Malcolm Acca

Best Practices in Budgeting and Forecasting

Oracle Thought Leaders Series September 2008

Background The planning process is regarded by many finance and operational executives as not delivering value. Typical concerns include: • Time consuming and resource intensive. • The annual budget is out of date before it is complete. • The relevance of fixed single value budgets. • Fragmented processes with a heavy reliance on spreadsheets, manual intervention and e-mail . • Insufficient time to analyse and understand the results.

Oracle Thought Leaders Series September 2008

Planning lags ERP in process improvements.

ERP

I m p r o v e m e n t

Planning

Time Oracle Thought Leaders Series September 2008

What are the contributing factors?

Re-engineered business processes Board/executive sponsorship. Business driven Substantial investment IT supported and enabled Single vendor not best of breed Enterprise and scalable Continuous improvement

ERP

Planning

9 9 9 9 9 9 9 9

8 8 9 8 8 8 8 9

Oracle Thought Leaders Series September 2008

The planning landscape is fragmented.

Reporting

Import / Export

Planning

Consolidation

ERP

Oracle Thought Leaders Series September 2008

Drivers for improvement.

• Finance executives expect forecasts: • To have greater accuracy and be more evidenced based. • Be more timely.

• The need for agility in responding to change in markets and the economic environment. • Headcount, talent and cost pressures • Technology improvements

Oracle Thought Leaders Series September 2008

Practices which will improve the planning process. • Develop rolling forecasts extending beyond the current financial year. • Develop driver based planning methodologies which will allow line managers to plan around their key metrics and activities. • Allow for different scenarios to be modeled, stored and reported. • De-emphasise the annual budget as the main vehicle for planning and control. • Drive collaboration and linkage between functional areas: • Sales & operations planning • Projects and new initiatives

• Avoid false precision and too much detail.

Oracle Thought Leaders Series September 2008

Technology which works with users is a key enabler. Business users need technology with is….. • Owned and managed by them with little IT dependence. • Familiar and easy to use interface using MS Office and WEB browsers. • Workflow during plan preparation, submission and review processes. • Tracking status during the planning cycle. • Flexible and intuitive reporting. • Integrates with wider performance management initiatives.

But the enterprise and IT needs… • A stable and scalable platform which complies with the overall technology strategy. • Solutions to be well though out, architected and implemented. • Proper development and change controls in place. • Governance across stakeholders. Oracle Thought Leaders Series September 2008

Example of planning framework using BI tools Transactions

Analysis

Business Process

Scorecards Dashboards

ERP Financial

CRM

MES

Management

•Forecast •Consolidate •Report •Analyse

EDW

Oracle Thought Leaders Series September 2008

Browser Excel

Actual implementation planning using BI tools SBU Plan

Currency Conversion

Tax

JV Cutback

Profit

Balance Sheet

Site Plan

Inventory Plan Operating Costs Allocations Depreciation

Sales & Revenue Plan

Overheads Materials

Capital Plan Manpower Plan

Labour

EDW

Maintenance Plan

Operations Plan

Oracle Thought Leaders Series September 2008

Marketing Plan

Planning across budget and forecast

Long Term Plan 2006

2007

2008 - 200nn

2006

2007

2008

December Forecast

2006

2007

2008

February Forecast

2006

2007

2008

April Forecast

2007

2008

Initial Budget Term Plan

2007

2008

2009 - 20nn

.

Oracle Thought Leaders Series September 2008

Driver based planning can be flexible and powerful.

Driver

Variable Consumption Quantity

Total Quantity

X

+

X

Usage Rate

Fixed Consumption Quantity

Unit Price

X

Inflation

Result

Input or stored values

Calculated results

Oracle Thought Leaders Series September 2008

Increase focus and commitment to improved the planning process.

Re-engineered business processes Board/executive sponsorship. Business driven Substantial investment IT supported and enabled Single vendor not best of breed Enterprise and scalable Continuous improvement Stepped incremental approach

ERP

Planning

9 9 9

9 9 9

9 9 9 9 9 8

9 9 9 9 9 9

Oracle Thought Leaders Series September 2008

Significant impovements should be realised. ERP Planning

I m p r o v e m e n t

Time

Oracle Thought Leaders Series September 2008

References • Gartner Research – Extend budgeting and planning projects beyond finance to maximize benefits. • Gartner Research – Best practices in implementing CPM budgeting, planning and forecasting. • The Hackett Group – Aligning forecasting practices with market dynamics • The Sonax Group – Best practices in planning and performance management: from data to decisions. • CFO Research Services – Rolling forecasts begin to emerge as a new standard. • CFO Research Service – When do companies outgrow their spreadsheets.

Oracle Thought Leaders Series September 2008