Cash Forecasting and Budgeting - Alfred Artis
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Transcript of Cash Forecasting and Budgeting - Alfred Artis
C-FAB!Cash Forecasting and Budgeting
Presented toNACM Western Region Credit Conference
October 6, 2011
AgendaBudgeting versus Forecasting versus Planning
Defining the Planning Cycle
The Role of Data Management
Methods and Methodologies
Two Case Studies
Managing Variances
Forecast Killers
Planning Checklist
Budgeting, Forecasting, and Planning
Budgeting What they assume/want to happen
Forecasting What you expect to happen
Planning How you respond to each
Key Questions:
Which comes first (ordinal)?
Which is the most critical (make-or-break)?
Which do you perform in your organization?
Hint: These are trick questions
The Textbook Planning Cycle
Strategy
Plan
Budget
Forecast
Assessment
WITHIN THE CONTEXT OF A MISSION & OBJECTIVE:
The Reality Planning Cycle
New News
ReactionResults
Impact on Credit/CollectionsPriority has been placed on reacting over planningVery little time to react or plan (especially plan)Good reactions may not yield good long-term resultsIt’s unfortunate, but reality planning may be permanentThesis of this presentation:
Cash Planning is irrelevantSuperior Cash Planning = discipline and flexibility
Elements of Successful Planning
ALIGNMENT
DATA
REFINEMENT
ANALYSIS
No Surprises
Database ManagementThe cornerstone of successful planningLowest cost piece of information out there—YOU
ALREADY HAVE ITFact-basedCan help you manage your own expectationsFirst level of managing expectationsShould include all details of the cash process:
Dates of every step: invoice, receipt, application
Invoice InfoPayment Type
Methods and MethodologiesDSODays to RemittanceDays to ReceiptBilling TypeCustomer TypeCustomer LocationProductSales ProgramRisk ProfileCustomer-by-customer
Which Approach is Right For You?
Start with applying all methods to
historical data
Determine correlations--This is your
methodology
Share your results and obtain alignment
Case Study 1—ManufacturerSells to distributors and directly to customersMultinational1,600 customersNew models every yearNo seasonalityCountercyclical ProductQuestions:
What more information do you need?How would you plan for the upcoming year?
Case Study 1—PlanningReceipts Database :
Yr Mo. Day
Cust
Day of Wk.
Cust Type
Prod
Prod Yr
Loc Sales Prog
Risk
Inv Amt
Pmt Amt
Inv. Date
% Pd
Planning Reports :DTP by Product TypeDTP by Prod YrDTP by Sales ProgDTP by Risk (assumes risk correlates to economic
cycle)DTP by customer type/Loc./Prod. Yr./Sales Prog
1. Define correlations2. Calibrate to the sales forecast
Case Study 2—Service ProviderSells directly to business customers3,000 customers2-year contracts—upfront and monthly
chargesRapid GrowthHighly Competitive BusinessQuestions:
What more information do you need?How would you plan for the upcoming year?
Case Study 2—PlanningDatabase :
Yr Mo. Day
Cust
Item Billed
Sales Prog
Risk
Inv Amt
Pmt Amt
Inv Date
% Pd
Cust. Since
Planning Reports :DTP by Item Billed (upfront versus service)DTP by Cust. Since% Pd by Item Billed% Pd by Cust. SinceDTP by Risk (assumes risk based on payment
history)
1. Define Correlations2. Calibrate to Sales based on Customer Profile
Managing VariancesKey Point: You are planning and not predicting
Requires separate database of accuracy/variances
Variances should be calculated in as much detail as forecast
Historical variance levels should be used to set a RANGE of expectations e.g., % of receipts/forecast
Other Key Point: TELL SOMEBODY!
Forecast KillersRelying on a single methodology
Absence of data granularity
Not analyzing your own data
No visibility into customer-affecting changes
Not asking for information that you need
Telling people what they want to hear/Accepting their assumptions
Concluding PointsThe objective is to manage expectations as well as manage
to expectations
Successful planning=consistency with expectations
This requires a LOT of data accumulation and analysis
This requires constant review, revision, and communication—over time, should yield a tight range
Doing this brings you into the realm of a reliable, professional planner
Maintain discipline through a checklist
Planning ChecklistDo I have a usable database?Do I have reasonable data conclusions?Is Management aware of the data conclusions?Do my expectations agree with the data conclusions?Does Management agree with the data conclusions?Do I have a range of expectations?Does my range contain Management expectations?Do I have a reporting/assessment plan?Have I identified all possible variance influences?Do I have a plan to report/respond to variance?