enterprise planning: integrating the strategic plan with the annual budget and forecast process
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Edgewater Ranzal presented lessons learned and best practices in producing and integration the strategic plan with the annual budget and forecast process, at the Association for Finance Professionals (AFP) 2013 Annual Conference.TRANSCRIPT
Enterprise Planning: Integrating the
Strategic Plan with the Annual Budget
and Forecast Process
Andrew Starks
Director, Strategic
Planning Practice
Edgewater Ranzal
Tuesday, October 29th
2:00 to 3:00 PM
South Seas Ballroom H
Agenda
• Enterprise Planning: What is it? Why it’s Essential
• Problems with Typical Budget and LRP Processes
– Budget Process shortfalls
– LRP Process shortfalls
– Lack of integration between the Budget and LRP
• Solutions to Integrate the LRP and Budget Processes
– Well designed budget and LRP solutions that anticipate integration points
– Technology that enables seamless integration
– LRP process should provide targets and guide the annual budget process
• Demonstration of Integrated Solution
Enterprise Planning Defined
• Enterprise Planning is a methodology (backed up by technology) that assists an organization with creating and linking their strategic, financial, and operational plans into one cohesive system.
• The methodology allows organizations to set goals, generate plans guided by those goals, monitor results, and update plans quickly as conditions on the ground change.
• Enterprise Planning establishes and links the strategic and operational goals of an enterprise.
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES
Enterprise Planning
Strategic level – major segments, key product lines
Full financial statements
Scenarios and ad-hoc modeling
Where do we want to be 3-5 years from now and how can
we accomplish it?
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES
Long Range Planning
What are the specific goals and constraints in the next
year to carry our strategies?
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES
Operational level
12 to 18 months
P&L Focused
Financial Planning
How well are we performing and how can we improve our
planning further?
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES
Variance reporting
Re-forecasting
Calibrate tactical plans
Forecasting
Operational Planning
What are the specific operational issues faced when
carrying out strategies?
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES
Workforce planning
Capital expenses
Project planning
Treasury Strategies
What is the impact on cash flow? What is the optimal way
to fund our growth plans?
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES Covenant and ratio
analysis
Funding alternatives
Rating agency reports
What is the incremental impact from the business decision?
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES
Mergers & acquisitions
Divestitures
Investment analysis
Corporate Development Activities
Bring discipline to strategic modeling
Broader and more collaborative planning and forecasting
Link execution to strategic goals
Integrated Enterprise Planning
FINANCIAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
OPERATIONAL
PLANNING
TREASURY
STRATEGIES
LONG RANGE
PLANNING LONG RANGE
PLANNING
BUDGET / FORECAST
PROCESS
OPERATIONAL
PLANNING
CORPORATE
DEVELOPMENT
ACTIVITIES
TREASURY
STRATEGIES
Why Enterprise Planning is
Essential
• It’s the only methodology that ensures management and employees are setting goals, making investments and operational decisions that maximize the long-term success of an organization
• A Budget on its own or a Long-Range Plan on its own is not sufficient for planning and meeting the long-term goals of an organization
Why A Budget is Not Sufficient
• Most budgets are short term (18 months or less)
• Most strategic decisions have LT cost, revenue and capital implications
• Most budgets are P&L only and ignore Balance Sheet and Cash Flow impacts
• Major decisions and business plans should be evaluated on how they impact an organization’s valuation, credit ratings, covenants, and cash flow – all of which require full financial statement detail
Budget Disconnected from the LRP
Hinders Execution of LT Goals
• Budgets tend to be based on prior year results and not based on future goals
• Managers and cost center owners aren’t aligned with long-term goals
• Decision-making tends to be short sighted and aligned with budget rather than long-term goals – Focused on P&L goals and somewhat blinded to impacts on the B/S,
CF and long-term value creation.
Common Reporting & Interaction (Microsoft Office, Crystal Ball, Dashboards, etc.)
Enterprise Planning Architecture
Capital Asset Planning
Hyperion Planning
Hyperion Strategic Finance
Profitability & Cost
Management
Essbase (EPM Platform)
Workforce Planning
Financial Data Quality Management and Master Data Management
Data Warehouse Data Mart (BW)
SAP Excel XML
Business Process
Oracle
Integrate and Align ST and LT Planning
Product Demonstration
Demo
Forecast/model strategic possibilities
Select strategies
Set targets
Seed targets to annual operating plan
Start annual process
Evaluate Financial Performance
Update strategic plan with latest forecast
Evaluate resource and capital requirements
Strategic plan Annual budget /
plan
Include operational
details
Evaluate workforce and capital
Monthly / rolling
forecast
Evaluate ‘true’
profitability
Enterprise Planning Leading Practices
Assess and Manage Risk
Include operational detail and model variability of financial plan
Update forecast with latest budget and actuals
