Day 1 STRATEGIC PLANNING & BUDGETING 2011

8/2/2019 Day 1 STRATEGIC PLANNING & BUDGETING 2011

1/100


2/100

Clearly define the complete strategic planningClearly define the complete strategic planning

processprocess

Explain how to create and execute a strategicExplain how to create and execute a strategic

planplan Provide a common model that the entireProvide a common model that the entire

organization can followorganization can follow


3/100

Your nameYour name

EmployerEmployer

PositionPosition

Why are you here? (Expectations)Why are you here? (Expectations)


4/100

Process to establish priorities on what you willProcess to establish priorities on what you will

accomplish in the futureaccomplish in the future

Forces you to make choices on what you will doForces you to make choices on what you will do

and what you will not doand what you will not do Pulls the entire organization together around aPulls the entire organization together around a

single game plan for executionsingle game plan for execution

Broad outline on where resources will get allocatedBroad outline on where resources will get allocated


5/100

If you fail to plan, then you plan to failIf you fail to plan, then you plan to fail bebe

proactive about the futureproactive about the future

Strategic planning improves performanceStrategic planning improves performance

Counter excessive inward and shortCounter excessive inward and short--term thinkingterm thinking Solve major issues at a macro levelSolve major issues at a macro level

Communicate to everyone what is most importantCommunicate to everyone what is most important


6/100

Where are we now? (Assessment)Where are we now? (Assessment)

Where do we need to be? (Gap / Future EndWhere do we need to be? (Gap / Future End

State)State)

How will we close the gap (Strategic Plan)How will we close the gap (Strategic Plan) How will we monitor our progress (BalancedHow will we monitor our progress (Balanced

Scorecard)Scorecard)


7/100

Address critical performance issuesAddress critical performance issues Create the right balance between what theCreate the right balance between what the

organization is capable of doing vs. what theorganization is capable of doing vs. what the

organization would like to doorganization would like to do

Cover a sufficient time period to close theCover a sufficient time period to close the

performance gapperformance gap

VisionaryVisionary convey a desired future end stateconvey a desired future end state

FlexibleFlexible allow and accommodate changeallow and accommodate change

Guide decision making at lower levelsGuide decision making at lower levels

operational, tactical, individualoperational, tactical, individual


8/100

Environmental Scan

Assessment

Background

Information

Situational Analysis

SWOT Strengths,

Weaknesses,

Opportunities,

Threats

Situation Past,

Present and Future

Significant

Issues

Align / Fit with

Capabilities

Mission & Vision

Values / Guiding

Principles

Major Goals

Specific Objectives

Performance

Measurement

Targets / Standards of

Performance

Initiatives and

Projects

Baseline Components

Performance

Management

Review Progress

Balanced Scorecard

Take Corrective

Actions

Down toSpecifics

Evaluate

Where we are Where we want to be How we will do it How are we doing

Gaps Action Plans Feedback upstream

revise plans


9/100

Matt H. Evans, [email protected]

Senior leadership commitmentSenior leadership commitment

Who will do what?Who will do what?

What will each group do?What will each group do?

How will we do it?How will we do it? When is the best time?When is the best time?


10/100

Assessment


11/100

Assessment

External Assessment: Marketplace,competitors, social trends, technology,

regulatory environment, economic cycles .

External Assessment: Marketplace,competitors, social trends, technology,

regulatory environment, economic cycles .

Internal Assessment: Organizational

assets, resources, people, culture,

systems, partnerships, suppliers, . . .

Internal Assessment: Organizational

assets, resources, people, culture,

systems, partnerships, suppliers, . . .

Easy to Understand

Apply at any

organizational level

Needs to be

Analytical and

Specific

Be honest about your

weaknesses

Good Points Possible Pitfalls

SWOT SWOT


12/100

Assessment

StrengthsStrengths Those things that you do well, theThose things that you do well, the

high value or performance pointshigh value or performance points

Strengths can be tangible: Loyal customers,Strengths can be tangible: Loyal customers,

efficient distribution channels, very high qualityefficient distribution channels, very high qualityproducts, excellent financial conditionproducts, excellent financial condition

Strengths can be intangible: Good leadership,Strengths can be intangible: Good leadership,

strategic insights, customer intelligence, solidstrategic insights, customer intelligence, solid

reputation, high skilled workforcereputation, high skilled workforce Often considered Core CompetenciesOften considered Core Competencies BestBest

leverage points for growth without draining yourleverage points for growth without draining your

resourcesresources


13/100

Assessment

WeaknessesWeaknesses Those things that prevent you fromThose things that prevent you from

doing what you really need to dodoing what you really need to do

Since weaknesses are internal, they are withinSince weaknesses are internal, they are within

your controlyour control

Weaknesses include: Bad leadership, unskilledWeaknesses include: Bad leadership, unskilled

workforce, insufficient resources, poor productworkforce, insufficient resources, poor product

quality, slow distribution and delivery channels,quality, slow distribution and delivery channels,

outdated technologies, lack of planning, . . .outdated technologies, lack of planning, . . .


14/100

Assessment

OpportunitiesOpportunities Potential areas for growth andPotential areas for growth and

higher performancehigher performance

External in natureExternal in nature marketplace, unhappymarketplace, unhappy

customers with competitors, better economiccustomers with competitors, better economic

conditions, more open trading policies, . .conditions, more open trading policies, . .

Internal opportunities should be classified asInternal opportunities should be classified as

StrengthsStrengths

Timing may be important for capitalizing onTiming may be important for capitalizing on

opportunitiesopportunities


15/100

Assessment

ThreatsThreats Challenges confronting the organization,Challenges confronting the organization,

external in natureexternal in nature

Threats can take a wide rangeThreats can take a wide range bad pressbad press

coverage, shifts in consumer behavior, substitutecoverage, shifts in consumer behavior, substitute

products, new regulations, . . .products, new regulations, . . .

May be useful to classify or assign probabilities toMay be useful to classify or assign probabilities to

threatsthreats

The more accurate you are in identifying threats,The more accurate you are in identifying threats,

the better position you are for dealing with thethe better position you are for dealing with the

sudden ripples of changesudden ripples of change


16/100

Baseline


17/100

Baseline

Puts everything about the organization into aPuts everything about the organization into a

single context for comparability and planningsingle context for comparability and planning

Descriptive about the company as well as theDescriptive about the company as well as the

overall environmentoverall environment

Include information about relationshipsInclude information about relationships

customers, suppliers, partners, . . .customers, suppliers, partners, . . .

Preferred format is the Organizational ProfilePreferred format is the Organizational Profile


18/100

Baseline

Products and ServicesProducts and Services Suppliers, DeliverySuppliers, Delivery

Channels, Contracts, Arrangements, . . .Channels, Contracts, Arrangements, . . .

Organizational CultureOrganizational Culture Barriers, Leadership,Barriers, Leadership,

Communication, Cohesiveness . . . .Communication, Cohesiveness . . . .

Workforce ProductivityWorkforce Productivity Skill levels, diversity,Skill levels, diversity,

contractors, aging workforce, . . .contractors, aging workforce, . . .

InfrastructureInfrastructure Systems, technology, facilities, . .Systems, technology, facilities, . .

RegulatoryRegulatory Product / Service Regulation, ISOProduct / Service Regulation, ISO

Quality Standards, Safety, Environmental, . . .Quality Standards, Safety, Environmental, . . .


19/100

Baseline

Organizational StructureOrganizational Structure Business Units,Business Units,

Functions, Board, Management Layers, . . .Functions, Board, Management Layers, . . .

Customer RelationshipsCustomer Relationships Requirements,Requirements,

Satisfaction, Loyalty, Expectations, . . .Satisfaction, Loyalty, Expectations, . . .

Value ChainValue Chain Relationship between everyone inRelationship between everyone in

the value chain . . . .the value chain . . . .

Partner RelationshipsPartner Relationships Alliances, longAlliances, long--termterm

suppliers, customer partnerships, . . .suppliers, customer partnerships, . . .


20/100

Baseline

CustomerCustomer

Products and ServicesProducts and Services

FinancialFinancial

Human CapitalHuman Capital

OperationalOperational

External (Regulatory Compliance, SocialExternal (Regulatory Compliance, Social

Responsibility, . . . )Responsibility, . . . )


21/100

Baseline

Baseline / Org Profile Challenges / SWOT

Gap = Basis for Long-

Term Strategic Plan

Gap = Basis for Long-

Term Strategic Plan


22/100

Components


23/100

Components

Mission

Vision

Goals

Objectives

Measures

Why we existWhy we exist

What we want to beWhat we want to be

Indicators andIndicators and

Monitors of successMonitors of success

Desired level ofDesired level of

performance andperformance and

timelinestimelines

Planned Actions toPlanned Actions toAchieve ObjectivesAchieve Objectives

O1 O2

AI1 AI2 AI3

M1 M2 M3

T1 T1 T1

Specific outcomes expressed inSpecific outcomes expressed in

measurable terms (NOT activitiesmeasurable terms (NOT activities))

Strategic Plan

Action Plans

Evaluate Progress

Targets

Initiatives

What we must achieve to be successfulWhat we must achieve to be successful


24/100

Components

Captures the essence of why the organizationCaptures the essence of why the organization

existsexists Who we are, what we doWho we are, what we do

Explains the basic needs that you fulfillExplains the basic needs that you fulfill

Expresses the core values of the organizationExpresses the core values of the organization Should be brief and to the pointShould be brief and to the point

Easy to understandEasy to understand

If possible, try to convey the unique nature of yourIf possible, try to convey the unique nature of your

organization and the role it plays that differentiatesorganization and the role it plays that differentiates

it from othersit from others


25/100

Components

To Make People Happy

To Explore the

Universe and Search

for Life and to

Inspire the NextGeneration of

Explorers

NASA

Walt Disney

Does a good job of expressing the core

values of the organization. Also conveysunique qualities about the organization.

Too vague and and unclear. Need more

descriptive information about what makes

the organization special.


26/100

Components

How the organization wants to be perceived in theHow the organization wants to be perceived in the

futurefuture what success looks likewhat success looks like

An expression of the desired end stateAn expression of the desired end state

Challenges everyone to reach for somethingChallenges everyone to reach for somethingsignificantsignificant inspires a compelling futureinspires a compelling future

Provides a longProvides a long--term focus for the entireterm focus for the entire

organizationorganization


27/100

Adept

Aggressive

Agile

Aligned

Assertive

Available

Best-in-class

Challenging

Clear

Competent

Complex

Compliant

Conservative

Coordinated

Critical

Equal

Disciplined

Effective

Efficient

Enduring

Expanding

Expert

Fast

Fast-paced

Financially-sound Focused

Growth

Healthy

Improving

Incentivized

Increasing

Solid

Solvent

Stable

State of the

Art Strong

Streamlined

Sufficient

Strategic

Sustainable

Timely

Value-added

Vigilant

Visionary

World-class

Informative

Innovative

Leading

Logical

Major

Nimble

Pioneering

Protected

Organized

Over-Arching Quick

Ready

Responsive

Savvy

Simple

Components


28/100

Components

Every organization should be guided by a set ofEvery organization should be guided by a set ofvalues and beliefsvalues and beliefs

Provides an underlying framework for makingProvides an underlying framework for making

decisionsdecisions part of the organizations culturepart of the organizations culture

Values are often rooted in ethical themes, such asValues are often rooted in ethical themes, such ashonesty, trust, integrity, respect, fairness, . . . .honesty, trust, integrity, respect, fairness, . . . .

Values should be applicable across the entireValues should be applicable across the entire

organizationorganization

Values may be appropriate for certain bestValues may be appropriate for certain best

management practicesmanagement practices best in terms of quality,best in terms of quality,

exceptional customer service, etc.exceptional customer service, etc.


29/100

Components

We obey the lawand donot compromise moralorethicalprinciples ever!

We expect to be measured bywhat we do,aswellaswhat we say.

We obey the lawand donot compromise moralorethicalprinciples ever!

We expect to be measured bywhat we do,aswellaswhat we say.

We treat everyone with respect and appreciate individual differences.

We carefully considerthe impact ofbusiness decisionsonourpeople and werecognize exceptional contributions.

We treat everyone with respect and appreciate individual differences.

We carefully considerthe impact ofbusiness decisionsonourpeople and werecognize exceptional contributions.

We are strategically entrepreneurialin the pursuit ofexcellence, encouragingoriginal

thought and itsapplication,and willing to take risks based onsound business

judgment.

We are strategically entrepreneurialin the pursuit ofexcellence, encouragingoriginal

thought and itsapplication,and willing to take risks based onsound business

judgment.

We are committed toforgingpublic and private partnerships that combine diverse

strengths,skillsand resources.

We are committed toforgingpublic and private partnerships that combine diverse

strengths,skillsand resources.


30/100

Components

Describes a future endDescribes a future end--statestate desired outcomedesired outcomethat is supportive of the mission and vision.that is supportive of the mission and vision.

Shapes the way ahead in actionable terms.Shapes the way ahead in actionable terms.

Best applied where there are clear choices aboutBest applied where there are clear choices about

the future.the future. Puts strategic focus into the organizationPuts strategic focus into the organization specificspecific

ownership of the goal should be assigned toownership of the goal should be assigned to

someone within the organization.someone within the organization.

May not work well where things are changing fastMay not work well where things are changing fast

goals tend to be longgoals tend to be long--term for environments thatterm for environments that

have limited choices about the future.have limited choices about the future.


31/100

Components

Cascade from the top of the Strategic PlanCascade from the top of the Strategic Plan Mission, Vision, Guiding Principles.Mission, Vision, Guiding Principles.

Look at your strategic analysisLook at your strategic analysis SWOT,SWOT,

Environmental Scan, Past Performance, Gaps . .Environmental Scan, Past Performance, Gaps . .

Limit to a critical fewLimit to a critical few such as five to eight goals.such as five to eight goals. Broad participation in the development of goals:Broad participation in the development of goals:

Consensus from aboveConsensus from above buybuy--in at the executionin at the execution

level.level.

Should drive higher levels of performance andShould drive higher levels of performance and

close a critical performance gap.close a critical performance gap.


32/100

Components

Reorganize the entire organizationforbetterresponsiveness to customersReorganize the entire organizationforbetterresponsiveness to customers

We willpartnerwith otherbusinesses,industryleaders,and government agenciesin

orderto bettermeet the needsofstakeholdersacross the entire value stream.

We willpartnerwith otherbusinesses,industryleaders,and government agenciesin

orderto bettermeet the needsofstakeholdersacross the entire value stream.

Manage ourresourceswith fiscalresponsibilityand efficiency through asingle

comprehensive process that isaligned toourstrategic plan.

Manage ourresourceswith fiscalresponsibilityand efficiency through asingle

comprehensive process that isaligned toourstrategic plan.

Improve the qualityand accuracyofservice support informationprovided toour

internal customers.

Improve the qualityand accuracyofservice support informationprovided toour

internal customers.

Establish a means bywhich ourdecision makingprocessis market and customer

focus.

Establish a means bywhich ourdecision makingprocessis market and customer

focus.

Maintainand enhance the physical conditionsofourpublic facilities.Maintainand enhance the physical conditionsofourpublic facilities.


33/100

RelevantRelevant -- directly supports the goaldirectly supports the goal Compels the organization into actionCompels the organization into action Specific enough so we can quantify andSpecific enough so we can quantify and

measure the resultsmeasure the results Simple and easy to understandSimple and easy to understand Realistic and attainableRealistic and attainable Conveys responsibility and ownershipConveys responsibility and ownership

Acceptable to those who must executeAcceptable to those who must execute May need several objectives to meet aMay need several objectives to meet agoalgoal

Components


34/100

GOALS OBJECTIVES

Very short statement, fewwords Longer statement, moredescriptive

Broad in scope Narrow in scope

Directly relates to theMission Statement

Indirectly relates to the MissionStatement

Covers long time period(such as 10 years)

Covers short time period (such 1year budget cycle)

Components


35/100

Developa customerintelligence database system to capture and analyze patternsin

purchasing behavioracrossourproduct line.

Developa customerintelligence database system to capture and analyze patternsin

purchasing behavioracrossourproduct line.

Launch at least three value stream pilot projects to kick-offourtransformation toa

leanerorganization.

Launch at least three value stream pilot projects to kick-offourtransformation toa

leanerorganization.

Centralize the procurement processforimprovementsin enterprise-wide purchasing

power.

Centralize the procurement processforimprovementsin enterprise-wide purchasing

power.

Consolidate payable processing through a P-Card System over the next twoyears.Consolidate payable processing through a P-Card System over the next twoyears.

Monitorand address employee morale issues through anannual employee satisfaction

surveyacrossall businessfunctions.

Monitorand address employee morale issues through anannual employee satisfaction

surveyacrossall businessfunctions.

Components


36/100

Down toSpecifics


37/100

Objectives

Initiatives

Action

Plans

The Action Plan identifies the specific steps that will be taken to achieve the

initiatives and strategic objectives where the rubber meets the road

Each Initiative has a supporting Action Plan(s) attached to it

Action Plans are geared toward operations, procedures, and processes

They describe who does what, when it will be completed, and how theorganization knows when steps are completed

Like Initiatives, Action Plans require the monitoring of progress on Objectives,

for which measures are needed

Down toSpecifics


38/100

Down toSpecifics

Assign responsibility for the successful completion ofthe Action Plan. Who is responsible? What are theroles and responsibilities?

Detail all required steps to achieve the Initiative thatthe Action Plan is supporting. Where will the actionsbe taken?

Establish a time frame for the completion each steps.

When will we need to take these actions? Establish the resources required to complete the

steps. How much will it take to execute theseactions?

fi h f ( h


39/100

Define the specific actions (steps) that mustbe taken to implement the initiative.

Determine the deliverables (in measurableterms) that should result from completion ofindividual steps. Identify in-process measuresto ensure the processes used to carry out theaction are working as intended.

Define the expected results and milestones

of the action plan.


40/100

Provide a brief status report on each stepbrief status report on each step,whether completed or not. What

communication process will we follow? Howwell are we doing in executing our actionplan?

Based on the above criteria, you should beable to clearly define your action plan. If youhave several action plans, you may have to

prioritize.


41/100

Down toSpecifics

Requires that you have answered the Who,What, How, Where, and When questionsrelated to the project or initiative that drivesstrategic execution

Coordinate with lower level sections,administrative and operating personnel sincethey will execute the Action Plan in the formof specific work plans

Assign action responsibility and set timelines Develop working plans and schedules that

have specific action steps


42/100

Resource the project or initiative and document in

the form of detail budgets (may require reallocationprior to execution)

Monitor progress against milestones and

measurementsCorrect and revise action plans per comparison ofactual results against original action plan


43/100

Down toSpecifics

Measure your milestonesMeasure your milestones shortshort--term outcomes atterm outcomes atthe Action Item level.the Action Item level.

Measure the outcomes of your objectives.Measure the outcomes of your objectives.

Try to keep your measures one per objective.Try to keep your measures one per objective.

May want to include lead and lag measures toMay want to include lead and lag measures todepict causedepict cause--effect relationships if you areeffect relationships if you are

uncertain about driving (leading) the desireduncertain about driving (leading) the desired

outcome.outcome.

Establish measures using a template to captureEstablish measures using a template to capturecritical data elementscritical data elements


44/100

Down toSpecifics(Insert

organizationname)

(Insert divisionname)

(Insert departmentname)

Risk Frame areaobjectivesupports

(Insertobjectiveowner)

(Insertmeasurement owner)

(Insert reportingcontact info)

Objective Description description of objective purpose, in sufficient detail for personnel notfamiliar with the objective to understand its intent. Objective descriptions are typically two or threeparagraphs long. This will appear in the pop-up window when you mouse over the objective in theBalanced Scorecard System.

References sourcedocumentation for objectiveand objective description

Comments additional information about the objective not covered in above blocks, such as recommendations for further revision,additional organizations objective impacts, recommendations for coordination / alignment with other objectives, etc.

Measure Name -The name

exactly as you want it toappear in the BalancedScorecard, including themeasure number (i.e. PercentEmployees Satisfied, etc.)

Measure Description description of the measure,

include its intent, data source, and organizationresponsible for providing measure data. This will appearin the pop-up window when you mouse over themeasure in the Balanced Scorecard.

Measure Formula

formula used tocalculate measurevalue (if any)

Data Source - The

source of the data manual, dataspreadsheet, ordatabase name andcontact familiar withthe data

Measure Weight - the relative weight of the measure based on the impact it has on theoverall objective. The total weights for all measures for an objective must add to 100

Measure Reporter Person responsible forproviding measure data. Include the name,

organization and email.

Target Maximum Maximum expected value for the measure. Effective Date Date the targetfirst becomeseffective

Frequency How oftentarget data will bereported

Units Unitsof measure

Target Point where the measure goes from green to amber

Target Minimum Point where the measure goes from amber tored. The target minimum and target can not be the same value. Scorecard PerspectiveName


45/100

Integrity Complete; useful; inclusive of several typesof measure; designed to measure the mostimportant activities of the organization

Reliable: Consistent

Accurate - Correct

Timely Available when needed: designed to use and

report data in a usable timeframe

Confidential and Secure: Free from inappropriaterelease or attack

Down toSpecifics


46/100

Down toSpecifics

Average time to initiate customer

contact => shorter time should lead to

better customer service

Average response time to incident =>below average response times shouldlead to increased effectiveness in dealing

with incident Facilities that meet facility quality A1

rating => should lead to improved

operational readiness for meeting

customer needs


47/100

Down toSpecifics

Overall customer satisfaction rating =>

how well you are doing looking back

Business Units met budgeted service

hour targets => after the fact reporting

of service delivery volume

Number of category C safety accidents atconstruction sites => historical report ofwhat has already taken place


48/100

Down toSpecifics

For each measurement, you should have

at least one target

Targets should stretch the organization

to higher levels of performance Incremental improvements over current

performance can be used to establish

your targets

Targets put focus on your strategy

When you reach your targets, you have

successfully executed your strategy


49/100

Average Time to Process

New Employee Setups inDB

65 days

Year 2007

60 days

Year 2008

55 days Year

2009

Utilization Rate for RentalHousing Units

90% forYear 2007

92% forYear 2008

95% for Year2009

Toxic Sites meeting in-service compliance

55% forYear 2007

70% forYear 2008

95% for Year2009

Personnel Fully Trained inSafety and Emergency

65% by 2rd

Quarter75% by 3th

Quarter90% by 4th

Quarter

Open Positions Filled after30 day promotion period

75positionsSept 2007

100positionsJan 2008

135 positionsJuly 2008

Down toSpecifics


50/100

Make sure everything is linked andconnected for a tight end-to-end modelfor driving strategic execution.

INITIATIVE

Employee

Productivity

Improvement

Program

Employee

Satisfaction

Survey

Rating

90%

favorable

overall

Measure

Target

Target Actual

90%

45%

PercentSatisfactio

n

gap

MEASURE / TARGET

OBJECTIVEImprove Employee

Satisfaction

ACTION PLAN

Identify issues per a

company wide

survey

Down toSpecifics


51/100

Evaluate


52/100

Evaluate

Cascade and align from the top to createa Strategic Management System.

Use the Balanced Scorecard framework

to organize and report actionablecomponents. Use the Scorecard for managing the

execution of your strategy.


53/100

Scorecard forces you to look at differentperspectives and take into account cause-effect relationships (lead and lag indicators)

Improves how you communicate yourstrategy critical to execution.


54/100

D2D2--D5: Build the Balanced ScorecardD5: Build the Balanced ScorecardEvaluate

Establish a regular review cycle using yourbalanced scorecard.

Analyze and compare trends using graphs forrapid communication of performance.

Dont be afraid to change your metrics life cycle(inputs to outputs to outcomes)


55/100

Work back upstream to revise your plans: Action

Plans >Operating Plans > Strategic PlansPlanning is very dynamic must be flexible to

change.

Recognize and reward good performance resultsBrainstorm and change take corrective action on

poor performance results.


56/100

The worlds best Strategic Plan will fail ifit is not adequately resourced through thebudgeting process

Strategic Plans cannot succeed withoutpeople, time, money, and other keyresources

Aligning resources validates that

initiatives and action plans comprising thestrategic plan support the strategicobjectives

Evaluate


57/100

Every Action Plan should identify the following:

-The people resources needed to succeed

The time resources needed to succeed

The money resources needed to succeed

The physical resources (facilities, technology,

etc.) needed to succeed

Evaluate


58/100

Resource information is gathered byObjective

Owners which is provided to the Budget

Coordinators for each Business Unit.Resources identified for each Action Plan are used

to establish the total cost of the Initiative.

Cost-bundling of Initiatives at theObjective level isused by our Business Unit Budget Coordinators tocreate theOperating Plan Budget


59/100

Integrate all components from the topto the bottom: Vision > Mission > Goals

>O

bjectives > Measures > Targets >Initiatives > Action Plans > Budgets. Get Early Wins (Quick Kills) to create

some momentum


60/100

Seek external expertise (where possible and

permissible)Articulate your requirements to seniorleadership if they are really serious about

strategic execution

O


61/100

AN OVERVIEW

OF BUDGETING

PRACTICES

Why do so many managers

dislike the traditional

budgetary system?

Exposing the deficiencies

of traditional budgeting

systems and theaccounting limitations of

the budgeting process

The three Ps of budgeting:Purpose, process, people

Who should prepare what


62/100

Budgeting and business

planning

Many businesses fail

Reasons :

lack of understanding of the market failure to carry out market researchunder estimating the strength of the competitionfailure to secure adequate financeinaccurate estimates in constructing budgets egrevenue forecasts are too high and/or cost estimates toolow


63/100

Many businesses failFailure to focus on a specific market because of poor

research

Failure to control cash by carrying too much stock, payingsuppliers too promptly and allowing customers too longto pay

Failure to control costs ruthlessly

Failure to adapt your product to meet customer needsFailure to carry out decent market researchFailure to build a team that is compatible and has the skills

to finance, produce sell and market


64/100

Failure of businesses need to grow. Merely attemptingstability or had even less ambitious objectives, businesseswhich did not try to grow didn't survive

Failure to gain new marketsUnder-capitalisationCashflow problemsNon-payment by customers

Poor sales & marketingFatal leasing agreements


65/100

Loss of financial backingTougher market conditionsPoor managementDirectors aiming to find new markets, but not making asingle saleCompanies diversifying into new, unknown areas without aclue about costs

Companies finding that staff set up as rivals and stealingthe businessCompany directors spending too much money on frivolouspurposes thus using up all available capital


66/100

Loss of marketTax liabilitiesA lack of working capitalBad debts are the cause

Personal extravaganceFraudLegal disputesFalling property values

Poor managementUnsuitable people starting small businesses without the skillsor resources they need to succeedA lack of orders


67/100

A lack of control over cash flowLack of good managementBad management of the capital availableMarketing problems

A failure to plan ahead, beyond the day-to-day running ofthe businessMarketing problemsGeneral rise in costs

Bad financial managementPoor forward planningToo heavy reliance on grantsPoor collection of debtor book such as greater than 45 daysExtended lines of credit


68/100

Rising work-in-progress that is not billed on timeDiminished cash balancesPurchase orders being made by expanding payment periods,

not by cashOver-reached overdraft facilitiesPoor cost control with too many people responsible forpurchasing

Lack of long-standing relationships with suppliersThe business widening its range of suppliers simply to makemore credit availableRising stock levels and static sales

Contract disputes


69/100

Final demands and writs being receivedThe business being reliant on one or two customers which donot pay as well as they used to

Borrowings being increased just to keep the business runningOutstanding debtors or potential bad debts seem to haverising suddenlyThe business is unsure how much it owes and how much it is

owedThe business is more than one month adrift in payments tothe Inland Revenue or Customs and Excise


70/100

The bank is calling the business to say it has exceeded itsoverdraft limitUnder pricingOver tradingPoor quality of product or serviceBad labour relationsNiche businesses - These suffered from narrow customer andsupplier bases and an inability to react to changes in themarket


71/100

A business plan provides a forecast of costs andrevenues over the planning period.

Important for businesses to have clear budgets.

A budget is based on the business objectives andidentifies key factors, such as what money is needed,

for what purpose and where it will come from


72/100

A budget also considers the assumptions a business may need tomake about variable factors, such as interest rate changes orvolume of sales.A detailed budget plan with clear targets will help give a business

control by:

ensuring money is spent on the right activities drawing attention

to waste or loss

focusing on areas of the business that need review, eg revenue isnot meeting target or if costs are rising


73/100

A budget will also take into account expected cashflow so the business can assess if its income will

cover its expenditure.

Difficulty with cash flow is common. It takes timeto build up business and win customers

The result is that the business is often short of cash


74/100

Financial Performance Timeliness Product Quality Customer Service Innovation

These parameters add value to Customersand eventually to shareholder


75/100

A BUDGET is a comprehensive formulation of thecompanys future plans of actions of both operating andcapital investment decisions, which should be

formulated based on resources available and inpursuance to the companys corporate objectives,consistent with the overall groups objective.


76/100

ObjectivesForecast andplans

Compare resultswith plans

Evaluateperformance


77/100

Budget preparation encompasses the following

steps : Issue of budgeting guideline

Co-ordination of key budget inputs and inter-company transactionTranslation of approved plans into budgetReview/approval of budgets by the respectiveauthorities

Consolidation of budget


78/100

Transparency Management Link to macro-economic framework Central budget control over expenditure decisions Decentralization Prioritization Coordinator & cooperation Integration

Flexibility Link to medium term framework Accountability & Credibility Comprehensive Expert budget review


79/100

Benefits of Budgeting

To establish priorities

To set targets in numerical terms

To turn strategic objectives into practical

reality

To provide direction andco-ordination


80/100

To assign responsibilities

To allocate resources

To communicate targets

To delegate without loss of control

To motivate staff

To improve efficiency


81/100

To forecast outcomes

To monitor performance

To promote forward thinking

To control income and expenditure


82/100

A formality ?

An annual interference with work ?

Another round of bargaining Targets stuffed down our throats

Not clear about strategic goals

No clear business direction

Unrealistic targets Targets dont match resources available

More .


83/100

Budgets are sometimes considered as hindrance to work. Those involved in budgeting may not have skills of :

Environmental and market analysis

Data collation Financial analysis

Setting parameters and assumptions

deriving conclusions from key numbers Benchmarks for budgets could be arbitrary No preliminary discussion


84/100

No buy-in Lack of knowledge or understanding of other

departments functions Attitude to learn only what is immediately used

in work - no capacity to grow Knowledge not competency based Administrative knowledge confused with skill &

experience

Work for planning cramped into a few weekseach year - not an on-going process


85/100

Budgets as the last component of strategic

planning

Relooking the budget cycle

Relationship between Annual Targets and

Rolling Budgets

Success Factors for Rolling Forecasts to

work


86/100

Operating

VISION

MISSION

KRAs

Finance

Marketing

Branding &Operations

HR

KBOs

Apply toeach KRA

Link to KPIsand Budgets


87/100

This is a Rolling budget approach

Problem : We have been starting planning for nextyear only in the last quarter of this year

Solution : Prepare key Budget targets each quarterand project them one year ahead


88/100

Becomes more meaningful if rolling targets

are used

Must clarify interdepartmental issues

Must be based on re-thinking strategy Involves CEO / COO / MD to lay out

strategic direction for all to hear

Interdepartmental discussion to fix thefollowing >>>

PLANNING SEQUENCE FOR BUDGETS


89/100

MASTER

Cash-flowBudget

SALES /

MARKETINGBUDGET

CAPEX

Needed

?

CAPITALBUDGET

YES

NO

OPERATINGCASH-FLOWS

BUDGET

PLANNING SEQUENCE FOR BUDGETS

DEPARTMENTAL BUDGETS

HUMAN RESOURCE BUDGET

ADMINISTRATIVE SERVICES

BUDGET


90/100

FLEXIBLE BUDGETS are becoming increasingpopular

They help people involved in budgeting to look

further ahead They allow for a smoother budgeting `burden One version of flexi - budgets is the Rolling

Budget Approach


91/100

Q410

Q111

Q2

11Q3

11Q411

Q112


92/100

Q410

Q111

Q2

11Q3

11Q411

Q112

BUDGETING


93/100

BUDGETING

TECHNIQUES

Accurately identifying

targets

Integrating budgeting as

essential tools formeasuring performance

Using KPIs andbenchmarks

Creating an adaptiveperformancemeasurement

framework


94/100

Revenue Targets for each area / product etc

Sensitivity ofRevenue Targets

When Rolling forecasts will not work

Cost classifications

Identifying fixed and variable components

for better control Review


95/100

2/28/2012 HARVEYGILL

Measures the impact of fixed

overheads on profitability

Sensitivity ofO

perating Profitand Net Profit to changes in

Sales Volume

Simple method of risk profiling


96/100

In SALES

VOLUME

OPERATINGOPERATINGPROFITPROFIT

NPAT

1 %1 %

CHANGECHANGE

TOTAL LEVERAGE

MUST BE < 5 times


97/100

TIME

O

UTPUT

VALUE

2/28/2012


98/100

Usually long term

Usually require significant Capex

PROCESS :

1. ESTABLISH YOUR TRR

2. PREPARE THE CASH FLOW FORECASTS BASED

ON WELL CONSIDERED PARAMETERS

3. ANALYZE THE CASH FLOWS


99/100

How fast can we recover our initial outlay

PPP

Can the cash flows cover all the costs operating as well as financing

NPV

What is the % return from the projected cash

flows IRR


100/100

Thanks forThanks foryour participationyour participation

Documents

Day 1 STRATEGIC PLANNING & BUDGETING 2011