Planning, Budgeting and Forecasting - GovCon360 · PDF filePlanning, Budgeting and Forecasting...
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Planning, Budgeting and Forecasting Lunch and Learn for Government Contractors October 20, 2016
Transcript of Planning, Budgeting and Forecasting - GovCon360 · PDF filePlanning, Budgeting and Forecasting...
P l a n n i n g , B u d g e t i n g a n d F o r e c a s t i n g
Lunch and Learn for Government Contractors
October 20, 2016
I n t r o d u c t i o n
Lynne Gummo
PartnerGovernment
Contracting IndustryCohnReznick LLP
Area of Expertise• Governmental Contracting• FAR and CAS Compliance• Audit and Advisory
Glenn Chamuel
Managing Director CFO Advisory Services
CohnReznick LLP
Area of Expertise• Corporate Performance Management• Financial Planning and Analysis• Close, Consolidation and Reporting
2October 2016
P l a n n i n g , B u d g e t i n g a n d F o r e c a s t i n g O v e r v i e w
A Better Understanding of Business Planning• Importance and Benefits• Distinctions and Planning Cycle
Leveraging Planning for Your Business• Importance of Monitoring and Forecasting
• Triggering Events and Reforecasting• Processes and Methods
• Typical Challenges• Enabling technologies
• Excel• Corporate Performance Management (CPM) Tools
3October 2016
I m p o r t a n c e a n d B e n e f i t s o f P l a n n i n g
A Ta l e o f Th r e e G C ’s
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Lets get it Started
October 2016
B e n e f i t s o f P l a n n i n g
• Alignment: Aligns high-level long-term strategy of the business with the short-term goals and immediate actions to be taken
• Agility: Enables foresight, measuring progress and adjusting course
• Flexibility: Allows strategic evaluations of multiple scenarios comparing investments, acquisitions, divestitures, restructuring, etc.
• Sustainability: Supports compliance, consistency and confidence
• Optimization: Optimizes performance and compares against results
6October 2016
To p 5 F i n a n c i a l M a n a g e m e n t C h a l l e n g e s a n d P r i o r i t i e s
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24.6%
25.4%
37.7%
55.7%
63.9%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%
Working Capital Management
Invoice Processing and Payment
General Accounting andFinancial Reporting
Financial Forecasting
Planning and Budgeting
APQC 2015 Business Excellence Priorities and Challenges (N=122)
October 2016
P l a n n i n g , B u d g e t i n g a n d F o r e c a s t i n g ( P B F )
• D i s t i n c t i o n s• P l a n n i n g C y c l e
D e f i n i n g P l a n n i n g , B u d g e t i n g a n d F o r e c a s t i n g ( P B F )
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3-10 YearLong Term Vision
1 YearShorter Term
Initiatives
Quarterly or Monthly Monitoring and
Adjustments
Source: CohnReznick
October 2016
D i f f e r e n t i a t i n g P B F
Strategic Plan Operating Plan ForecastGoals Quantifying long
term visionSetting SMART
milestonesMeasuring and
adjustingPeople Owner,
Sr. Management, and Finance
Finance, Departments, and BU Heads
Departments and BUs
Timing Yearly or Every 3-5 Years Yearly Monthly or
QuarterlyPlanning Directions Top Down Top Down and
Bottom Up Bottom Up
Planning ActivitiesHigh level P&L
(balance sheet)
P&LBalance Sheet
Cash Flowand support
P&L(balance sheet,
cash flow)
Time Sensitivity Low Med High
Planning duration 2-4 weeks 3-6 weeks 2-3 days
10October 2016
Source: CohnReznick
F o r e c a s t i n g C y c l e Update forecast
with actuals
Reporting and
analysis
Evaluate options
Triggering Event?
Adjust forecast
Receive monthly actual data
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Triggering Event:Reforecast by starting a new forecast based
upon new assumptions.
Typical Events: Analyze monthly results and make adjustments to
forecast.
Re-forecast
YN
Strategic Plan
Annual Budget
October 2016
Forecasting is an analytical, reflective and adjustment process
Source: CohnReznick
I m p o r t a n c e o f F o r e c a s t i n g
• M o n i t o r i n g• T r i g g e r i n g E v e n t s & R e f o r e c a s t i n g
T h e I m p o r t a n c e o f M o n i t o r i n g• Compares expected performance against actual
• Identifies future risk and opportunities through variance analysis• Provides management with the ability to make course corrections
• Provides a basis upon which to make significant investments• Capital investments (including software)• Talent acquisition• Company acquisition
• Measures the past and future effect of business decisions• Labor mix decisions impact on indirect rates• Investment decisions impact on return on investment
• Outlines the timing of cash flows and potential shortfalls• Helps to determine when to ramp up and ramp down• Identifies when to make or defer investments
• Provides estimates useful for tax planning
13October 2016
E v e n t s T r i g g e r i n g a R e f o r e c a s t i n g
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Significant win, loss or extension of a contract
•Indirect expense allocation rate/ratio changes, impacting existing contracts•Allowances needed for ramp-up•Delays in issuing first bill and issuance of first payment
Rightsizing • Direct Labor and subcontractor mix• Employee billable resource mix (moving labor between direct and indirect)• Required infrastructure• Compliance requirements• Significant LPTA Contracts
Declining revenues• Impact on indirect rates at current operating level• Impact on debt covenants• Impact on taxes and estimated tax payments requirements
October 2016
E v e n t s T r i g g e r i n g a R e f o r e c a s t i n g( c o n t i n u e d )
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Unexpected cash flow needs• Contract delays• Government shutdown or continuing resolution• Funding issues on Contracts• Contracts running at a loss for long periods of time
Series of Unfortunate Events
• IRS audit• DCAA audit• Death or illness of business owner/senior management• Turnover at Senior Levels• Fraud
October 2016
B u d g e t i n g , P l a n n i n g a n d F o r e c a s t i n g ( B P F ) :
• C o r p o r a t e P e r f o r m a n c e M a n a g e m e n t ( C P M ) D e f i n e d
• P r o c e s s e s , M e t h o d s a n d C h a l l e n g e s
What isCorporate Performance Management (CPM)
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Multiple UsersMultiple Users
PlatformPlatform
Source SystemsSource Systems
ERPsERPsERPs GLsGLsGLs CRMsCRMsCRMsCloudCloudCloud
CPM
FlatFilesFlatFiles
Web and/or Excel User Interface
Web and/or Excel User Interface
Calculations & RulesCalculations & Rules
HRHRHR
• Planning • Reporting • Dashboards• Planning • Reporting • Dashboards
MRPsMRPsMRPs
FlatFilesFlatFiles
October 2016
P l a n n i n g P r o c e s s e s a n d M e t h o d s
• Annual Planning/Budgeting Process• Annual Planning Basis or Starting Point• Annual Planning Directions• Time Spans used in Forecasting• Typical Challenges
18October 2016
A n n u a l P l a n n i n g / B u d g e t i n g : P r o c e s s
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Guided from the top, informed from the bottom, Collaborative, establishing buy-in
October 2016
Source: CohnReznick
A n n u a l P l a n n i n g / B u d g e t i n g :P l a n n i n g B a s i s o r S t a r t i n g P o i n t
Seeded PlansMethodStart with last year numbers or rolling forecast, then revise
Pro: fastCon: easy to be less thoughtful
Where most appropriateFixed or stable costs (rent, utilities)
Zero-Based and Driver BasedMethodCreate plans from scratch or with drivers, then revise
Pro: all values are justifiedCon: ‘recreating the wheel’
Where most appropriateVariable costsFormulaic; Logical; cause-effect
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• Use zero-based/driver based as primary method• Inform from and compare against prior year and a rolling forecast
Blended
October 2016
A n n u a l P l a n n i n g / B u d g e t i n g :P l a n n i n g D i r e c t i o n s
Top-Down
Methods• driver based assignment• spreading down• allocating across• referencing historic values/trends
Where appropriate• Initial guidance on annual plans• Overhead allocations
Bottom-Up
Methods• aggregating up• driver-based assumptions• referencing historic values/trends
Where appropriate• Detailed accountable and
controllable goals
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• Reconcile top-down guidance with bottom-up estimates• Collaborative and gains buy-in• Agreed upon accountability
Bi-directional
October 2016
Q u a r t e r l y / M o n t h l y F o r e c a s t i n g :T i m e S p a n s f o r F o r e c a s t i n g
12 Month Plan with Forecast to year end (3/9; 6/6; 9/3)
MethodEstimate remainder of year every quarter, leveraging actuals to date
ChallengeTowards end of year lose visibility into beginning of next year
12 Month Plan with Rolling Forecast
MethodEstimate following 6 or 9 months ongoing, leveraging actuals to date
ChallengeTowards end of year, next year forecast has no plan to compare against
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• By the end of the year, the forecast can be used as a baseline or comparison for the following year plan/budget.
• Planning is not restricted to current year construct
12 Month Detail Plan and Following 12 Month Strategic Plan with12 Month Rolling Forecast
October 2016
T y p i c a l P l a n n i n g , B u d g e t i n g a n d F o r e c a s t i n g C h a l l e n g e s
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People• Poor cooperation up, down and across the organization• Lack of participation, validation and follow-through• No clear accountability to the plans and actual results
Process• Inefficient utilization of time and resources• Difficulty in versioning and ‘what-if’ analysis• Ineffective alignment among strategy, plans and forecasts• Lack of consistency in methods and approach
Technology• Inflexible to changes in data and processes• Lack of data integrity, governance and transparency • Inefficient manual and redundant processes• Deficient integration across ERP, CRM, HR, FP&A and others to
compare and analyze against actuals• Inadequate multi-user support
October 2016
Source: CohnReznick
E n a b l i n g Te c h n o l o g i e s :
• E x c e l• E n t e r p r i s e P e r f o r m a n c e M a n a g e m e n t
( E P M )
E x c e l
Advantages
• Easy to use, powerful and flexible
• Experienced employees• Inexpensive• Quick ad-hoc analysis• No IT dependence• Customizable• Programmable with
formulas and macros
Disadvantages
• Poor Multi-user support• No audit trail for changes• No version control• Limited security• No approvals and workflow
management• Human error
• Poor Data integrity with broken links, manual data merging and copy-and-paste
• Lack of consistency among users in terminology, formulas, methods
• Corrupt worksheets• Advanced Functionality
• Poor data Integration with other systems• Difficult to spread changes across users• Limited visibility into macro’s impact
October 2016 25
B e n e f i t s o f C o r p o r a t e P e r f o r m a n c e M a n a g e m e n t ( C P M )
End-to-end performance management• Aggregating and comparing plans and actuals from multiple sources• Integrating planning, with reporting, analysis and visualization• Top-down and bottom-up planning with justifying differences explained• “Pivot table” slice-and-dice flexibility with editing capability for plans
Simpler, faster planning and revision process• Simple integration with Excel and existing processes• Enabled quick company-wide revisions and ‘what-if’ comparisons• Workflow and approvals to track changes and manage progress
Define, automate and standardize complexities• Automate allocations, driver based calculations & rule-based formulas• Standardize methods, while allowing automated and manual variations• Eliminate error-prone manual processes and data manipulation
26October 2016
C P M S o f t w a r e V e n d o r O v e r a l l A n a l y s i s
27October 2016
Forrester Wave EPM Q4 2016 Gartner Magic Quadrant Strategic CPM May 2016
Large Companies
Small/Mid Sized Companies
Target Market
C P M S o f t w a r e V e n d o rC a p a b i l i t y C o m p a r i s o n b y ‘ U s e C a s e ’
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Company < $250M Revenue $250 M Revenue < Company > $1B Revenue
October 2016
C P M S y s t e m S e l e c t i o n C o n s i d e r a t i o n s
Functionality• Planning, Budgeting, Forecasting basic and advanced features• Consolidation functionality (currency, equity, minority interests, intercompany)• Reporting, analytics and dashboard capabilities• Integration with other systems (ERP, CRM, SCM, payroll, DW)• Scalability (users, data, complexity)• End-User ease of use• Administration and manual functional maintenance complexity and frequency
Deployment and Support• Cloud vs. On-Premise considerations• Finance vs. IT ownership and control• Implementation: time, cost, complexity• Vendor: qualifications, sustainability, roadmap, support, satisfaction• Community: available skillset to hire, resources to train and maintain skills• Partners/Integrators: availability of skilled third party resources• Maintenance: ease and cost of technical maintenance, updates & upgrades• Upfront and ongoing costs
29October 2016
Q u e s t i o n & A n s w e r
T h a n k y o u
Lynne Gummo
PartnerGovernment
Contracting IndustryCohnReznick LLP
Area of Expertise• Governmental Contracting• FAR and CAS Compliance• Audit and Advisory
Glenn Chamuel
Managing Director CFO Advisory Services
CohnReznick LLP
Area of Expertise• Corporate Performance Management• Financial Planning and Analysis• Close, Consolidation and Reporting
31October 2016
E n d
End
S u p p o r t i n g S l i d e s
N e x t S t e p s f o r I m p r o v i n g P l a n n i n g B u d g e t i n g a n d F o r e c a s t i n g
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Technical and Data ImplementationAgile or Waterfall Development Integrate, Build and Test Train, Launch and Transition
System Architecture, Design and Plan
Functional Requirements System Architecture Project Plan
System Tool Selection
Cloud Solutions On-Premise Options Comparison & Recommendation
Business/Finance TransformationPeople, Process & Technology
Design System Business Requirements Roadmap & Scope Definition
Current State Assessment
"As Is" People, Processes and Technologies Analysis
Corporate/Finance Vision and Strategy
Strategy Mapping Balanced Scorecard Development
October 2016
E n d - t o - E n d C P M D e p l o y m e n t
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Technical and Data Implementation
System Architecture, Design and Plan
System Tool Selection
Business/Finance Transformation
Current State Assessment
Corporate/Finance Vision and Strategy
October 2016
Integrated Business Planning: Govt Contractors
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Integrated Planning
Financial Planning•Revenue•Profit Center•Cost Center/SG&A•Capital/
Fixed Asset•Treasury and Tax
Sales Planning•Channels•Customers•Contracts•Contract Vehicles•Territory/Region•Quotas•Prices•Volumes
CaptureManagement
•Schedule Qualifications
•Shows & Events•GovWin•Market
Segmentation
Workforce Planning•Headcount•Contractors•Salary/Benefits•Incentive Comp.
Supply ChainManagement(SCM)
•Demand•Procurement•Production•Inventory/
Warehouse•Fulfillment
Enterprise Resource Planning (ERP)•Operations•Product•Finance•Project
Customer Relationship Management (CRM)
Capable with CPM software
More suitable for specialized software
All plans from across the
company are consolidated
in single system to
ensure consistency
and alignment
Source: CohnReznick
M u l t i d i m e n s i o n a l a n d H i e r a r c h i c a l P l a n n i n g
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Cost CentersMarketingAdministrativeFinanceAccountingLegalIT
CompanyEntire CompanyBusiness UnitsOffices
ProductsAll ProductProduct LinesProductsCustomers
All CustomersChannelsCustomers
CPM provides the power of Excel Pivot Tables enhanced significantly with hierarchies, properties and the ability to edit and apply calculations
AccountsIncome StatementBalance SheetMetrics & KPIs
C o r p o r a t e P e r f o r m a n c e M a n a g e m e n t ( C P M ) U s e s
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Corporate Performance Management
(CPM)
Finance Transformation & Performance Management
Analytics and Dashboards
Business Unit & Departmental
Planning
Managerial Reporting and Consolidations
Financial Consolidation,
Close Reporting
Planning, Budgeting, Forecasting
Planning, Budgeting and Forecasting (BPF)• Multi-year Strategic Planning• Annual Operating• Plans and Budgets• Monthly and Quarterly
Forecasting• What-if-analysis• Reporting• Cash Flow/ Management
Financial Consolidation, Close and Reporting (CCR)• IFRS/GAAP• Financial Statements• Ownership• Intercompany• Foreign Currency• Allocations• CTA
Managerial Reporting and Consolidations• Cost Accounting• Standard Costing• Activity Based Costing• Cost Center Planning• Allocations
Finance Transformation and Performance Management• Strategy Mapping• Balanced Scorecards• Streamline Business Processes• Efficiency Improvement• Merger and Acquisition
Realignment• Change Management
Analytics and Dashboards• Predictive Analytics• Prescriptive Analytics• KPIs and Scorecards• Data Visualization• Variance Analysis• Trends and Seasonality• Segmentation
Business Unit and Departmental Planning• Profit Center Planning• Cost Center Planning• Sales Planning• Marketing Planning• Promotions Planning• Compensation Planning• Headcount Planning
B a l a n c e S c o r e c a r dL e v e r a g i n g t h e S t r a t e g y M a p
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Source: Intrafocus
Balanced ScorecardStrategy Map
