JPK
Gro
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Business Forecasting & Analytics ForumMarch 13-14 • San Francisco, CA
Continuous Planning & Rolling Forecasts
March 13, 3:15pm
Juan Porter has over 25 years combined client, vendor, and consultant experience with Oracle Hyperion. He is a member of the Oracle Hyperion Partner Advisory Council, he is actively involved in various Hyperion user
groups, he has served as the chair of Hyperion’s National Steering Committee, and he has led many Hyperion enhancement committees. Juan is the president and founder of a leading nationwide consulting firm, which serves over 400 of the Global 2000’s largest and best performing companies. Industry analysts, editors, and authors frequently seek his expertise on the future direction of
EPM, current Hyperion releases, as well as insight into strategic and practical ways to solve business problems.
View presentation online at: www.jpkgroupsummits.com/attendee3
Juan Porter – TopDown Consulting
Utilize rolling forecasts to adapt to dynamic business challenges and opportunities
Juan Porter – Experience Overview
Representative Sample of Clients– Adecco
– AT&T
– Bio-Rad
– DirecTV
– E*TRADE
– Estee Lauder
– Godiva
– Group 1 Automotive
– Iron Mountain
– Olympus
– Pella
– Scholastic
– Starbucks
– Thompson Creek Metals
– Wachovia
– Washington University School of Medicine
• Chief Solutions Officer & Founder
• Over 25 years experience delivering EPM solutions to numerous Fortune 1000 clients across more than 20 industry verticals
• Specializations include enterprise performance management, business process, business intelligence, data warehousing, and master data management
• Regular blogger, frequent speaker, and contributor to various industry publications
“The past does not carry uncertainty, but the future does. The farther ahead we look, the more
uncertainty there is.”
- Implementing Beyond Budgeting
Traditional Planning Process
• Annual process– Out-of-date when finalized
• Time consuming (3-6 months), expensive• Focus is on detail data preparation and collection• Heavy use of offline spreadsheets• Becomes basis for comparison/variance
– Basis for compensation (bonuses)– Relevant to today
• Authorization to spend – “It’s in my budget”
Traditional Forecasting Process
• Monthly or Quarterly• Focuses only on the current year• Derived from plan or prior forecast• Short window (2-3 days) after monthly close• No time for scenario modeling• Adjustments are made on what’s happened so far• Different level of detail than plan
– Data is often summarized
A rolling forecast creates an ongoing cycle of planning, conducting, evaluating and updating
organization-wide operations.
Source: Rolling Forecast Solutions – Five Core Components of a Rolling Forecast, 2011
Five Core Components of a Rolling Forecast
1. Extends beyond the calendar/fiscal year and covers a standard number of periods
2. Updates on a regular and pre-determined basis
3. Emphasizes key business drivers
4. Rapid forecast creation
5. Blends actual performance along with the updated forecast
Source: Rolling Forecast Solutions – Five Core Components of a Rolling Forecast, 2011
What Is a Rolling Forecast?
• More fluid approach to planning and forecasting– If you are doing this, may not need to do a typical annual plan
• Emphasizes the forward movement of the business– Always looking ahead 12, 18, or 24 months– No cliff event like end-of-year
• Focus on what you manage– Not what you transact
• Continuous process– Combines traditional plan and forecast
Why Rolling Forecasts?
• Forward looking • Tightly linked to strategy• Driver-based• Avoid excessive detail• Externally and internally focused• Emphasis on ongoing results vs. just current year• Focus more on factors and analysis rather than data gathering
Something to consider -Could this eliminate the need for an annual plan?
Planning & Forecasting Leading Practices
Leading Practices• Align budgeting and forecasting with company strategy – targets
are set by management and cascaded across the organization for budgeting/forecasting
• Don't burden with excessive detail – "false precision" slows the process, and reduces the value to be realized through frequent scenario iteration
• View planning as a continuous, iterative process to guide business decision-making, not as a once-a-year administrative exercise – rolling forecasts are one way to do this
• Utilize "driver-based" logic wherever possible throughout the planning process – build explicit links between external forces, operational activities and the resulting financial performance
• Utilize purpose-built planning tools to support rapid iteration of complex, multi-dimensional models that are consistent across business units/groups
Benefits• Creates a stronger linkage between the Strategic Plan, the key
targets and the operation of the business
• Provides organization with better ability to respond to changes in market conditions
• Better focus on the review of key drivers of financial results and influencing those drivers going forward
• Allows for continuous adjustments to planning assumptions, rather than an annual review
• Improves communication within the business, about the business, and its tactical and strategic areas of focus
• Increases management accountability for results
• Rolling forecast provides a view into the budget for the next year
• Less time is spent on developing the detailed budget
• More time can be spent considering the operational initiatives from the strategic plan
• Allows organization to focus on the analysis efforts not on process
Keys to a Successful Implementation
Requirements Gathering A successful implementation begins with requirements gathering, and can only be achieved with a carefully planned design, a detailed project plan, strong project management, and clearly defined, achievable and measurable goals and objectives.
Business Practices and ProcessesSuccess includes the implementation of better and more efficient business practices and processes.
Stakeholders
Executive management is a stakeholder and must be willing to implement change, drive the organization to adapt their business processes to the new models and lead the project to success.
Understand the Project Phases
Strategic Roadmap
Requirements & Design Build Test Deploy Review &
Assess
• Create strategic vision• Analyze current solution &
processes• Perform gap analysis• Identify risks & challenges
• Identify requirements• Define scope & objectives• Obtain executive commitment• Design applications, data
integrations, reports
• Setup environment• Build solution• Develop integrations• Unit testing• Validate data
• Integration Testing• UAT• Performance Testing
• User training• Go-live• Support
• Project review• Measure success• Lessons learned
Identify Success Factors
A U D I E N C E T A N G I B L E S E X P E R I E N C E R E A L I Z E
Executives
Ability to perform “what-if” scenarios quickly
Monthly close efficiencies Shorten planning cycle
Confidence in reports Improved analysis and forecasting Compliance
Report earnings in ?? days Forecast more accurately Reduce audit fees Execs using Dashboards
Project Team
Go Live on schedule Get internal recognition Improve data quality # of users on solution
Deliver project on time and within budget Become self-sufficient Simplify processes Make users happy
Set target date and budget Reduce maintenance by ?? Reduce errors by ?? User satisfaction rating Measure ROI
End Users
Ability to perform “what-if” scenarios quickly
More time spent on analysis, less on data entry
Easy of use Better access to data More timely reporting Less manual input
Identify amount of time saved Improve accuracy
IT
Reduce cost of IT support Verify compliance Ability for internal team to support solution
Stable environment Integrate security Fits internal standards Compliance
Supportable Achieve internal standards Measure performance
Key Questions to Ask
• Evaluate how to improve current processes– How did our current planning and forecasting process evolve over time?– What do we like/dislike about the current process?– What frequency – Monthly or Quarterly?
• Understand organizational direction– Where are we going as a business?
• Determine what information you need to manage, and how you want to measure it
– What’s important to us?– Does this align with our corporate goals and objectives?
• Do we have the time and resources to prepare plans/forecasts on a more frequent basis?
Decision and Criteria
• Timing of the implementation• What resources do you need
– IT support– Temps for data entry and validation– New hardware
• Level of detail needed– Consistency across organization?– What can you control or influence?
• Choose the right solution– On-Premise, Hosted, or Cloud– Spreadsheet-based
Where Excel Falls Short
• No proper version control– Are all spreadsheets the correct versions?
• For every 150 lines in your forecasting model there is a 90% chance of a logic error
• Lack of robustness– Can a CFO be confident in the numbers from an Excel forecast?
• Cannot accommodate changes to assumptions quickly– how could you cope if the CEO asked “what is the financial impact of stopping production
of line x?”
• Designed by staff who are not programmers, nor have been trained in documentation, quality assurance or other vital skills for a core business system
Source: Rolling Forecast Solutions – Five Core Components of a Rolling Forecast, 2011
Keys to Success
• Executive sponsor must be the “change sponsor”• Define and socialize the process (who, what, and how)• Change Management – Change takes time
– Adoption is acceptance and participation– Identify areas of resistance
• Determine level of detail– What are you responsible for?– What can you control?
• Driver-based models– Focus on key elements (drivers) impacting the business– Minimizes data entry– Ability to model different scenarios (Best/Worst case)
What Are Drivers?
• Calculations that require user to enter a single base element (cause) of a calculation and results (effect) are driven from that
• Certain elements are centrally defined/controlled– Unit price/cost, discount rates, etc– Salary mid-points, benefits, taxes, etc– Depreciation rates
• Unit x Rate = Amount– Unit is input by user and is their focus– Rate is centrally supplied/controlled– Amount is derived result
What Is Driver-Based Planning?
Linking of operating activity and actions to a set of managed assumptions
Two conditions that should be met for Drivers
Managed Assumptions
OperatingActivity
Persistent throughout various groups within a
company
Discrete and
Discoverable
Actionable Drivers
• 20% drivers / 80% cost• Set expectations: Better to be “good” than never achieving
“perfect”• Identify operational drivers that yield financial data• Management of universal financial drivers
– Diesel price per liter, – Canadian to US dollars exchange rate– Commodity prices
• Ability to do sensitivity analysis
Revenue/Cost Based Drivers
• Drivers set by Corporate or LoB– Unit Price and Cost
– Discounts, Returns, DiF, etc
– Currency dependencies
• Units sold are input by users
Units Sold
Price
Cost
Sales
CoS
Disc, Ret Revenue
• Strategically link Sales and Manufacturing
• Total units sold has an impact on cost basis
• Improves Finance’s visibility and modeling
XX=
=
=
Another Perspective
REPORTINGCORPORATE
Cost
Units Sold
SALES FORCE
MANUFACTURINGPrice
Disc, RetCurrency
Sales – From Bottle to Vine
Tons per Acre
Total Barrels
TotalTons
Barrels per Ton
Total BarrelsX /= =
Retail(%)
=Price per
Bottle
Wholesale (%)
# of Cases
Club Members X
=
=
Cases per Barrel =
Number of Acres
X
X
X
Price per Bottle
Price per Bottle
Sales
Employee – Based Drivers
• Drivers set by Corporate or LoB– Salary levels by grade or position
– Benefits and Payroll Tax rates
– Currency dependencies
New Hire(Position, Date)
Grade Mid-point
Benefit Rate
Salary Expense
Benefit Expense
Payroll Tax Rate Payroll Taxes
• New Hires are input by users– Focus on type of resource
– When to hire
– Improves modeling
XX=
=
=
Employee-Based – Advanced Drivers
x
x
=
= =
=
x
→
= =
=
DepreciationExpense
Facility Expense
Depreciation RatePC Purchase
Office Space
Grade Mid-point
Benefit Rate
Salary Expense
Benefit Expense
Payroll Tax Rate Payroll Taxes
Capital Expense
Facility Allocation
Recruiter Fee Recruiting ExpenseNew Hire(Position, Date)
Examples of Drivers
• Health Benefit
• Memberships
• 401K Contribution
• Stock Options
• Capital Purchases
• Depreciation
• Square Footage
• Country specific
• LoB specific
• Average Selling Price
• Discounts, Returns
• Average Cost per Unit
• Salary Grade Mid-Point
• Commission rate
• Merit Increase
• Annual Increase
• FICA, FUTA, SUTA
• State Unemployment
Understanding the Forecast
Basis for variance analysis• Communicate what is
being measured
• Focus should be on what can be controlled, not just raw $’s
Understand why there is a variance• Track and store
comments / explanations
• Visibility into assumptions and dependencies
Don’t make currency the issue• Local currency based
• Constant rate based
Beyond the Numbers
• Don’t rely on just AvB type reports– Can you “visually” see what’s happening?
• Use graphs and charts to spot trends– Bar, Line, Pie, Bubble, Scatter
– Easier to identify contribution
Waterfall Reports
• Measures accuracy in forecasting
• Identify trends and behaviors
• KPI and metric oriented
Additional Considerations
• Change Management– Users need to understand benefits
• Impact of multiple years on calculations/drivers• Transition of new hires to employees• New capital purchases included in depreciation forecast• Parallel the process
– Balance this with other ongoing initiatives– Take the time for adoption of the process
• Integration with other processes– Monthly Close– Strategic / Long-Range Plan
© Copyright 2017 TopDown Consulting. All Rights Reserved.
Juan Porter / Chief Solutions Officer & Founder(415) 860-1115 / [email protected]