2013 ANALYTICS SYMPOSIUMFebruary 12, 2013

Grand River Center

Dubuque, Iowa

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Best Practices in Financial Planning & Analysis

Dave Pooley – 617 797 2949

dpooley@pelotongroup.com

Vice President - Peloton Group

3

Personal Overview

• 20+ year career - Industry &

Consulting

• Accounting and Finance background

• Enterprise wide solution selling,

delivery, and high client satisfaction

track record

• Key developer of culture and

community in various start ups

• Team Player, Team Builder and

Entrepreneurial Sprit

Background• Professional for fee based external

training – hundreds of students thru

planning and reporting tool training

• Center of Excellence programs &

leading practice sharing

• Client ―Chalk Talk‖ and knowledge

dialogue leader and contributor

• Entrepreneur program at private high

school

• Group facilitation and team building

Expertise• Dashboard – Wal-Mart (BSCOL

concepts, KPI, and Standard

Reporting)

• Planning – EMC (driver based rolling

planning P&L model using

headcount and capital modeling)

• Profitability – Fidelity (driver based

allocation modeling and enterprise

wide reporting)

Solutions

• Fairfield University – Fairfield, CT

• Bowater – Pulp & Paper

• Navigator Systems / Painted Word

• Peloton Group / Balanced Scorecard

• Fidelity Investments

• Peloton Group

• Entrepreneur, Volunteer, and

Contributor

Credentials

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4

Concepts and key points serve as flexible guides – they are not rigid rules

Approach & Background

Guiding Principles

An approach that meets

your needs

I can share

You should adopt

Around which

5

Agenda

• What the experts are saying

• What does the data tell us

• What frameworks exist

• What are the leading practices

• What does success look like

• Q&A

6

What are ―experts‖ saying?

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It's clearly a budget. It's got a lot of

numbers in it.

— George W. Bush

8

Never base your budget requests

on realistic assumptions, as this

could lead to a decrease in your

funding.

— Scott Adams, Dilbert

9

The budgeting process in many

companies has become costly,

time-consuming, and inflexible

control system for rewarding and

punishing business managers.

— Robert Kaplan & David Norton

10

The budget is an exercise in minimalization. You‘re always getting the lowest out of people because everyone is negotiating to get to the lowest number.

– Jack Welch, GE Chairman & CEO

11

CFO Top Concerns

Consumer Demand Global Financial Instability

Maintain Margins Ability to Forecast Results

12

I want to see the forest, the trees, the branches and individual leaves

– Lee Scott, CEO Wal-Mart

Other Key Executive Thoughts

Senior executives

want scenarios and

simulations that

provide immediate

guidance on the

best actions to take

when disruptions

occur.

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What does the data tell us?

14

Dark reality

93% of finance managers

are swimming in

spreadsheets

15

Accuracy, Timeliness and Relevance Seen as Greatest

Weakness

33%

39%

43%

50%

47%

44%

14%

12%

16%

2%

2%

3%

0% 20% 40% 60% 80% 100%

Relevance of

forecasts

Timeliness of

forecasts

Accuracy of

forecasts

Needs improvement Acceptable Excellent Not sure

16

AQPC Study Shows the Need to Eliminate Talent Waste

17

Best Practice Firms Metrics and Practices

Source: Hackett Group

18

Best Practice Firms Reduce Effort and Focus on Analysis

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What frameworks are in place to guide my journey?

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Budgeting

and

Planning

Shareholder

Value

Better

Company

Forecast

Accuracy

Better Strategy

Formulation

and Execution

More Time &

Cost Efficient

Planning and

Budgeting

Market

Expectations

Performance

vs.

Expectations

Actual

Performance

Communicate

with Investor

Management

Credibility

Improved

Management

Managing Market

Perceptions

Company

Performance

Reproduced from ―Driving Value Through Strategic Planning and Budgeting‖, Accenture in

association with Cranfield University

The guide highlights a few potential purposes of the planning process

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Best Practice Planning Process – Level 1

Capital AssetsPlanning

Workforce Planning

Long-Term Financial Planning

FinancialDetail

OperationalDetail

Predictive Modeling & Simulation

Cost Analysis

Planning, Budgeting & Forecasting

ProjectFinancial

Plans

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Run models based on key strategies

Set targets

Seed targets to annual operating plan

Start annual process

Update strategic plan with latest forecast

Evaluate resource and capital requirements

A typical World Class Planning Process – Level 2

Strategic planAnnual budget /

plan

Include operational

details

Evaluate workforce and capital

Monthly / rolling

forecast

Update strategic

plan

Include operational detail and model variability of financial plan

Update forecast with latest budget and actuals

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Detailed World Class Planning Process – Level 3

Basic

Planning

Steps

Prepare Develop

Sign off

working

plan

Review

Provide

access/

distr.

plan

Input

plan

Submit

plan

Consolidate

plan

Review

plan

Revise submitted plan

Set

planning

structure

Populate

plan

Set global

constants

Set

baseline/

default

plan

PS01 PS02 PS03 PS04 PS05 PS06 PS07 PS08 PS09 PS11

PS10

Iterative

Modeling

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Companies capture efficiencies from new planning solutions and can add value

to the firm. Eventually optimizing and driving strategy execution.

Step 1

Step 2

Step 3

Maximum

Productivity

of Available

Resources

More Cost & Time Efficient Planning and Budgeting

(decentralized inputs & global plan consolidation)

Better Company Forecast

Accuracy

(driver-based modeling)

Better

Strategy

Execution

(rolling forecast, continuous

resource allocation & relative

performance targets)

25

What are the success stories?

26

What results are firms achieving

Uncovered estimated

annual cost savings

of $1.2M in missing

shipping charges

Shortened budget

cycle. Replaced

1000‘s of Excel

spreadsheets

Reduced monthly forecasting cycle by

48% . 21 – 11 days. Reduced

forecast error by 20%

Standardized process

globally and improved

forecast accuracy by

30%

Cut Sales Forecasting cycle from 2

weeks to 3 days.

Reduced annual budget cycle by

50%

Cycle time

Accuracy

Effort & Cost

Standardization

Simplification

Continuous

Improvement

27

What are the leading practices?

28

Leading Practices

1 Measure financial impact of strategic objectives

3 Focus on drivers, not details

5 What-if scenario analysis

2 Develop rolling forecast process

4 Link human resource and capital allocation plans

6 Mitigate risk and uncertainty

7 Anticipate management reporting changes

29

Evaluate strategic projects and initiatives

Simulate effects of M&A

Develop a culture of analytics

Use analytics and planning to facilitate the

conversation

Set annual targets

1 Measure the financial impact of key business strategies

30

Successful strategy execution requires linkage between strategy and operations. The planning process provides the bridge …

Strategy OperationsThe planning process is at the core of linking strategy to operations

The planning process is how an organization can translate the strategy into action

60% of organizations do

not link operational plans

to strategy

31

Strategy Scorecard • Revenue

• Cost

• Margin

• Ratios (ROIC)

• Satisfaction

• Engagement• Loyalty

• Market Share

FINANCIAL

CUSTOMER

Is your strategy clearly articulated and measured? What outcomes are you

trying to achieve?

Consider a strategy execution framework to link strategy to operations

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Event-based

Lightweight process

Fast and flexible

Dynamic and integrated with business drivers

2 Develop rolling forecast process

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Rolling Forecasts Require Process Change

34

If rolling forecasts are interpreted as just another control system, they

then will be perceived as just another reporting burden and only

spurious data will result

Beyond Budgeting

35

The traditional budgeting and forecasting cycle does not provide

visibility and insight into the future

Q1 Q2 Q4Q3Annual

Plan

Forecast

OneQ1 Q2 Q4Q3

Forecast

TwoQ1 Q2 Q4Q3

Forecast

ThreeQ1 Q2 Q4Q3

Annual

PlanQ1 Q2 Q4Q3 Q1 Q2 Q4Q3

2013 2014 2015

Actual Results

No information beyond the current fiscal year

• Is the organization making progress towards longer-

term financial and non-financial objectives ?

• Is their an opportunity to deploy / redeploy resources

given expected financial performance ?

• Are there opportunities / threats on the horizon that

necessitate action today ?

• What is the longer-term impact of near-term decisions

being made today (eliminate programs, defer hiring,

etc.) ?

Forecast Results

The rolling forecast provides a continuous, extended view of expected

performance

Forecast

Two

Forecast

Three

Q3 Q4 Q2Q1

2013 2014 2015

Q3 Q4

Q4 Q1 Q3Q2 Q4 Q1

Fcst Four /

Annual PlanQ2Q1 Q3 Q4 Q2Q1

Forecast

OneQ2 Q3 Q4 Q2Q1 Q3

• The rolling forecast supports strategic planning efforts including strategy refreshes

Q1

• The rolling forecast supports target setting activities by with estimates of expected financial performance based on known assumptions

• The rolling forecast provides the baseline for the annual plan

Actual Results

Traditional Forecast

Rolling forecasts focuses on root cause analysis around business drivers and action plans to address performance gaps

Inbound Calls per Month 200,000 225,000 12.5%

Working Days per Month 20 20

Calls per Agent Per Day 75 66 - 12.0%

Capacity per Agent per Day 1,500 1,320 - 12.0

Peak / Absence Factor 1.2 1.1 - 8.3%

Agents Required 160 188 17.2%

Cost per Agent per Month $ 2,500 $ 2,500

Salary Expense $400,000 $468,750 17.2% $400,000 $468,750 17.2%

Plan Actual Variance Plan Actual Variance

Driver-Based Root Cause Analysis Traditional Analysis

Variance analysis based on driver-based forecasts provides insight into both what happened and why it happened.

• What: Salary expense 17.2% above plan

• Why: (1) Call volume 12.5% above plan (2) Agent productivity 12% below plan (3) More agents required

• Corrective Action: How do I address the performance shortfall ?

Detailed Causal Analysis

• Investigate the significant above plan call volume variance

• Timing, scope, and effectiveness of Marketing programs

• Other external demand drivers

• Agent Productivity

• Training program effectiveness

• Enabling tools / technology

• Agent proficiency, tenure, motivation, absenteeism

• Customer service metrics

Corrective Action Plans

Actions Owner Date

• Initiate forecast improvement project around

Marketing Program response rates

• Provide remedial training for existing agents

• Engage placement services for new hiring

• Complete assessment of agent talking scripts

Marketing

Training

10/1

12/1

Driver Model Variable Values

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Drivers should be logical, actionable and relevant

Leverage external indicators

Evaluate model sensitivity of new drivers

3 Focus on drivers, not details

39

Building Driver-Based Models

Logical – valid and coherent relationship

Actionable – ability to influence outcomes

Statistically Relevant – strong correlation between

driver and result

Simplifying Drivers Improves Agility and Increases Flexibility

to Change Assumptions and Re-Forecast

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Outcome

Strategy

Driver

Win Games

(World Championship)

RUNS

Moneyball by Michael Lewis

The Art of Winning an Unfair Game (baseball)

SpeedWeight/

Build

Arm

Strength

Expected Run Value

Slugging PctOn Base Pct

41

Striking the Right Balance on Detail

• Typical conversation.

Finance - We don‘t have enough data….

Operations - We don‘t have the relevant data…

• 50 account lines by major product group and entity should

be sufficient

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4 Link human resource and capital allocation plans

Incorporate the appropriate level of detail in the

enterprise planning process

Ensure you have the right amount of workforce

staffed

Ensure you have incorporate the right amount of

capital required

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Assess Resource and Capital Assets Requirements

Workforce Plan

Financial Plan

Capital Asset Plan

Detailed Headcount, Staff Expenses, Salary & Compensation

Detailed Depreciation, Asset Purchase/Sell, Asset Expenses

44

Models should be modular based

45

Create sandbox for BU‘s to test new assumptions

Define process for extending analytical models

Go beyond spreadsheets; keep process light

Create and enabling technology platform

5 What-if scenario modeling thru technology advancements

46

4

Without an integrated Information Architecture

Legacy

CRM

SAP

Oracle

Analytics

Query and Reporting

Financial Management

Planning

Destination/End-Users Disparate SystemsData Sources Data Warehouse

47

With an integrated Information Architecture

Destination/End-Users Data Sources Data Warehouse

Legacy

CRM

SAP

Oracle

OP

ER

AT

ION

AL

PLA

NN

ING

INT

ER

AC

TI

VE

D

AS

HB

OA

RD

FIN

AN

CIA

L

RE

PO

RT

ING

48

6 Mitigate risk and uncertainty

Move from ‗possibility‘ to ‗probability

Review full range of outcomes

Quantify the risk of not achieving your goals

Know the probability of a particular outcome

Understand key factors impacting your business

49

Uncontrollable External Factors Most Likely to Lead to Variances to Actual Performance

50

Quantify Risk and Uncertainty

• Only 3 possible outcomes

• Limited view of risk

• What are most important risk factors?

• What are the odds I‘ll miss the target?

• Which outcome is most likely?

• Full range of outcomes

• Illustrate probability of outcomes

• Immediate visibility into inherent risk

• True risk analysis for financial models

ConventionalSingle Point Scenarios

AdvancedThinking in Ranges

51

Develop strategy for governing change in reporting

structures

Centralize change management process into a hub

Provide what-if visibility into new structures before

implementation

7 Anticipate management reporting changes

52

Organizations must invest in and develop strategies and processes to

address all of the major planning levers

Functional

Process

FlowsGovernance

Model /

Management

SystemUsers

&

SecurityReports

&

Data Outputs

Data Sources,

Input Templates

&

Commentary

Statistical

Measures,

Allocations,

&

Adjustments

Financial

Accounts,

Dimensionality,

&

Consolidation

Strategic

IntentResults

Project Leadership & Controls

Change Mgmt & Communication

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5 ©2006 Balanced Scorecard Collaborative, a Palladium company • bscol.com

High Level Road Map

Establish the ―Blue Sky‖ vision up front

Continuously make trade-off‘s

• Balance short term desire to ―get it done‖ with long term platform needs

Adopt a modular based approach

• Build out the ―Blue Sky‖ vision over time

Select and standardize on the best of breed vendors & tools

• The whole platform as vendors products span the information platform

Establish standards and knowledge sharing forums early in the process

Build the environment with the vision to handle large data volumes

• Driver based applications can mean more, volumes and types of data, not less

• Technology can ripple impacts through the details quickly to derived new insights

54

How the books

described it

How it sounded at

the conferences

How the speaker

explained it

What it feels

like at my firm

What we

really need

What happened

the last time

55

5 ©2006 Balanced Scorecard Collaborative, a Palladium company • bscol.com

Thank You!

56

Q & A

57

Sample Case Study

58

About Friendly‘s

Based in Wilbraham, Massachusetts

Founded in 1935 with the intention to provide warm,

caring, neighborly service to all who visit

Serving handcrafted ice cream treats and classic comfort

foods for 77 years

Over 130 Restaurants

Held in Private Equity

Recently went thru bankruptcy

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The Business Challenge

Friendly‘s planned to rapidly deploy a robust solution to support the budgeting and forecasting needs of the business

• Existing P&L budget and forecast process were facilitated through a combination of database files and ~60 Excel

workbooks that performed complex calculations

• The planning process was manually intensive, leaving limited time to perform value added analytic activities

• Lacked the ability to perform what-if modeling and analysis within the existing solution

• Budget owners were not held accountable to their plans due to a lack of visibility and clarity

Restaurant Plan

Corporate G&A Plan Franchise Plan

Manufacturing Plan

Distribution Plan

Retail Plan

Eliminations

Sales

Food Cost

Labor

G&A ExpenseStore

Planning

60 + Excel

Workbooks

60

• Planning: Provide the ability to develop the restaurant P&L (129 Stores, 50 Line P&L, etc), as well as the

ability to load in the budget for Manufacturing, Retail, Custom Pack. Develop the G&A Model on a

simplified level – excluding Headcount/Compensation Planning

• Efficiency: Remove repetitive and unnecessary work from the existing planning process, with a focus on

providing more time for value added analysis

• Visibility: Provide enhanced visibility to the P&L, allowing planners to see the impact real-time as they

update their forecast in the solution

• Clarity & Accountability: Drive clarity and accountably for the forecast/plan into the business process --

specifically with Restaurant Operators

• Scenario Modeling: Provide the ability to perform what-if/ad-hoc planning, where required

Objectives

Project Charter

61

Nightly Load of Actuals Sales Planning

1 2

• Clear Actual Scenario

• Load Metadata

• Load Actuals from .csv

• Load Actuals from

Lawson

• Calculate and Aggregate

the Database

• Load Demand Data

• Input Cust Count &

Guest Check % Change

• Review current variances

• Input % Bump to

Customer Count

• Calculate Sales Plan

Inp

uts

Activitie

s

Account |

Organization |

Actuals (.csv) |

Actuals (Lawson)

Demand Load |

Input % Change |

Input Customer

Count % Bump

Labor Planning –

Hourly | Salary

Food Cost

Planning

Taxes | Fringes |

Benefits

3 5

• Calculate Price Change

by store

• Input Global Commodity

Change and Other

• Input Gap by store

• Calculate final FC % of

Sales and dollar amount

• Load Hourly data from

Labor Model

• Load Salary data from

HR

• Manually input additional

expenses

• Calculate Labor Expense

• Data copy from LY

Actuals

• Input % Drivers

• Calculate expenses

• Manually override if

necessary

• Calculate final expenses

4

LY FC % of Sales

| Price Change |

Cmdty Change |

Other | Gap

Data Load -

Labor Model |

Data Load - HR |

Manual Input

Copy in LY

Actuals |

Manually input %

Drivers

Friendly‘s Planning Process

62

MaintenanceSupplies UtilitiesAdministrative

Expenses

6 8 9

• Data copy from LY

Actuals

• Input % Drivers

• Calculate expenses

• Manually override if

necessary

• Calculate final expenses

• Data copy from LY

Actuals

• Input % Drivers

• Calculate expenses

• Manually override if

necessary

• Calculate final expenses

• Data copy from LY

Actuals

• Input % Drivers

• Calculate expenses

• Manually override if

necessary

• Calculate final expenses

• Data copy from LY Actuals

• Load data from files

• Input % Drivers

• Calculate expenses

• Manually override if

necessary

• Calculate final expenses

Inputs

Activitie

s

7

Copy in LY

Actuals | Data

Load | Manually

input % Drivers

Copy in LY

Actuals | Data

Load | Manually

input % Drivers

Copy in LY

Actuals | Data

Load | Manually

input % Drivers

Copy in LY

Actuals |

Purchasing & IT

Data Load |

Manually input %

Drivers

Non-Controllable

Expense – Advertising

| Rent

10

• Data copy from LY Actuals

• Load data from files

• Input % Drivers

• Calculate expenses

• Manually override if

necessary

• Calculate final expenses

Copy in LY

Actuals |

Finance, RE, &

Accounting Data

Load | Manually

input % Drivers

Friendly‘s Planning Process

63

Store Planning –

OpeningStore Planning – Closures Store Planning – Remodel

13 14

• Input # of new stores for

each format

• Input average yearly

sales for each format

• Input expense drivers by

format

• Calculate new store P&L

• Data form to select

stores to close

• Ability to close at a

monthly level

• Reverse out P&L line

items

• Calculate closed stores

• Data form to select

stores to remodel

• Ability to remodel at a

monthly level

• Increase sales evenly by

% Sales Lift

• Calculate remodel stores

Inputs

Activitie

s

12

# Store Openings

by Format | Avg

Sales by Format |

Expense Drivers

Select stores to

close with date |

Input other

closing expenses

Select stores to

remodel with date

| Input % Sales

Lift Driver

CC5000 Planning

• Manually input

expenses into CC 5000

• Calculate expenses

11

Manual Input of

data

Friendly‘s Planning Process

64

Realized Benefits

• Eliminated the manual effort needed to update all 60 Excel workbooks when the

sales plan or labor plan changed

• Provided clarity into the drivers and calculations used to build the Annual Budget

• Drove the accountability of the Departments for the Annual Budget

• Decreased the amount of time needed to update and maintain key management

reports

• Eliminated the manual effort needed to perform “what-if” modeling

• Reduced the level of effort and cost to the Annual Budget and the solution is

supportable by Friendly‘s IT