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Juan Poter – Archetype ConsultingJuan Porter has over 25 years combined client, vendor, and consultant experience

with Oracle Hyperion. He is a member of the Oracle Hyperion Partner Advisory Council, he is actively involved in various Hyperion user groups, he has served as the

chair of Hyperion’s National Steering Committee, and he has led many Hyperion enhancement committees. Juan is the president and founder of a leading nationwide

consulting firm, which serves over 400 of the Global 2000’s largest and best performing companies. Industry analysts, editors, and authors frequently seek his

expertise on the future direction of EPM, current Hyperion releases, as well as insight into strategic and practical ways to solve business problems. Juan has authored articles for publications such as SearchOracle.com, CIO Insight, and Enterprise

Applications. He is the Chairman of the OAUG Hyperion SIG and is also a regular presenter for OAUG, ODTUG and other industry groups.

View presentation online at: https://jpkgroupsummits.com/sandiegols2019-attendee

Password: JPK

2019 Leading Strategy ForumJune 20-21, 2019  •  San Diego, CA

Session: Continuous Planning and Rolling Forecasts

June 20, 3:30 pm

CONTINUOUS PLANNING & ROLLING FORECASTS

Juan Porter, Archetype ConsultingJune 20th, 2019

Juan Porter – Experience Overview

Representative Sample of Clients– AT&T

– Bank of the West / BNP Paribus

– Bio‐Rad

– DirecTV

– E*TRADE

– Esteé Lauder

– Godiva

– Group 1 Automotive

– Iron Mountain

– Mylan

– Olympus

– Scholastic

– Starbucks

– The Doctors Company

– Thompson Creek Metals / Centerra Gold

– TiVo

– VMware

• Chief Solutions Officer

• 30 years experience delivering EPM solutions to numerous Fortune 1000 clients across more than 20 industry verticals

• Specializations include enterprise performance management, business process, business intelligence, data warehousing, and master data management

• Regular blogger, frequent speaker, and contributor to various industry publications

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PLANNING & FORECASTINGSTEEPED IN TRADITION

“The past does not carry uncertainty, but the future does. The farther ahead we look, the more uncertainty there is.”

‐ Implementing Beyond Budgeting

Traditional Planning Process

• Annual process– Out‐of‐date when finalized

• Time consuming (3‐6 months), expensive• Combines target‐setting, forecasting, and resource allocation

– Leads to Sandbagging

• Focus is on detail data preparation and collection• Heavy use of offline spreadsheets• Becomes basis for comparison/variance

– Basis for compensation (bonuses)– Not relevant to where we are today

• Authorization to spend – “It’s in my budget”

Traditional Forecasting Process

• Monthly or Quarterly (ex: 3+9, 6+6, 9+3)• Short window (1‐3 days) after monthly close• Focuses on current year only• Derived from plan or prior forecast• Bias on achieving targets (hope) not forecasting (reality)• No time for scenario modeling• Adjustments are made on what’s happened so far• Different level of detail than plan 

– Data is often summarized

Traditional Process

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LOOKING FORWARD WITH ROLLING FORECASTS

Increasing Pressure on the Office of the CFO

• Another hat to wear – Chief Data Officer– More Data & Analysis– Advanced Forecasting

• Compliance– Better Risk Management– Changes in Regulations– Corporate Cop– Data Security

• Strategic Business Partner

So You Just Want More?

A rolling forecast creates an ongoing cycle of planning, conducting, evaluating and updating organization‐wide 

operations.

Source: Rolling Forecast Solutions – Five Core Components of a Rolling Forecast, 2011

Five Core Components of a Rolling Forecast

1. Extends beyond the calendar/fiscal year and covers a standard number of periods

2. Updates on a regular and pre‐determined basis 3. Emphasizes key business drivers4. Rapid forecast creation5. Blends actual performance along with the updated forecast

Source: Rolling Forecast Solutions – Five Core Components of a Rolling Forecast, 2011

What Is a Rolling Forecast?

• More fluid approach to planning and forecasting– If you are doing this, may not need to do a typical annual plan

• Emphasizes the forward movement of the business– Always looking ahead, usually 18 months– No cliff event like end‐of‐year

• Focus on what you manage– Not what you transact

• Continuous process– Combines traditional plan and forecast

18‐Month Rolling Forecast

Why Rolling Forecasts?

• Forward looking beyond the cliff/wall– Emphasis on ongoing results vs. just current year

• Support regular strategic performance reviews by identifying future performance gaps• Improve decision making• Enable senior executives to manage performance expectations

– Avoid shock profit warnings

• Utilize Drivers– Avoid excessive detail

• Focus more on factors and analysis rather than data gathering

Something to consider… Could this eliminate the need for an annual plan?

18‐Month Rolling Forecast

Planning & Forecasting Leading Practices

Leading Practices• Align budgeting and forecasting with company strategy – targets are 

set by management and cascaded across the organization for budgeting/forecasting

• Don't burden with excessive detail – "false precision" slows the process, and reduces the value to be realized through frequent scenario iteration

• View planning as a continuous, iterative process to guide business decision‐making, not as a once‐a‐year administrative exercise – rolling forecasts are one way to do this

• Utilize "driver‐based" logic wherever possible throughout the planning process – build explicit links between external forces, operational activities and the resulting financial performance

• Utilize purpose‐built planning tools to support rapid iteration of complex, multi‐dimensional models that are consistent across business units/groups

Benefits• Creates a stronger linkage between the Strategic Plan, the key targets 

and the operation of the business

• Provides organization with better ability to respond to changes in market conditions

• Better focus on the review of key drivers of financial results and influencing those drivers going forward

• Allows for continuous adjustments to planning assumptions, rather than an annual review

• Improves communication within the business, about the business, and its tactical and strategic areas of focus

• Increases management accountability for results

• Rolling forecast provides a view into the budget for the next year

• Less time is spent on developing the detailed budget

• More time can be spent considering the operational initiatives from the strategic plan

• Allows organization to focus on the analysis efforts not on process

Keys to a Successful Implementation

Requirements Gathering A successful implementation begins with requirements gathering, and can only be achieved with a carefully planned design, a detailed project plan, strong project management, and clearly defined, achievable and measurable goals and objectives.

Business Practices and ProcessesSuccess includes the implementation of better and more efficient business practices and processes.

Stakeholders

Executive management is a stakeholder and must be willing to implement change, drive the organization to adapt their business processes to the new models and lead the project to success.

Understand the Project Phases

Strategic Roadmap

Requirements & Design Build Test Deploy Review &

Assess

• Create strategic vision• Analyze current solution &

processes• Perform gap analysis• Identify risks & challenges

• Identify requirements• Define scope & objectives• Obtain executive commitment• Design applications, data

integrations, reports

• Setup environment• Build solution• Develop integrations• Unit testing• Validate data

• Integration Testing• UAT• Performance Testing

• User training• Go-live• Support

• Project review• Measure success• Lessons learned

Identify Success Factors

AUD I ENCE TANG I B L E S E XP ER I ENCE REA L I Z E

Executives

Ability to perform “what‐if” scenarios quickly Monthly close efficiencies Shorten planning cycle

Confidence in reports Improved analysis and forecasting Compliance

Report earnings in ?? days Forecast more accurately Reduce audit fees Execs using Dashboards

Project Team

Go Live on schedule Get internal recognition Improve data quality # of users on solution

Deliver project on time and within budget Become self‐sufficient  Simplify processes  Make users happy

Set target date and budget Reduce maintenance by ?? Reduce errors by ?? User satisfaction rating Measure ROI

End Users

Ability to perform “what‐if” scenarios quickly More time spent on analysis, less on data entry

Easy of use Better access to data More timely reporting Less manual input

Identify amount of time saved Improve accuracy

IT

Reduce cost of IT support Verify compliance Ability for internal team to support solution

Stable environment Integrate security Fits internal standards Compliance

Supportable Achieve internal standards Measure performance

Key Questions to Ask

• Evaluate how to improve current processes– How did our current planning and forecasting process evolve over time?– What do we like/dislike about the current process?– How frequently do we update forecast – Monthly or Quarterly?

• Understand organizational direction– Where are we going as a business?

• Determine what information you need to manage, and how you want to measure it– What’s important to us?– Does this align with our corporate goals and objectives?

• Do we have the time and resources to prepare plans/forecasts on a more frequent basis?

Decision and Criteria

• Timing of the implementation• What resources do you need 

– IT support– Temps for data entry and validation– New hardware/software

• Level of detail needed– Is it consistent across organization?– What can you control or influence?

• Choose the right solution– Cloud, Hosted, or On‐Premise– Spreadsheet‐based

Where Excel Falls Short

• No proper version control– Are all spreadsheets the correct versions?

• For every 150 lines in your forecasting model there is a 90% chance of a logic error• Lack of robustness

– Can a CFO be confident in the numbers from an Excel forecast?

• Cannot accommodate changes to assumptions quickly– What if the CEO asked – “what is the financial impact of stopping production of line x?”

• Designed by staff who are not programmers, nor have been trained in documentation, quality assurance or other vital skills for a core business system

Source: Rolling Forecast Solutions – Five Core Components of a Rolling Forecast, 2011

Keys to Success

• Executive sponsor must be the “change sponsor”• Define and socialize the process (who, what, when, and how)• Change Management – Change takes time

– Adoption is acceptance and participation– Identify areas of resistance

• Determine level of detail– What are you responsible for?– What can you control?

• Driver‐based models– Focus on key elements (drivers) impacting the business– Minimizes data entry– Ability to model different scenarios (Best/Worst case)

What Are Drivers?

• Calculations that require user to enter a single base element (cause) of a calculation and results (effect) are driven from that

• Certain elements are centrally defined/controlled– Unit price/cost, discount rates, etc– Salary mid‐points, benefits, taxes, etc– Depreciation rates

• Unit x Rate = Amount– Unit is input by user and is their focus– Rate is centrally supplied/controlled– Amount is derived result

What Is Driver‐Based Planning? 

Linking of operating activity and actions to a set of managed assumptions

Two conditions that should be met for Drivers

Managed Assumptions

OperatingActivity

Persistent throughout various groups within a 

company

Discrete andDiscoverable

Is This Discoverable?

Actionable Drivers

• There is no “Easy” button• Set expectations: Better to be “good” than never achieving “perfect”• 80/20 – Majority of expenses can be “driven”• Identify operational drivers that yield financial data• Management of universal financial drivers

– Diesel price per gallon– Exchange rates– Commodity prices

• Ability to do sensitivity analysis

• Drivers set by Corporate or LoB– Unit Price and Cost

– Discounts, Returns, DiF, etc.

– Currency dependencies

• Units sold are input by users

• Most important area to get right

• Strategically link Sales and Manufacturing– Total units sold has an impact on cost basis

– Affects Marketing and Promotion expenses

– Improves Finance’s visibility and modeling

Revenue/Cost Based Drivers

Units Sold

Price

Cost

Sales

CoS

Disc, Ret Revenue

XX=

=

=

Another Perspective

REPORTINGCORPORATE

Cost

Units Sold

SALES FORCE

MANUFACTURINGPrice

Disc, RetCurrency

Sales – From Bottle to Vine

Tons per Acre

Total Barrels

TotalTons

Barrels per Ton Total BarrelsX /= =

Retail(%)

=Price per Bottle

Wholesale (%)

# of Cases

Club Members X

=

=

Cases per Barrel =

Number of Acres

X

X

X

Price per Bottle

Price per Bottle

Sales($)

Drivers

Results

Employee – Based Drivers

• Drivers set by Corporate or LoB– Salary levels by grade or position

– Benefits and Payroll Tax rates

– Currency dependencies

New Hire(Position, Date)

Grade Mid‐point

Benefit Rate

Salary Expense

Benefit Expense

Payroll Tax Rate Payroll Taxes

• New Hires are input by users– Focus on type of resource

– When to hire

– Improves modeling

XX=

=

=

Employee‐Based – Advanced Drivers

x

x

=

= =

=

x

= =

=

DepreciationExpense

Facility Expense

Depreciation RatePC Purchase

Office Space

Grade Mid‐point

Benefit Rate

Salary Expense

Benefit Expense

Payroll Tax Rate Payroll Taxes

Capital Expense

Facility Allocation

Recruiter Fee Recruiting ExpenseNew Hire(Position, Date)

Examples of Drivers

• Health Benefit

• Memberships

• 401K Contribution

• Stock Options

• Capital Purchases

• Depreciation

• Square Footage

• Country specific

• LoB specific

• Average Selling Price

• Discounts, Returns

• Average Cost per Unit

• Salary Grade Mid‐Point

• Commission rate

• Merit Increase

• Annual Increase

• FICA, FUTA, SUTA

• State Unemployment

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MEASURING WHAT YOU NEED TO MANAGE

Understanding the Forecast

Basis for variance analysis• Communicate what is being 

measured

• Focus should be on what can be controlled, not just raw $’s

Understand why there is a variance• Track and store comments & explanations

• Visibility into assumptions and dependencies

Don’t make currency the issue• Local currency based

• Constant rate based

Beyond the Numbers

• Don’t rely on just AvB type reports– Can you “visually” see what’s happening?

• Use graphs and charts to spot trends– Bar, Line, Pie, Bubble, Scatter

– Easier to identify contribution

Waterfall Reports

• Measures accuracy in forecasting

• Identify trends and behaviors

• KPI and metric oriented

Additional Considerations

• Change Management– Users need to understand benefits

• Impact of multiple years on calculations/drivers– Transition of new hires to employees– New capital purchases included in depreciation forecast

• Parallel the process– Balance this with other ongoing initiatives– Take the time for adoption of the process

• Integration with other processes– Monthly Close– Strategic / Long‐Range Plan

• Perform postmortems on forecasts to improve quality

© Copyright 2019 Archetype Consulting. All Rights Reserved.

Juan Porter / Chief Solutions Officer(415) 860-1115 / jporter@archetypeconsulting.com