Budgeting&Planning Deloitte

8/8/2019 Budgeting&Planning Deloitte

1/19

Perspectives on Budgeting and

Forecasting


2/19

Agenda

Planning, Budgeting and Forecasting Processes

Tool Landscape

Contacts

2Copyright 2009 Deloitte Development LLC. All rights reserved.


3/19

Performance Managementis a top priority

76% say measuringprofitability constraint is top

Improving financialprocesses is a top concern

CFO Priorities in 2009 (Gartner survey)


Integration of Performanceand Risk Management is agrowing trend


4/19

Top performing companies employ world-class performance managementprocesses

The Sherwin-Williams Company (1) Renault SA (2) Hilton Hotels (3) Continental AG (4) SABMiller plc (5) British American Tobacco (6) Reynolds American, Inc. (7) Nexen inc. (8) KBC Group (9) The Royal Bank of Canada (10) Moodys Corporation (11) Anglo Irish Bank Corporation (12) Thermo Fisher Scientific Inc. (13) Becton, Dickinson and Company (14) WellPoint, Inc. (15) Humana Inc. (16) Textron Inc. (17) AktiebolagetSKF (18) Atlas Copco AB (19) Volvo AG (20) Autodesk Inc. 21

5 Year Total Shareholder Return vs. Industry Performance


Performance Management Related Benefits Experienced By Top Performing Companies

Through the implementation of world-class performance management processes, these companies are able to:

Align corporate goals and business strategy

Make better and more effective business decisions

Effectively communicate strategic objectives throughout theorganization

Provide increased visibility into all elements of the plan

Quickly respond to changes in business conditions

Increase accountability to plan accuracy

Tie business strategy to measurements and metrics

Simplify and standardize reporting to focus only on metricsthat matter

. Cognizant Technology Solutions (22) KoninklijkeKPN NV (23) Telekom Austria AG (24) Constellation Energy Group (25) Fortum Corporation (26)


5/19

Many elements of todays business environment highlight the need for amore effective planning process

Pressures & challenges Impact on current environment

Regulatory Increasing regulatory oversight and scrutiny Increased need for financial transparency

Migration from well-controlled lagging indicators

to more leading indicator focus

Financial

community Difficulty in raising capital due to credit

market constraints

High returns demanded by investors

Reliance of shareholders and analysts onforward-looking projections and indicators

Increased need for accuracy and defensibility

of forecasts and budgets


Markets

and

customers

Increased competition for customers

impacting retention and pricing

Increased pressure and emphasis on

profitability and cost reduction

Increased need to understand customer and

product profitability

Businessoperations

Need to efficiently integrate new acquisitionsand business models

Increased need to align business operations

with corporate strategy


6/19

Ineffective performance management can lead to failure to achieve anorganizations strategic objectives

Despite acknowledging the desire to better manage performance, organizations continue to struggle with

issues that prevent them from achieving long-term strategic objectives

No clear accountability of operationalmanagers for targets

Reporting and analysis efforts fail to highlightpotential issues in a timely manner

Targets, where set, are not aligned to thestrategy and value creation

Long-range planning activity does not relateto the strategy

Symptoms of ineffective performance management


xecu ve an s a e av or s no n ne wachieving performance measure goals

Data exists across multiple systems with nostandard set of business definitions acrossthe enterprise

Inability of existing technology to effectively

manage and analyze performancemanagement data

esources are oun n pro ec s w c arenot top priority to execute corporate strategy

Strategic objectives, initiatives and individualtargets are not aligned nor clearlycommunicated across the organization

The budget process is time consuming and

does not result in the effective deployment ofcompany resources

Tackling the symptoms individually will prevent the resolution of long-term issues. Instead, the

root causes should be addressed through the adoption of a performance management framework


7/19

Deloittes Performance Management Framework

Strategy

Intervention

Strategy

Intervention

Forecasting

Strategic Planning

Development of vision

Determining strategic objectives

Identifying strategic initiatives

Identifying threats to achieving strategic initiatives

Identify and manage enterprise risks impactinginitiatives

Agreeing on desired results (i.e., performancemeasurement targets)

Establishing multi-year, high-level financial and

operational targets

Business Planning

Translation of strate into annual business unit

Intervention (Forecast)

Acting on the information

Decision Making, Investigation,

Reformulation of strategy, changeprocesses, risk response, start newactivity

Forecasting

Understanding the near future

Draws on known facts and realistic estimates ratherthan setting a course

Scenario planning and what-if analysis on critical riskfactors

Risk threshold recalibration if needed


PlanningPlanning

Budgeting

Operational

ReportingManagement

Reporting

External

Reporting

Analysis

Value

Creation

Reporting Financial variance reporting and monitoring

Close, management & statutory financial reporting

Risk dash boarding and regulatory compliance reporting

Operational reporting and monitoring (i.e. status of key business planinitiatives)

Analysis

Analysis of performance measurement gaps

Ad hoc financial analysis

Analysis of systemic and enterprise risk

Analysis of operational progress againstplanned initiatives

Determination of corrective actions

Performance Measurement

Reporting and monitoring of key, balanced performancemeasures (KPIs and associated KRIs) that reflect desiredresults of strategic plan

Communication of results of corporate and functionalscorecards (performance and risk) throughout theorganization

action plans (projects and initiatives)

Identification of business unit performancemeasurement targets (i.e. KPIs)

Identification of risks to achieving performancemeasures (i.e. KRIs)

Development of annual operational and capitalspending envelopes

Budgeting & Performance Target Setting

Identification and prioritization of capital

projects to develop capital budget Translation of business plans and capital

budget into operating budgets (based ondefined business model)

Translation of business unit performancetargets to operational performance targets(i.e. KPIs)

Translation of business unit risk thresholdsto operational risk thresholds (i.e. KRIs)


8/19

What drives performance in the companys market and in the companys operations? How much should we invest in new products vs. line extensions?

How will an ERP impact operational effectiveness and efficiency?

Should we hire twenty new sales people or build a new warehouse?

How much investment should be shifted to those initiatives with the greatest promise?

Business sustaining vs. Business growth

Our view is that the planning process should raise questions and provideanswers that are core to the business


What key performance indicators would best measure progress towards strategic goals?

Outcome/Risk Measures Revenue, Earnings Per Share

Process Measures Cycle Time, Number of Hand-offs

Predictive Measures Unemployment, Consumer spending, Fuel cost, Commodity

prices


9/19

Planning/Budgeting is a top-down, bottom-up process with multiplestakeholders

Analyze Consolidated

Results

(e.g., pro-forma financials,KPIs, risk modeling)

Finalize Changes and

Approve Plan

(e.g., tweek plan; obtaincommitment)

CFO and Executive

Management

Top Down Executive

Guidance and DirectionTop Down Plan Finalization

Define Financial and

Operational Targets

(e.g., ROIC, ROE,EBITDA Margins)

Create Strategic Plan

(e.g., shareholder value,

investment portfolio)


Start Planning Cycle

Push Targets Down to

Actionable Level

(e.g., Communicate targets,

assess implications)

Create Detailed Plan

(e.g., driver based modeling,

approval based workflow,

scenario planning)

Validate Plans and

Consolidate Results

(e.g., verify plan

assumptions, check results

for reasonableness)

End Planning Cycle

Financial Planning & Analysis

Business Units


10/19

More standardized

Enterprise-wide

processes Use of web-enabled

Planning processfully integrated withstrategy

Real-timeforecasting and

Develo in

Defined

Advanced

Leading

Developing a Leading Practice Capability

Companies typically mature from an unstructured planning process toward a more matureand structured process. The development often follows a path such as this:


No formal planningprocess

No planning tools

Inadequate

communication Purely financial plan

Inconsistentprocess

Basic tools (e.g.Excel)

Ad hocspreadsheets

Highly manualprocess

processes

Some integrationacross BUs

Reliance on ERPsystem as planningtool

Little analytics

budget tool

Rolling forecast andother advancedprocesses

per ormancemonitoring

Compensationlinked to results

Emerging


11/19

Leading organizations are adopting a number of effective solutions toimprove their planning processes and enhance their value

Key performance indicators

Rolling forecasts

Identification of the most significant measures of business performance

Key Benefit: better alignment between strategy and execution

Expansion of forecast horizon beyond current fiscal year

Key Benefit: better insights into market conditions and expectedperformance

Development of planning models based on major internal and external


Driver-based planning

Capital allocation

Focusing capital spend on projects or initiatives that drive value

Key Benefit: better return on investment for key initiatives

Key Benefit: more accurate plans and better insight into performancedrivers

Scenario Analysis Using various assumptions to gauge bottom line impact

Benefit: better decision-making that includes consideration of all businessscenarios


12/19

Blow-up the Budget!

Leading organizations are beginning to move from a rigid, annual budgeting process that typically is

painful and causes undesirable behaviors to a rolling forecast:

can be

replacedwith this...

but only if

changesmade...

Internally focused, historicalperspective, bottom-up plandevelopment

Multiple lines of targetsprovided, but not formal firmtargets (e.g., revenue)

Multiple iterations of detailedbudget preparation

Forward looking, more market-based, externally-focused, top-down planning

Less overall effect

Few top-down targets

Fewer iterations and less detail

churn at sites

Fewer data lines sent to

Changes made to current plan,process and philosophy

Timely and complete targets

Reduced data elements

Improved data collection tools

Close linkage with other planningprocesses

Continuous planning

Required ChangesTypical Rolling ForecastTypical Annual Budget


With Rolling Forecast, the need for budgeting is minimized or eliminated while producing amore externally-focused, market-sensitive process

A rolling forecast willincrease the planningworkload

otherwise...

levels

Excessive handoffs

Spring and Fall plans areseparate activities

Forecast focus is only oncurrent year

Fall plan process results inlarge spike in workloads

Incompatible systems/softwareused throughout

corpora e

Tightly linked to strategy

Improved decision support

Planning horizon refocused tolooking beyond year-end (e.g.,15 months)

Annual Event reduced in theFall so increases continuous

planning mind-set Improved, uniform I/T tools and

infrastructure

Smooth resource needsthroughout year

Increased line managementfocus on quarterly forecasts vs.single event


13/19

Rolling Forecast Leading Practices

Timely and complete targets Reduced data elements

Efficient data collection tools

Increased line management focus on quarterly forecasts vs. single event

Expand the scope of forecasts to include financial and non-financial data

4 or 5 quarters

Simplify and focus forecasts by relying on a few measures/drivers

Assign forecast ownership to operational units


Define threshold-level forecasting (i.e., scope and depth of forecast and action planning basedon predetermined thresholds)

Define consistent methodology and timeline to complete forecasts

Automate and leverage (e.g., modeling and scenario analysis) rolling forecasts throughinformation systems

Link incentive compensation to plan targets and relative value changes


14/19

A Range of Operating Models

Decentralized Coordinated Center-Led Centralized

Central Group defines Central Group defines Central Group responsible

for overall lan

Central Group defines

rocess deliverables

Improving planning & forecasting often requires greater leadership from corporate to facilitate decision-

making

- Basic - - Leading Practice -- Immature -


Divisions develop all plans

to meet schedule

Sets schedule only

Summarizes divisional

plans into Corporate Plan

Develops all deliverables

to meet timeline/schedule

Divisions define content &

deliverables

Owner of Corporate Strategy

outputs

Sets schedule and f inancial

guidelines

Integrates & coordinates

divisional plans

Develops deliverables within:

Timeline & financial

guidelines

Divisions provide data and

input

Owner of Corporate

Strategy outputs

Overall Process owner

Develops approaches,

deliverable standards,

timeline

Develops deliverables

within:

Timeline

Approach

Guidelines

Deliverable designs

schedule and standards

Divisions work within

approach

Owner of Corporate

Strategy outputs

Overall Process owner

Develops approaches,

deliverable standards,

timeline

Develops deliverables

within:

Timeline/Approach

Guidelines

Deliverable designs

Description

Corporate

Planning Role

DivisionalPlanning Role


15/19

The landscape of PBF tools is quickly changing

Hyperion Planning Cognos Planning BPC PerformancePoint

Offers true out-of-the

box system

integration

Considered the leader

in the Business

Consistently

recognized as the

leader in BI analytical

reporting

Cognos TM1 software

SAP planning tool

Highly customizable

with Excel front end,

which simplifies user

adoption

Leverages Microsofts

Analysis Services

(similar to Essbase

and TM1)

Tightly integrated with


Management Space

-

approach to

consolidating,

viewing, and editing

data

Built on a centralized

services-oriented

architecture

MS SQL Server

IBM will likely leave

as a stand alone

application

SAP will

incorporate into Net

Weaver architecture

Oracle integrated

into OBIEE, Siebel,

or other Oracle

products

Will continue to

market low cost

solution to mid-

market

Future Direction


16/19

Vendor Overview SAP BPC

Developer and provider of analytic portal-based budgeting, forecasting and reportingProduct Offerings Highlights

SAP-BPC (Formerly OutlookSoft)

Current product is basically OutlookSoft 5.0 ,

designed for consolidation, financial planning,

and scorecarding based on a Sequel Server

Architecture

Next generation to be released in fall 2008 will

include similar capabilities, but be integratedwith SAP Netweaver platform

SAP-BPC

Web centric messaging and portal positioning

which supports collaborative, dynamic

processes

Provides workflow for managing the

submission and approval of budgets, forecasts

and plans

Ca able of mana in com lex calculations with


SAP-IP (Integrated Planning)

Netweaver based planning product released in

Fall 2006

Primary focus is on planning and forecasting

Though both products provide similar functionality IP

is generally considered more robust and scalable,

while BPC is consider more flexible and user friendly

complete Excel integration

Reporting is limited and lacks formatting

flexibility

SAP-IP

Robust planning and forecasting capability

Complete integration with SAP Netweaver and

BI environment

Highly scalable

Limited installations

Complete dependence on IT for support, no

forward deployed or self-service administration


17/19

Vendor Overview - Cognos

Cognos is a leader in the business intelligence and analytics space coupled with business performancemanagement capabilities

Product Offerings Highlights

Cognos Planning

Analyst is a localized modeling and analytics

product

Contributor is a web-based data collection and

modeling product

Cognos TM1

Cognos 8 allows for integration of Cognos BI products

but limited integration of Cognos financial products

Ease of developing planning functionality by using built-

in-functions (BIFs) or the Analyst product that does not

require programming knowledge

OLAP engine


Real time response to calculations, analytics with

write-back capabilities, simple modeling

Cognos Controller (for consolidation & related reporting)

Cognos Report Studio and Query Studio (ad hoc

querying, production report templates)

Cognos PowerPlay/Analysis Studio (BI, analysis)

-

the client which may compromise performance of large

cubes if client processing limitations exist

TM1 uses 64 bit technology and stores cube in memory

for quick response times

Integrate with Microsoft Excel, PowerPoint and Word

through Cognos Office Connection

Web or Excel interfaces

Highly configurable and flexible


18/19

Vendor Overview - Hyperion

Hyperion is a leading player in the Business Performance Management spaceProduct Offerings Highlights

Offers a suite of solutions for financial management,

business intelligence, and data management

Hyperion Financial Management (for consolidation)

Hyperion Analytic Services (Essbase)

Hyperion Planning

Hyperion Reports

H erion Anal zer dash board

Hyperion Analytic Services (Essbase) is the dominant

OLAP engine in financial analytics space offering a

powerful and sophisticated multi-dimensional OLAP

engine

Hyperion System 9 serves as an integration platform

across all Hyperion products

Centralized architecture provides simpleradministration and deployment of the various products


but compromises end-user flexibility in defining rules,

calculations, etc.

Server-based processing

Fully integrated with Microsoft office through

SmartView

Web-enabled across products


19/19

Contacts

Vic KatyalPrincipalDeloitte & Touche [email protected]

Jeff TorstensonSenior ManagerDeloitte & Touche LLP

[email protected]

mailto:[email protected]:[email protected]

Documents

Budgeting&Planning Deloitte