The FP&A Paradigm - A Shift From Budgeting to Strategic Planning

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The FP&A Paradigm:A Shift From Budgeting to Strategic Planning



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Excel: The Predominant Tool

Everyone agrees that Excel is not an effective platform for corporate budgeting and planning

Yet, most companies, large and small, still rely heavily on Excel throughout the budgeting/planning process

Where is the outrage?

Is the grass really any greener?...



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There Must Be Something Better…

SCOREKEEPERFINANCIUS TROGLODYTES

BUSINESS PARTNERFINANCIUS ILLUMINATUS



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We All Have the Same ‘Evolutionary’ Goal In Mind



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Where’s the ROI on Enterprise-Wide Planning Solutions?

Companies that implement ‘world-class’ corporate-wide solution enjoy market returns 2.4 times those of their peer group (Hackett, 2007)

Those who implemented such a solution scored significantly higher on finance value creation metricsImplementing a corporate-wide budgeting tool

(beyond finance) is worth it



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What is Finance Value Creation?

Finance Value Creation (Return on Capital) is typically found In the following areas:

• Ensuring projects/investments have an IRR greater than their WACC

• Divesting project/investments that don’t

• Find ways to make existing capital more efficient

o Aligning demand, capacity, and inventories

o Reducing unnecessary expenses

o Increasing working capital



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What is Finance Value Creation? (cont.)

• Cash flow forecasting (CEB/Duke/CFO)

• Forecast accuracy (CEB)

• Risk management (CEB)

• Decision Support (CEB)

• Effective capacity utilization (Duke/CFO)

• Merger and acquisition activity (CEB/Duke)

• Planning and maintaining margins

• Meeting rapidly changing consumer demand (Duke /CFO)

• Changes (or lack of changes) to Federal/Government Policy (Duke /CFO)

• Price Pressure (Duke/CFO)

• Global Instability (Duke/CFO)

• Maintaining Margins (Duke/CFO)

• Tax reform (WSJ)

• Tying performance to cash flow (WSJ)

• Innovation & Modeling/Feasibility (WSJ)



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In Other Words…

Where’s the ROI on Enterprise-Wide Planning Solutions?

Companies that implement ‘world-class’ corporate-wide solutions enjoy market returns 2.4 times those of their peer group (Hackett, 2007)

Pervasiveness was identified as a critical success factor…

The two largest obstacles to success in the deployment of a enterprise-wide planning system are;• Lack of accountability, and

• Lack of readiness to support a measurement driven system



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Self-evident, business driven process Alignment of accountability & leverage Integration with Strategy and Operations

Success: Marked vs. Marginal

Marginal Success driven through standardization

and automation

Marked Success (Value Creation) driven through accountability, alignment and

adoption

Creating web-based templates User level security Task lists Consolidating results Reporting Excel Integration?!?!?



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Traditional View (i.e. Vertical)

• Based on hierarchy of units, departments, etc.

• Collection of the individuals’ projections of revenues and expenses for which they are responsible

Process View (i.e. Horizontal)• Causal relationships that run

horizontally across an organization• Based on operational drivers that

cross functions

WHERE CAUSAL RELATIONSHIPS AND COLLABORATION TRUMP A HIERARCHICAL VIEW

Business Driven Process



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Alignment of Accountability and Leverage

VisibilitySee what is coming to know when change is needed

ResponsivenessRespond quickly and efficiently

LeverageKnow which actions will most effectively drive the desired change

Ready… Aim… Fire!



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Integrated Business Planning: An approach to business modeling (planning) in which businesses integrate strategic, operational and financial planning processes.

Sales & Operations Planning

Strategic Planning

Financial Planning

Integration with Strategy and Operations



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Integration with Strategy and Operations (cont.)IN TODAY’S ECONOMY, THAT HAS VALUE

Greater financial and operational integration against a longer horizon

Improved modeling and simulations to help develop and manage contingency plans

Easier translation from detail to aggregate and aggregate to detail

Improved decision-making through an integrated reconciliation process to keep decisions at the lowest practical level.

Improved trust throughout the management team with one process, clear accountability, and commitment to the right priorities



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Ted Dacko, CEO

Energizing a Culture of Budget Accountability

August 2013

Welcome



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If budgeting is a financial application, why are 90% of your users non-financial

people?

Here’s a Question…



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Philosophy…

Solve Problems



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Everything currently done in ExcelExcel is cumbersome, need more integrity in the numbers , eliminate errors Ease of use/User experience - Budget entry that makes sense to the budgeter (not just plugging numbers into a spreadsheet) Can’t see how budget ties to strategyCan’t budget different accounts different ways for different departmental needsNeed quick implementationGL can’t handle budget processAll headcount planning done in ExcelWorkflow, approval process is non-existentVariance reporting, reporting is inflexible

This Is What We Typically Hear…

http://www.google.com/url?sa=i&rct=j&q=brotherhood+mutual+insurance+logos&source=images&cd=&cad=rja&docid=60YSz7C9mE_QeM&tbnid=z-X6mm2yA99aEM:&ved=0CAUQjRw&url=http://cmirisk.com/resources/&ei=4FPUUZrABarwyAGBroAY&bvm=bv.48705608,d.aWc&psig=AFQjCNG0--WfnDhD_G1PHcxngAIiO6DXxA&ust=1372955989106460



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Excel

=(AssumptionsW!14/12)*SUM(X5:X15)/(SUM(Assumptions(T63:T65)



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Is Excel Really Free?

• Time to build macros

• Time lost when spreadsheets don’t come in on time

• Time to manage incoming spreadsheets

• Time to check for spreadsheet changes

• Time to consolidate

• Time to transfer data for reporting purposes

• How do you assign cost to an error in a spreadsheet?



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Is This You?



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ERP



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Department Heads Fear the Budget Process

Easy

Powerful



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What Good Is A Feature If It Can’t Be Used?



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Survey of 100’s of Organizations…..

Survey says…….

Senior ExecutivesFinance Department Heads



#CFOD13The process takes too long (36%)

The numbers are not reliable (28%)

Questions are not answered fast enough (21%)

The budget does not tie to strategy

(41%)

Top Complaints of Executives



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The mechanics takes too much of my time. I don't have enough time to ana-lyze the numbers (50%)

I don't want to be an Excel programmer or manually

manage data (32%)

Department heads hate the budget process. They sim-

ply do not put enough thought into it. (50%)

I am tired of department heads trying to change the budget templates (21%)

No complaints. Everything works just fine (6%)

Top Complaints of Finance



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The system is too hard to use 26%

The process is too complex 29%

The process is not fair 15%

I do not recognize the final budget number as mine

44%

The budget templates do not let me budget the way I think

38%

Top Complaints of Department Heads



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We Try To Show...

For Senior Executives Tie the Budget to the Strategy Shorten the Budget Process Make the numbers more reliable Answer Budget questions quickly

For Finance Greater participation and ownership from Dept. Heads Get out of the programming business Improve Communications up and down the organization

For Department Heads Ownership of the numbers Not complex…KISS Budget the way they think Visibility into thinking/exceptions



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If You Don’t Budget to Strategy….

You budget to politics

You budget to history



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5 Pillar Strategy…

CEO Linda Cahill 5 Pillar Strategy

101. Focus on New Product Innovation102. Staff Development103. Improved Use of Technology/Automation104. Retention of Key Employees105. Improve Margins…Do More With Less Resources



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Ideas for Budgeting to Strategy

Communicate the strategy Focus on the needs of the Department Heads

Usability, functionality

Submit and approve plans, not numbers Justify all revenues and expenses with documentation Focus on organizational communications Support “Situational Budgeting” Review and Approval Workflow to make sure all budgets have

been approved by Chain-of-Command Support Practical “What if?” Support anytime, anywhere budgeting No programming Avoid RFP process..This promotes a checklist of useless features



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energizing a culture of budget accountability

[email protected]/883-4380

Thank You!

mailto:[email protected]



#CFOD13Thank You!The FP&A Paradigm:A Shift From Budgeting to Strategic Planning



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The FP&A Paradigm - A Shift From Budgeting to Strategic Planning