The document discusses budgeting and the budgeting process. It begins by explaining the need for budgets and reasons why budgets may be ineffective. It then outlines the typical budgeting process, including setting objectives and assumptions, developing strategies to meet targets within any constraints, and calculating the budget. The importance of linking the budget to daily operations and performance is emphasized.

1. BudgetingDeactivate the boundaries,inside & outsideJuly, 2010Dick Lam

2. Cargo Cult ScienceA cult of people in South SeaDuring the war, they saw airplanes land with lots of materials, and they want the same things to happenThen, make arrangement – runways, put fires along the sides of the runways, make a headphone-alike – act like controller and wait for the airplanes to land……Richard FeynmanWhat do you want by doing budget?

3. Budget, in a nutshellLook at your chart of accounts or your monthly income statementEmpty the cells by monthsFill-in the figures you think that most likely reflect the following year situationTell the people to act on it next yearFinish!!!

4. Structure of the courseSome underlying conceptsChanging MindAction ItemsStrategyPersuasionConstraintBudgetingBudgetTheory of ConstraintOrganizationTheory of ExchangeKaizen PlanManagementConsistencyCulture志不强者智不达;言不信者行不果

5. ContentThe need for budget & budgetingReasons for ineffective budgetBudgeting ProcessApplication of BudgetParadox of BudgetImplementation of BudgetIn-depth meaning of budgetingHow little we know, how much to learn…

6. What am I doing here?Exert my influence to persuade you to accept budgeting in your business activitiesIt is beneficial to the company and youAlign your internal budgeting process to company budgeting

7. Before you start to think of BudgetingDo you regularly read the financial statement?Do you regularly read the departmental profit & loss?What kind of target are you assigned?Market Share?Sales?Cost?Net Income?Offering ownership to promote commitment

8. In God, we trust; all others bring dataProfit = Sales - CostEverything happens in a company will finally go to PNL

9. 1. What is the need?Bonus DeterminationBut should the profit target be after the bonus?Resources AllocationA battle for struggling resourcesSetting ExpectationUnder-committed but over-performed; or,Over-committed but under-performed Political Tool or Economic ToolCan you determine your budget ultimately?为善无近名，为恶无近刑。

10. 夫未战而庙算胜者 得算多也未战而庙算不胜者 得算少也多算胜 少算不胜 而況于无算乎 孙子兵法- 始计篇Say goodbye to all your Tacit Knowledge

11. Before doing battle, in the temple one calculates and will win, because many calculations were made; before doing battle, in the temple one calculates and will not win, because few calculations were made; many calculations, victory, few calculations, no victory, then how much less so when no calculations? Calculation – The Art of War

12. Factors of successful persuasionpeople like those who appreciate themmutual benefitlike to listen those are alike to themauthority/professionalScarcitymake explicit commitmentHope, I could do the above for you

13. Sigmund FreudconsciousInteract with the outside worldpreconsciousegosuper-egosubconsciousidHave you ever created your desire or feel?

14. Changing MindWhat is in our mind?Idea & ConceptTheoryStoriesSkill

15. 7 Re to change people mindReasonResearchResonanceRepresentational Re-descriptionResources & RewardsReal world eventsResistance口開神氣散, 舌動是非生!

16. A paradox …..You want the speaker tell you something differentBut you want the job applicant (interviewee) tell you something the same as you thought於所厚者薄，無所不 薄也。其進銳者，其退速。

17. This is me…BBA in Accountancy (HKBU)Master of Arts in E-Business (CityU)Fellow of ACCAWorked in various enterprises and industries, mainly manufacturing in mainland China, focus on management accounting, business strategy, tax planning, supply chain management and new business setup in PRCBefore 2009 working in a US company as Director of Administrative ServicesNow, Operation Controller in a Fortune 500 companyEmail: dicklam128@hotmail.comBlog: http://dicklam128.wordpress.comand more ….

18. ReferenceSonshi - http://www.sonshi.com/learn.htmlTao - http://www.wenhuacn.com/zhexue/daojiao/dianji/01laozi.htmThe World is FlatHarvard Business Review, Dec 2007 IssueChanging Mind 5 Minds for the FutureMaverick at worksHalo EffectMyself & Other More Important Matters Wikipedia社會心理學 – 浙江教育出版社

19. Why do you come to the class?道隐于小成，言隐于荣华。

20. Another Angle….Who is keeping the check book in your family?Do you plan for next year or the following months for your family?Your spending is to:fulfill need and want of you & your familygenerate income for the above purposeFamily = Father and mother i love you

21. Social Exchange Theorypeople will do things that are rewardingthe frequency of a person doing an action depends on the value of the outcome and probability of getting iteverything we do has costs (to be minimized) and rewards (to be maximized) associatedMaximization subject to constraintWe are all busy to keep our ledger balanced!!天下熙熙，皆为利来；天下攘攘，皆为利往。

22. What do we exchange?RewardSocial RespectSocial SupportSocial RecognitionPraiseWhere there is unequal inter-dependence (reliance upon one side), power emerges as one owes to the otherNot to be served but to serve

23. THE CAN DOATTITUDEYou CAN DO everything, but not all at once.You CAN DO everything, if it’s important enough for you to do.You CAN DO everything, but you may not be the best at everything.You CAN DO everything, but there will be limitations.You CAN DO everything, but you’ll need help.Positive Attitude is everything

24. Servant Leadership vs. SuperleadershipServant Leadership represents a philosophy in which leaders focus on increased service to others rather than to oneself.A superleader is someone who leads others to lead themselves by developing employees’ self-management skills.Superleaders attempt to increase employees’ feelings of personal control and intrinsic motivation.非以役人, 乃役于人

25. Servant Leadership – 10 CharacteristicsListeningEmpathyHealingAwarenessPersuasionConceptualizationForesightStewardshipCommitment to the growth of peopleBuilding communityRobert Greenleaf

26. SERVES…See the FutureE…Engage and Develop PeopleR…Reinvent ContinuouslyV…Value Results and RelationshipsE…Embody the ValuesSource: “Leading at a Higher Level”, Ken Blanchard

27. Manageable Change/Calculated RiskChange is exciting when it is done by us, threatening when it is done to usBudget is the outline of any manageable change for the coming year

28. Do not ask the Lord to guide your footsteps if you are not willing to move your feet.Author Unknown

29. Human beings is not rationalbut rationalizing!!曲則全，枉則直，窪則盈，敝則新，少則多，多則惑

30. Why rationalizing?Deep need for consistencyWhen doing something, we need to have consistency and alignment between our actions and our beliefWhere there is inconsistency, either changeWhat they are doing; orWhat they believeWorry about what people think about us if inconsistentExcessive money reward is an excuse of wrong-doing

31. Primary value of budgetingA tool for simulation/inductionHelp us identify risk & opportunity for the following yearIt is a financial modelObjectives

32. Assumption

33. Strategy

34. Constraint

35. Methodology

36. Calculation

37. Walkforward / Defense

38. Contingency

39. Execution Plan

40. ConclusionBudgeting – An iterative process

41. 2. Reasons for ineffective budgetIt is an exercise of top management

42. It is of no value to real practice

43. Nobody monitor the departure of budget if any

44. Who is doing the budget? Or who is doing my budget?

45. Do you have the same perspective as previous slide towards budgeting?Top Down vs. Bottom UpFailure to link up the budget to daily operation

46. Plan lags behind reality

47. Budget is a dream (lofty goals)

48. Who takes care of it?

49. System compatibility

50. Failure to link up the budget to performance

51. No reward system linked to budget

52. Manipulation

53. No Budgeting basis

54. Zero Base vs. Incremental Base Devil is hidden in the detail!!Too many estimation without solid grounds

55. Management assigned target

56. Inertia

57. Too many buffer / pretext

58. Mixed up of new projects with old one

59. Too detail will lead to blame inevitably3. Budgeting ProcessWhat is the objectives of your budget?知足不辱，知止不殆，可以长久

60. AssumptionsWhat is the inflation rate? Economic Growth %?What is the % increase in salary? General and Promotion – the overall increase ceilingWhat is the % between direct and indirect staff?Exchange rate, Rent, Contract priceWhat else…

61. Your strategy to target…There is no leader without at least a follower…

62. When the customers don’t buy, great salespeople don’t whine and blame the customersWhom should be persuaded first for the strategy?Challenge up and Support down

63. ConstraintOnly project with payback period < 3 years being consideredHeadcount RatioDirect vs. Indirect - 3 : 1Gross Margin > 15%Emerging market at least 10%Cost Reduction: 5% on SG&A from 2007With scarcity, we have economics.

64. The Theory of Constraint5 Focusing StepsIdentify the constraintDecide how to exploit the constraintSubordinate all other processes to above decisionElevate the constraintIf, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia become the constraint知人者智，自知者明。勝人者有力，自勝者強。

65. TOC Thinking ProcessGain agreement on the problemGain agreement on the direction for a solutionGain agreement that the solution solves the problemAgree to overcome any potential negative ramificationsAgree to overcome any obstacles to implementation上下同欲者勝

66. What is your constraint?Any way to broaden it?Can you pinpoint the constraint year by year over the past 5 years?Why the constraint in the past disappear? And how?Balance the cost & benefit of doing it…Are you the constraint of the budget?

67. Questions of changeWhat to change?What to change to?How to cause the change?How to maintain the change?McCain: I use my career to promote change..

68. How to changeEstablish a sense of urgencyCreate the guiding coalitionDevelop a vision and strategyCommunicate the change visionEmpower broad-based actionGenerate short-term winsConsolidate gains and produce more changeAnchor new approach in the culture

69. What should be your focus?StrategyInternal vs. ExternalExpansion/Integration/BreakevenSales/Operation/PeopleOrganization StructureResource re-allocationRightsizing / Business Process Re-engineeringOrganization CultureWalk the Talk and then Talk the Walk

70. Methodology & Calculation

71. Simple Formula

72. Sales

73. Sales: The Beginning of BudgetingEverything starts from SalesEverything must be related to SalesCost

74. Expenses

75. Headcount

76. Capital ExpenditureFocus on value-added cost & expensesCritical: Who determine the sales target?DirectIndirectGood news: the Africans do not wear shoes!!

77. Sales Bridge2009  2010Market/Customers SegmentationIdentify the risk & opportunitiesOutline sales strategy & execution planTell the story of SalesTruth to the TellerTruth to the AudienceTruth to the MomentTruth to the Mission(HBR Dec 2007)Storytelling: a force for turning dreams into goals and then into results

78. What is your sales strategy in 2010?Selling product or services (what services?)Segmentation / Classification Market/ProductExisting Business vs. New BusinessLevel of confidence Do you have the right people in place?If no, then…..What is your sales expense budget?Finish your job; people in China is hungry for yours

79. Projection > PredictionCritical Elements: Surprise and Fulfillment

80. Projection > Prediction只要信, 不要問; 我办事, 你放心!?

81. Questions to new programIs there any measurable evidence of the value of the program under review?Are the goals and objectives of the program important enough to warrant the expenditure being made?What would happen if the program were not provided at all?Are there other less costly and more effective ways of achieving these objectives?Walk in stupid everyday

82. Last 2 Questions…Where would the program fit in if all programs were displayed in order of importance?Would the benefits be greater if a portion of the funds spent on the program under review were used instead of other programs?Keep it fun

83. Keep the salesWhy customers loyal to your company?Have you ever got the satisfaction score from your customers?How do your customers look at you?Exploration vs. ExploitationSales & Marketing / Customer ServiceProduct Engineering (PE)Make your people happy so that they can make your customer happier

84. Value to CustomersOperational ExcellenceCustomer IntimacyProduct Leadership

85. Customer Loyalty

86. Feargal Quinn’s advice on loyaltyHumilityMy customers know more than I doMy employees know more than I doNeither my employees nor I can be creative all of the timeWhat I knew yesterday is not enough for todayI’m not responding fast enough for my customers

87. “Brand is the psychological contractbetween a company and its employees and between those employees and their customersWe have to keep doing more than our customers expect us to; we can’t worry about what other companies might do.”Mavericks at Work

88. But our PRC Competitors defeat us by …offering good enough productslower pricemassage & rebateDragon at your door!

89. Re-define your own standardthe GiveAway %the Quality standardthe Brandthe cost structure……But what matters is who takes the lead?Pre-moterm Analysis!!!

90. Keep the people and their heart…Why people loyal to your company?Have you ever got the satisfaction score from your people?How do your people look at you?Exploration vs. ExploitationFind the right people within and without the organizationElicit the intelligence from the incumbentsKeep the likeables, dump the Assholes.

91. Low-cost ways to please …..Personal thank – an employee for a specific job well-doneSpecific praise– in a letter or thank-you noteProvide information– as possible about the companyInclude in decision– in the decisions you makeGive Opportunity – to learn as many new skillsCelebrate successes– with passionProvide free time & flexibility– at their conveniencePeople quit people, not companies

92. 2 Magic QuestionsHow much long-term benefit or meaning did I experience from this activity?How much short-term satisfaction or happiness did I experience in this activity?

93. Insistent view on imperfectionOrganization ChartOperation FlowPlanning ModelQuality ControlPolicy & ProceduresPeople Care Management前面有千古遠，後頭有萬年多，量半炊時成得甚麼?

94. Materials

95. Bills of MaterialConvert the sales budget to production budgetIs there any time lag between sales & production?In other words, any inventory days for finished goods?

96. Revisit the assumption in BOMIn house vs. OutsourcingScrap RateList of scrap rulesToo low or too high?Zero defect rate? Target DPPMAny buffer? Simple scrap vs. Compound scrapWastage is allowed (not aware of) when time is good

97. Do you have the detail?Budget in Store Keeping Unit (SKU)Determine the cost of goods soldIdentify what volume of raw materials requiredSo as to set out the following works:Purchasing strategy about pricing / vendor selection / order allocation / replacementMeasurement: Purchase Price Variance (PPV)Budgeted Inventory LevelObsolete Inventory in the warehouseAnything else?

98. NOWKnow the Present,Know what you “really” have

99. Past Purchasing Activities!!!!Any new suppliers introduced?Any suppliers disqualified?What PPV generated?Order allocation on the right track? (i.e. according to suppliers score card)Any sourcing changed and the effect?Any replacement and the effect?To whom do you review first and how?前事不忘, 後事之師

100. Non-refundable VATAny implication?

101. Illustration of PPVPPV = Standard Cost – Purchase Price

102. Material Requirement PlanningHow do you measure it?What is your target inventory days?Pull In / Push Out

103. How much do you know your purchasing?Order placement & delivery arrangementSPQ / MOQLead timeCARCustomers composition of your major vendors……..Passion attracts Passion!!

104. Labor

105. RoutingProcess by process for completion of the production of a productLabor hours required for each process of a particular labor typeIn principles, it is the labor hours for each work stationThen, no. of laborer is determined for a particular volume of production

106. Takt time….The routing hours should be the actual working hours, i.e. hours under perfect state of motion, no waitingAs a result, efficiency factor can be measured

107. Efficiency & Low Season Factor

108. How to deal with fluctuation?Pre-build, but cost of holding inventoryNo pay leave, annual leave in low seasonAlliance with other factories………

109. 4 unexpected leadership qualitiesSelectively reveal your weaknessesRely heavily on your intuition to gauge the appropriate timing and course of actionsManage employee with tough empathyCapitalize on differencesRob Goffee, Gareth JonesInternalization vs. Understanding

110. Overhead

111. The detail worksheetSimple is beauty!

112. From macro to micro…2 levels are enoughWorking is even more importantThanks to Comparison: We found beauty!

113. Another example: TravelingIs it too detail?

114. Income StatementPutting Sales, Cost & Expenses altogetherBut how do you work out the cost & expenses detail?Product PNL / Customer PNLCQ + PQ > IQ

115. Zero Base PNLIdentify the cost nature so as to determine the breakeven pointThen, is it possible to reduce the fixed cost?What minimum capacity should be maintained?

116. A simple example …..

117. What is the fixed cost?

118. Profit Map91Sales$ProfitTotal CostFixed CostLossVariable CostQtyBreakeven point

119. A Paradox of Pricing FormulaPrice = Unit Cost + Mark-up %Cost: Variable Cost, Fixed costVariable Cost: more output, fixed unit costFixed Cost: Lump Sum / Outputmore output, less unit costless output, more unit costSuggestion: Convert fixed cost to variable cost as far as possible

120. How detail?No free lunch!!Nothing is impossible provided there is sufficient resourcesWork out the detail of resources requirement so as to materialize the goal, regardless of its nature – self determined or assignedDetail is to differentiate your aspiration from dreamThe more the detail, the stronger the confidence

121. In the new middle, we are all temp!Do you know your business?

122. If yes, do you know the expenses patternor relationship with sales?

123. If yes, can you tell in the budget?Poka Yoke (Avoid any inadvertent Errors)Unintentional ErrorsOverlookMisunderstandingJudgmentInexperienceFrequencyNo Benchmarking StandardAccidentIntentional

124. Poka Yoke in action - ReasonablenessTrend by monthBenchmarkingComparisonCompare with previous yearsCompare with current year forecastCompare with industrial standardCheck figureEncourage Q & AIndex

125. Walkforward / DefenseEBITDA bridgeQuantify all identified risk & opportunitiesGive detail of cost reduction and othersDefense your budgetPrepare the detail for challengeIdentify the focus area of Income Statement實踐是檢驗真理的唯一標準

126. What is cost saving plan?

127. Any productivity improvement plan?How do you measure operator productivity?How to improve it?What is the financial impact?7 Waste8th Waste …..What is the target Hourly Rate?Labor cost & Overhead

129. More on Walkforward templateProjects profitability highlight (new/lost)Cost reduction/increase highlightVariable Budget

130. What do we need to do?Identify the cash need upfrontUncover what leads to liquidity issueSmooth out the cash deficit & surplusEvaluate the cost of capital知彼知己，百戰不殆 ；不知彼而知己，一勝一負；不知彼，不知己，每戰必殆

131. New Project Evaluation …..

132. R-W-WIs it Real?Can we Win?Is it Worth doing?知可以戰與不可以戰者勝

133. Balance Sheet ItemsInventoryA/RA/PFixed Asset

134. Working Capital

135. Cash Cycle

136. CashflowFund for investment opportunityRainy-days fundProfit without cash inflow is fictitious profitUsage of cashflow statement in budgetingNotify when cash injection needed and cash return happensYardstick for liquidity performance世路難行錢為馬, 愁城欲破酒為軍

137. Cashflow workingNet Income is not cash which include non-cash spending – depreciation & amortizationReceivable is cash held by customersA/R , Cash Payable is cash hoarded from suppliersA/P, Cash Capex is spending aheadYour cash position is reflected by the bank statement/cash ledger

138. Cashflow templateSweet lemon; Sour grape!?

139. Weekly cashflow forecast

140. ContingencyChallenge of AssumptionsSensitivity AnalysisBackup/Compensating planIf plan A fails, plan B will follow Opportunity of Cost Innovation曲突徙薪亡恩澤，燋頭爛額為上客

141. Execution Plan (Monitoring)How to measure?Key Performance Indicators (KPI)The higher the betterReturn on equityKey Risk Indicators (KRI)The lower the betterOverdue Debt to A/RLook at your IS at different dimensionCustomer P&LProduct P&LGo fast, Walk alone; Go far, Walk together

142. A picture worths more than 100 words

143. Rolling forecaste.g. 3 Actual + 9 ForecastMonitor month by month5-WhyWhy the entertainment rise up so significantly?Why the entertainment not link to sales?Why do we spend so much to future customers?

144. Why …..We do budget every month

145. Application of BudgetCommitment vs. ComplianceCommitment generates productive behavior without the need for monitoringCompliance may result in similar behavior, but rarely generates initiative. Compliance strategies rely on external enforcement夫禮者，忠信之薄而亂之首 ！

146. ReviewLink the budget to performance appraisalBridge the gapEvaluate the degree of achievement every monthAny remedy or compensating control?交數交人交自己

147. Paradox of BudgetMeet the budget, no significant deviation