generate plans guided by those goals, monitor results, and update plans quickly as conditions on the ground change. • Enterprise Planning establishes and links the strategic and operational goals of an enterprise.
- 4. Enterprise Planning LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS TREASURY OPERATIONAL STRATEGIES PLANNING
- 5. Long Range Planning Strategic level – major segments, key product lines Full financial statements Scenarios and ad-hoc modeling LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS TREASURY OPERATIONAL STRATEGIES PLANNING Where do we want to be 3-5 years from now and how can we accomplish it?
- 6. Financial Planning LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS Operational level 12 to 18 months P&L Focused TREASURY OPERATIONAL STRATEGIES PLANNING What are the specific goals and constraints in the next year to carry our strategies?
- 7. Forecasting LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS TREASURY OPERATIONAL STRATEGIES PLANNING Variance reporting Re-forecasting Calibrate tactical plans How well are we performing and how can we improve our planning further?
- 8. Operational Planning LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS TREASURY OPERATIONAL STRATEGIES PLANNING Workforce planning Capital expenses Project planning What are the specific operational issues faced when carrying out strategies?
- 9. Treasury Strategies LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES Covenant and ratio analysis Funding alternatives Rating agency reports CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS TREASURY OPERATIONAL STRATEGIES PLANNING What is the impact on cash flow? What is the optimal way to fund our growth plans?
- 10. Corporate Development Activities Mergers & acquisitions Divestitures Investment analysis LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS TREASURY OPERATIONAL STRATEGIES PLANNING What is the incremental impact from the business decision?
- 11. Integrated Enterprise Planning LONG RANGE PLANNING CORPORATE FINANCIAL DEVELOPMENT PLANNING ACTIVITIES CORPORATE TREASURY DEVELOPMENT STRATEGIES ACTIVITIES OPERATIONAL BUDGET / FORECAST PLANNING PROCESS TREASURY OPERATIONAL STRATEGIES PLANNING Bring discipline to strategic modeling Broader and more collaborative planning and forecasting Link execution to strategic goals
- 12. Why Enterprise Planning is Essential • It’s the only methodology that ensures management and employees are setting goals, making investments and operational decisions that maximize the long-term success of an organization • A Budget on its own or a Long-Range Plan on its own is not sufficient for planning and meeting the long-term goals of an organization
- 13. Why A Budget is Not Sufficient • Most budgets are short term (18 months or less) • Most strategic decisions have LT cost, revenue and capital implications • Most budgets are P&L only and ignore Balance Sheet and Cash Flow impacts • Major decisions and business plans should be evaluated on how they impact an organization’s valuation, credit ratings, covenants, and cash flow – all of which require full financial statement detail
- 14. Budget Disconnected from the LRP Hinders Execution of LT Goals • Budgets tend to be based on prior year results and not based on future goals • Managers and cost center owners aren’t aligned with longterm goals • Decision-making tends to be short sighted and aligned with budget rather than long-term goals – Focused on P&L goals and somewhat blinded to impacts on the B/S, CF and long-term value creation.
- 15. Enterprise Planning Architecture Common Reporting & Interaction (Microsoft Office, Crystal Ball, Dashboards, etc.) Hyperion Strategic Finance Hyperion Planning Capital Asset Planning Workforce Planning Profitability & Cost Management Essbase (EPM Platform) Financial Data Quality Management and Master Data Management Business Process Oracle Data Warehouse Data Mart (BW) SAP Excel XML
- 16. Integrate and Align ST and LT Planning
- 18. Enterprise Planning Leading Practices Forecast/model strategic possibilities Select strategies Include operational detail and model variability of financial plan Update forecast with latest budget and actuals Set targets Strategic plan Annual budget / plan Seed targets to annual operating plan Start annual process Include operational details Evaluate workforce and capital Monthly / rolling forecast Evaluate ‘true’ profitability Evaluate Financial Performance Evaluate resource and capital requirements Assess and Manage Risk Update strategic plan with latest forecast
- 19. Questions Andrew Starks +1 (952) 212-7584 astarks@ranzal.com