why lean requires moving beyond budgetingbeyond budgeting about the speakers 2 • steve player...

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Lean Accounting Summit – September 13, 2017

1 Copyright 2017 © Live Future Ready | BBRTNA

Why Lean Requires Moving Beyond Budgeting

About the Speakers

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• Steve Player serves as the Managing Director of Live Future Ready. He is also leads the Beyond Budgeting Round Table North America (BBRTNA) working with companies to implement continuous planning processes.

• Steve has over 30 years experience improving performance management

• Steve is the co-author of Future Ready: How to Master Business Forecasting and Beyond Performance Management as well as five other books.

• Steve interviews CFOs for the “CFOThoughtLeaders.com website discussing innovative finance and planning processes.

Steve Player

Copyright 2017 © Live Future Ready | BBRTNA

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About the Speakers

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As a Principal and Owner of Torre Consulting, Mike works with companies to evolve strategy and achieve outcomes by improving processes and developing the teams that support them.

Mike’s 25 years of experience include over 15 years of leadership experience in the corporate environment and over 12 years of experience bringing Lean principles to life in department and organizational processes and culture.

In his consulting practice, Mike has worked with companies on lean strategic planning and deployment, value stream mapping and improvement, and cross-functional process improvement in finance and operational areas such as revenue cycle and supply chain.

Mike is a featured speaker at conferences including the Lean Accounting Summit, Lean Healthcare Transformation Summit, and conferences of the Beyond Budgeting Round Table (North America), where he serves as the Healthcare Program Director.

Mike De Luca


Today’s Agenda – Moving Beyond Budgeting

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1. Identifying Waste within the Budget

2. Crafting the Case for Change

3. Using the 12 Beyond Budgeting Principles to Create Change

4. Handling Implementation Objections


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Traditional Budgets Block Your Efforts to Become Lean


Hold in stock

Agree fixed plan “the budget”

Produce to the plan

Persuade customer to

buy

Resources

Stock for sale

Customer

Production units

1

2

3

4

Source: Bulmers

Produce to meet demand

Coordinate according to

demand

Anticipate demand and

estimate capacity

Coordinate production

Customer

Production units

1

2

3

Resources 4 Acquire

resources

Push Pull

Lean Approach to Improvement by Identifying Waste


Eight Types of Muda (Waste): 1. Defects 2. Overproduction (of items not needed) 3. Inventories (awaiting further processing) 4. Unnecessary processing 5. Unnecessary movement of people 6. Unnecessary transport of goods 7. Waiting (unbalanced work flows) 8. Design of outputs that do not meet users’ needs Source: Taiichi Ohno, expanded by Womack & Jones

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Identifying Waste – The Beyond Budgeting Case for Change


•High level of dissatisfaction with existing process from executive level to front line management.

•Traditional budgeting process out of synch with a Lean organization:

• Fixed calendar-year timeframe didn’t support financial planning for on-going process improvement and timing of results

• Inefficient, resource-intensive process

• Product of minimal value (e.g. budget variances didn’t provide clear insights to processes that need to be improved)

Identifying Waste – The Beyond Budgeting Case for Change


•Corporate culture supported a high degree of experimentation

•Beyond Budgeting provided alternatives that fit well with the Lean organization:

• Unbiased, driver-based rolling forecasts provided needed insight into magnitude and timing of process improvement impact

• Target setting aligned with top-level financial goal, then vertically through driver metrics, not disaggregation

• Resource allocation aligned with strategic planning

• Tools supported root cause analysis of variances

• Process was efficient and low resource intensity

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Case for Change – The Problem


•Not clear what process inputs and outputs we should focus on to improve our costs or sustain improvements once they’ve been made.

•Checking processes and measures are focused more on lagged or outcome measures and don't give us insights into why we're not seeing the improvement we're targeting.

•Financial performance management and Lean operations linked checking processes are separate and disconnected.

•Need to better understand what to check to assess routine performance, not just improvement initiatives.

•We can't link all drivers or improvement initiatives down to changes in repeatable processes that we can measure.

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Case for Change – The Vision


•Finance “must become a fundamental part of the team-based improvement efforts at the core of a lean transformation.”

•We use our "skills to help accelerate change throughout the organization.”

•We become "valued business partners who contribute meaningful information for decision-making purposes.” All quotes from “Real Numbers” – Cunningham and Fiume

Case for Change – The From - To


From To Work behind the scenes to develop metrics, reports, information and tools.

Work together with operations where the processes occur to develop, implement, sustain and continuously improve the most relevant information.

Primary focus on outcome measures. Equal focus from outcomes-level metrics to the processes that move the dial on performance drivers.

Primary focus on cost and utilization. Flexible focus as needed on other non-financial measures relevant in linked checking such as access, capacity, etc.

Separate and disconnected financial and operational measurement and checking systems.

One unified linked checking system.

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The Formula for Successful Change


D x V x F > R D = Dissatisfaction

V = Vision for change

F = Known first steps

R = Resistance to change


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Vision: 12 Beyond Budgeting Principles


Change in leadership

Governance & transparency

1. Values – Bind people to a common cause; not to a

central plan

2. Governance – Govern through shared values and

sound judgement; not detailed rules and regulations

3. Transparency - Make information open and

transparent; don’t restrict and control it

Accountable teams

4. Teams - Organize around a seamless network of

accountable teams; not around centralized functions

5. Trust – Trust teams to regulate and improve their

performance; don’t micro-manage them

6. Accountability – Base accountability on holistic

criteria and peer reviews; not on hierarchical

relationships

Change in processes

Goals & rewards

7. Goals – Set ambitious medium-term goals; not short-

term fixed targets

8. Rewards – Base rewards on relative performance; not

on meeting fixed targets

Planning & Controls

9. Planning - Make planning a continuous and inclusive

process; not a top-down annual event

10. Coordination - Coordinate interactions dynamically;

not through annual budgets and planning cycles

11. Resources - Make resources available as needed;

not through annual budget allocations

12. Controls - Base controls on fast, frequent feedback;

not on budget variances

Source: The Leader’s Dilemma, Hope, Bunce, and Röösli (2011, John Wiley & Sons)

Target Setting – The Basics


FIVE YEAR

STRATEGIC GOALS

CURRENT POSITION

X

ONE YEAR PLAN

? ?

? ?

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Rolling Forecasts – Minding Your P’s and Q’s


•Forecast = P × Q, where

• Q = quantity

• P = price

•Examples:

• Q: FTE, Rx fills, lab tests, surgeries

• P: Cost per unit of Q

Rolling Forecasts – High Level


SITUATION APPROACH RESULTS

The annual budget process consumed thousands of hours of staff and manager time without providing a valuable management tool.

Eliminated the detailed calendar-year labor and expense budget. Replaced with driver-based rolling forecasts done (typically) on a quarterly basis.

Time spent: Thousands of hours of budget preparation time reduced to less than 40 hours per quarter. Accuracy: Accuracy of ± 1% maintained. Level of detail: Lines of detail reduced from >14,000 to 8.

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Resource Allocation – Using Driver Diagrams


Start here

Also supports driver-based rolling forecasts

600 Accountable Value Centers (12 Regions, 580 branches)

Resource Allocation – Organize Around a Seamless Network


Executive

team

Support

Services

Teams

Strategy, Finance, HR, Marketing & IT

Branch A

Branch B

Branch C

Branch D

Branch E

Branch F

Branch G

Branch H

Branch I

Branch J

Branch K

Branch L

Branch M

Branch N

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Teams are

accountable

for relative

improvement

Teams are

accountable

for customer

outcomes

• Regions and

branches have P/L

accountability and

are compared with

each other on two

metrics

• Information is

open and

transparent

• Only 300 people

at HQ support

10,000 employees

Handelsbanken core model

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Year x Year x+1

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1st Review

2nd Review

3rd Review

4th Review

Forecast Actual

Annual Planx+1

21 Copyright Live Future ReadyTM| BBRTNA

The “Check-Plan-Act” Business Review Process

• Fast KPIs & trends

• Nature & Frequency of Demand

• Rolling Forecasts

• Peer Comparisons

Strategy/Goals

Act

Check

Forecast

Plan

Value Centre team

Do we need to act?

“Fund activities, not budgets”


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Typical Objections to Replacing Budgets

Copyright 2017 © Live Future Ready | BBRTNA 26

1. If we eliminate budgets, how do we hold people accountable? 2. If we eliminate budgets, how will we know if we are in control? 3. We are a public company so we have to do an annual budget. 4. Our banker requires us to submit an annual budget. 5. Our Board members always review the annual budget. 6. Bankers, Board Members – Holt CAT, Handelsbanken 7. Rolling forecasts sound good but our sales people are not very good at forecasting. 8. We need annual budgets to know what we need to do to hit our annual bonus targets.

What objections would you have?


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Group Health Case Study


• Integrated care delivery & insurance

• 600,000 insured

• $3.5 billion annual revenue (mostly premiums)

• 9,000 FTE

• 25 medical centers (multispecialty)

2000

Began Lean implementation in early 2000s

2015 CEO Reverse Course

2017 Acquired by Kaiser Began implementing Beyond Budgeting in 2008

2005 2010 2015 2020

Statoil Case Study - “Ambition to Action”


• Translating strategy - from ambitions to actions

• Securing flexibility - room to act and perform

• Activating values and leadership principles

Strategic objectives KPIs

Actions & forecasts

Individual or team goals

Where are we going –

what does success

look like?

• Most important strategic

change areas

• Medium term horizon

How do we measure

progress?

• Indicative measure of strategic delivery

• 5-10 KPIs, shorter/ longer term targets

What is my or our

contribution?

My Performance Goals

• Delivery

• Behaviour

How do we get

there?

• Concrete actions and

expected outcome

(forecast)

• Clear deadlines and

accountabilities

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Statoil Case Study – Ambition to Action Links


Remember: A KPI is only an indicator,

trying to measure that we

are delivering on strategic

objectives. Does seldom

reveal the full picture.

KPIs

Actions

Ambition

and strategy

Strategic

objectives

Recap of Main Points


1. Traditional budgets block your efforts to become lean

2. Utilize the change formula when crafting your case for change

3. Targets, forecasts, and driver diagrams are the tools needed

to move beyond budgeting

4. Objections can be overcome, past implementers are proof

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Are you ready to Live Future Ready?

Live Future Ready TM is a shared-learning member network focused on implementing advanced planning processes, improving management models to become more adaptable, and empowering their organizations to enable sustained, superior performance. Live Future Ready TM members are also granted membership in the Beyond Budgeting Round Table North America (BBRTNA).

Faster Response Innovative Strategies

Adaptive organizations operate with speed and agility. Agility comes from reducing complexity in the management process which is achieved by empowering front-line staff to act immediately and decisively. These actions are governed by clear principles, values and strategic boundaries. Underlying all these approaches is the shredding of bureaucracy that still hinders progress in most organizations.

Organizations that Live Future ReadyTM work within an open and self-managed environment. Clear governance principles and transparent information set the right climate and build the trust needed to share knowledge and adopt best practices. This is enabled by moving away from incentives based on negotiated, fixed . Incentives are based on relative measures that reward outstanding performance.

Lower Costs More Loyal Customers

Survival against global competition requires you to continually lower costs. Yet, the traditional tools like annual budgeting are built on 1920s designs. They slow response to change and often send the wrong signals. Our network identifies the dumb stuff you should stop doing to create time for more effective approaches. Network members are showing how to adopt a culture of continuous cost improvements.

Leading organizations place customer needs and value at the center of their strategy. Their processes are adapted to satisfy and even delight customers. Empowered front-line teams with the authority to act enable quick decisions and fast innovation. Responsiveness to your customers differentiates your organization from its competitors.

Other Important Features

Shared learning and peer networking with special interest or industry groups accelerates progress. Collaboration with leading organizations on a similar journey helps steer your path. Participation in Live Future ReadyTM conferences, meetings, and related events expands your knowledge. Access to on-line library of research, case studies, white papers, and presentations deepens your team. Advisory services / access to senior staff to answer your questions, provide training, or speak at your events. Discounts on additional training, assessment, implementation, and consulting services.

For further information, please e-mail us at [email protected] or give us a call today at 214.239.0155


Questions?

To learn more...

Attend our longer training classes on Implementing Beyond Budgeting and Mastering Rolling Forecast.

Join the Beyond Budgeting Round Table North America

Read Future Ready: How to Master Business Forecasting by Steve Morlidge and Steve Player (Wiley)

For additional information call Steve Player at 214-239-0155 or send an email to [email protected]


mailto:[email protected]

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