Perspectives on Budgeting and

Forecasting
Agenda

 Planning, Budgeting and Forecasting Processes

 Tool Landscape

 Contacts

Copyright © 2009 Deloitte Development LLC. All rights reserved. 2

CFO Priorities in 2009 (Gartner survey)

• Performance Management
is a top priority

• 76% say measuring

profitability constraint is top

• Improving financial
processes is a top concern

• Integration of Performance
and Risk Management is a
growing trend

Copyright © 2009 Deloitte Development LLC. All rights reserved. 3

 Top performing companies employ world-class performance management
processes
5 Year Total Shareholder Return vs. Industry Performance
 The Sherwin-Williams Company (1)
 Renault SA (2)
 Hilton Hotels (3)
 Continental AG (4)
 SABMiller plc (5)
 British American Tobacco (6)
 Reynolds American, Inc. (7)
 Nexen inc. (8)
 KBC Group (9)
 The Royal Bank of Canada (10)
 Moody’s Corporation (11)
 Anglo Irish Bank Corporation (12)
 Thermo Fisher Scientific Inc. (13)
 Becton, Dickinson and Company (14)
 WellPoint, Inc. (15)
 Humana Inc. (16)
 Textron Inc. (17)
 Aktiebolaget SKF (18)
 Atlas Copco AB (19)
 Volvo AG (20)
 Autodesk Inc. (21)
 Cognizant Technology Solutions (22)
 Koninklijke KPN NV (23)
 Telekom Austria AG (24)
 Constellation Energy Group (25)
 Fortum Corporation (26)

Performance Management Related Benefits Experienced By Top Performing Companies

Through the implementation of world-class performance management processes, these companies are able to:
 Align corporate goals and business strategy  Quickly respond to changes in business conditions
 Make better and more effective business decisions  Increase accountability to plan accuracy
 Effectively communicate strategic objectives throughout the  Tie business strategy to measurements and metrics
organization
 Simplify and standardize reporting to focus only on metrics
 Provide increased visibility into all elements of the plan that matter
Copyright © 2009 Deloitte Development LLC. All rights reserved. 4
 Many elements of today’s business environment highlight the need for a
more effective planning process

Pressures & challenges Impact on current environment

Regulatory  Increasing regulatory oversight and scrutiny  Increased need for financial transparency
 Migration from well-controlled lagging indicators
to more leading indicator focus
Financial  Difficulty in raising capital due to credit  Increased need for accuracy and “defensibility”
community market constraints of forecasts and budgets
 High returns demanded by investors
 Reliance of shareholders and analysts on
“forward-looking” projections and indicators
Markets  Increased competition for customers
and impacting retention and pricing
customers  Increased pressure and emphasis on
profitability and cost reduction
 Increased need to understand customer and
product profitability
Business  Need to efficiently integrate new acquisitions
operations and business models
 Increased need to align business operations
with corporate strategy

Copyright © 2009 Deloitte Development LLC. All rights reserved. 5

 Ineffective performance management can lead to failure to achieve an
organization’s strategic objectives
Despite acknowledging the desire to better manage performance, organizations continue to struggle with
issues that prevent them from achieving long-term strategic objectives

Symptoms of ineffective performance management

 Targets, where set, are not aligned to the
strategy and value creation
 Long-range planning activity does not relate
to the strategy
 Resources are bound in projects which are
not top priority to execute corporate strategy
 Strategic objectives, initiatives and individual
targets are not aligned nor clearly
communicated across the organization
 The budget process is time consuming and
does not result in the effective deployment of
company resources
 No clear accountability of operational
managers for targets
 Reporting and analysis efforts fail to highlight
potential issues in a timely manner
 Executive and staff behavior is not in line with
achieving performance measure goals
 Data exists across multiple systems with no
standard set of business definitions across
the enterprise
 Inability of existing technology to effectively
manage and analyze performance
management data

Tackling the symptoms individually will prevent the resolution of long-term issues. Instead, the
root causes should be addressed through the adoption of a performance management framework

Copyright © 2009 Deloitte Development LLC. All rights reserved. 6

 Deloitte’s Performance Management Framework

Forecasting
• Understanding the near future Strategic Planning
• Draws on known facts and realistic estimates rather • Development of vision
than setting a course • Determining strategic objectives
• Scenario planning and what-if analysis on critical risk • Identifying strategic initiatives
factors • Identifying threats to achieving strategic initiatives
• Risk threshold recalibration if needed • Identify and manage enterprise risks impacting
initiatives
Intervention (Forecast)
• Agreeing on desired results (i.e., performance
• Acting on the information measurement targets)
• Decision Making, Investigation, Forecasting • Establishing multi-year, high-level financial and
Reformulation of strategy, change Strategy
Strategy operational targets
processes, risk response, start new
activity Business Planning
Intervention
Intervention • Translation of strategy into annual business unit
action plans (projects and initiatives)
Planning
Planning
• Identification of business unit performance
measurement targets (i.e. KPIs)
Analysis Value • Identification of risks to achieving performance
• Analysis of performance measurement gaps Analysis Creation measures (i.e. KRIs)
• Ad hoc financial analysis Budgeting
• Development of annual operational and capital
• Analysis of systemic and enterprise risk spending envelopes
• Analysis of operational progress against
planned initiatives External Budgeting & Performance Target Setting
• Determination of corrective actions Reporting • Identification and prioritization of capital
Reporting Operational
Management Reporting projects to develop capital budget
• Financial variance reporting and monitoring
Reporting • Translation of business plans and capital
• Close, management & statutory financial reporting budget into operating budgets (based on
• Risk dash boarding and regulatory compliance reporting defined business model)
• Operational reporting and monitoring (i.e. status of key business plan • Translation of business unit performance
initiatives) targets to operational performance targets
Performance Measurement (i.e. KPIs)
• Reporting and monitoring of key, balanced performance • Translation of business unit risk thresholds
measures (KPIs and associated KRIs) that reflect desired to operational risk thresholds (i.e. KRIs)
results of strategic plan
• Communication of results of corporate and functional
scorecards (performance and risk) throughout the
organization

Copyright © 2009 Deloitte Development LLC. All rights reserved. 7

 Our view is that the planning process should raise questions and provide
answers that are core to the business

 What drives performance in the company’s market and in the company’s operations?
‒ How much should we invest in new products vs. line extensions?
‒ How will an ERP impact operational effectiveness and efficiency?
‒ Should we hire twenty new sales people or build a new warehouse?

 How much investment should be shifted to those initiatives with the greatest promise?
‒ Business sustaining vs. Business growth

 What key performance indicators would best measure progress towards strategic goals?
‒ Outcome/Risk Measures – Revenue, Earnings Per Share
‒ Process Measures – Cycle Time, Number of Hand-offs
‒ Predictive Measures – Unemployment, Consumer spending, Fuel cost, Commodity
prices

Copyright © 2009 Deloitte Development LLC. All rights reserved. 8

 Planning/Budgeting is a top-down, bottom-up process with multiple
stakeholders
Top Down Executive
Guidance and Direction
Create Strategic Plan
(e.g., shareholder value,
investment portfolio)
Start Planning Cycle
Copyright © 2009 Deloitte Development LLC. All rights reserved.
Top Down Plan Finalization
CFO and Executive
Management
Define Financial and Analyze Consolidated Finalize Changes and
Operational Targets Results Approve Plan
(e.g., ROIC, ROE, (e.g., pro-forma financials, (e.g., “tweek” plan; obtain
EBITDA Margins) KPI’s, risk modeling) commitment)
End Planning Cycle
Financial Planning & Analysis
Push Targets Down to Validate Plans and
Actionable Level Consolidate Results
(e.g., Communicate targets, (e.g., verify plan
assess implications) assumptions, check results
for reasonableness)
Business Units
Create Detailed Plan
(e.g., driver based modeling,
approval based workflow,
scenario planning)
9
 Developing a Leading Practice Capability

Companies typically mature from an unstructured planning process toward a more mature
and structured process. The development often follows a path such as this:

Leading
 Planning process
Advanced
fully integrated with
 Enterprise-wide strategy
Defined
processes  Real-time
 More standardized  Use of web-enabled forecasting and
Developing performance
processes budget tool
 Inconsistent  Some integration  Rolling forecast and monitoring
Emerging
process across BUs other advanced  Compensation
 No formal planning  Basic tools (e.g.  Reliance on ERP processes linked to results
process Excel) system as planning
 No planning tools  Ad hoc tool
 Inadequate spreadsheets  Little analytics
communication  Highly manual
 Purely financial plan process

Copyright © 2009 Deloitte Development LLC. All rights reserved. 10

 Leading organizations are adopting a number of effective solutions to
improve their planning processes and enhance their value
 Identification of the most significant measures of business performance
Key performance indicators  Key Benefit: better alignment between strategy and execution

 Expansion of forecast horizon beyond current fiscal year

Rolling forecasts  Key Benefit: better insights into market conditions and expected
performance

 Development of planning models based on major internal and external

Driver-based planning factors that impact performance
 Key Benefit: more accurate plans and better insight into performance
drivers

 Focusing capital spend on projects or initiatives that drive value

Capital allocation  Key Benefit: better return on investment for key initiatives

 Using various assumptions to gauge bottom line impact

Scenario Analysis  Benefit: better decision-making that includes consideration of all business
scenarios

Copyright © 2009 Deloitte Development LLC. All rights reserved. 11

Blow-up the Budget!
Leading organizations are beginning to move from a rigid, annual budgeting process that typically is
painful and causes undesirable behaviors to a rolling forecast:

Typical Annual Budget Typical Rolling Forecast Required Changes

• Internally focused, historical
perspective, bottom-up plan
development
• Multiple lines of targets
provided, but not formal firm
targets (e.g., revenue)
• Multiple iterations of detailed
budget preparation
• Detailed data required at all
levels
• Excessive handoffs
• Spring and Fall plans are
separate activities
• Forecast focus is only on
current year
• Fall plan process results in
large spike in workloads
• Incompatible systems/software
used throughout
• Forward looking, more market- • Changes made to current plan,
based, externally-focused, top- process and philosophy
down planning • Timely and complete targets
• Less overall effect • Reduced data elements
• Few top-down targets
…can be • Improved data collection tools
• Fewer iterations and less detail …but only if
replaced changes • Close linkage with other planning
churn at sites processes
with this...
• Fewer data lines sent to made...
• Continuous planning
corporate
• Increased line management
• Tightly linked to strategy focus on quarterly forecasts vs.
• Improved decision support single event
• Planning horizon refocused to
looking beyond year-end (e.g.,
15 months)
…otherwise...
• “Annual Event” reduced in the
Fall so increases continuous
planning mind-set
• Improved, uniform I/T tools and
infrastructure
• Smooth resource needs
throughout year A rolling forecast will
increase the planning
workload

With Rolling Forecast, the need for budgeting is minimized or eliminated while producing a
more externally-focused, market-sensitive process
Copyright © 2009 Deloitte Development LLC. All rights reserved. 12
Rolling Forecast – Leading Practices

• Timely and complete targets

• Reduced data elements
• Efficient data collection tools
• Increased line management focus on quarterly forecasts vs. single event
• Expand the scope of forecasts to include financial and non-financial data
• 4 or 5 quarters
• Simplify and focus forecasts by relying on a few measures/drivers
• Assign forecast ownership to operational units
• Define threshold-level forecasting (i.e., scope and depth of forecast and action planning based
on predetermined thresholds)
• Define consistent methodology and timeline to complete forecasts
• Automate and leverage (e.g., modeling and scenario analysis) rolling forecasts through
information systems
• Link incentive compensation to plan targets and relative value changes

Copyright © 2009 Deloitte Development LLC. All rights reserved. 13

 A Range of Operating Models
Improving planning & forecasting often requires greater leadership from corporate to facilitate decision-
making

- Immature - - Basic - - Leading Practice -

Decentralized Coordinated Center-Led Centralized

• Central Group defines • Central Group defines • Central Group defines • Central Group responsible
Model schedule only schedule and guidelines process, deliverables, for overall plan
Description • Divisions develop all plans • Divisions define content & schedule and standards • Divisions provide data and
to meet schedule deliverables • Divisions work within input
approach

• Sets schedule only • Owner of Corporate Strategy • Owner of Corporate • Owner of Corporate
• Summarizes divisional outputs Strategy outputs Strategy outputs
Corporate
plans into Corporate Plan • Sets schedule and financial • Overall Process owner • Overall Process owner
Planning Role • Develops approaches, • Develops approaches,
guidelines
• Integrates & coordinates deliverable standards, deliverable standards,
divisional plans timeline timeline

• Develops all deliverables • Develops deliverables within: • Develops deliverables • Develops deliverables
Divisional to meet timeline/schedule • Timeline & financial within: within:
Planning Role guidelines • Timeline/Approach • Timeline
• Guidelines • Approach
• Deliverable designs • Guidelines
• Deliverable designs

Copyright © 2009 Deloitte Development LLC. All rights reserved. 14

The landscape of PBF tools is quickly changing

Hyperion Planning Cognos Planning BPC PerformancePoint

 Offers true out-of-the Consistently  SAP planning tool  Leverages Microsoft’s

box system recognized as the  Highly customizable Analysis Services
integration leader in BI analytical with Excel front end, (similar to Essbase
 Considered the leader reporting which simplifies user and TM1)
in the Business  Cognos TM1 software adoption  Tightly integrated with
Performance provides a real-time  Built on a centralized MS Office Suite and
Management Space approach to services-oriented MS SQL Server
consolidating, architecture
viewing, and editing
data
Future Direction

Oracle integrated Will continue to

IBM will likely leave SAP will
into OBIEE, Siebel, market low cost
as a stand alone incorporate into Net
or other Oracle solution to mid-
application Weaver architecture
products market
Copyright © 2009 Deloitte Development LLC. All rights reserved. 15
Vendor Overview – SAP BPC
Developer and provider of analytic portal-based budgeting, forecasting and reporting
Product Offerings
• SAP-BPC (Formerly OutlookSoft)
‒ Current product is basically OutlookSoft 5.0 ,
designed for consolidation, financial planning,
and scorecarding based on a Sequel Server
Architecture
‒ Next generation to be released in fall 2008 will
include similar capabilities, but be integrated
with SAP Netweaver platform
• SAP-IP (Integrated Planning)
‒ Netweaver based planning product released in
Fall 2006
‒ Primary focus is on planning and forecasting
• Though both products provide similar functionality IP
is generally considered more robust and scalable,
while BPC is consider more flexible and user friendly
Highlights
• SAP-BPC
‒ Web centric messaging and portal positioning
which supports collaborative, dynamic
processes
‒ Provides workflow for managing the
submission and approval of budgets, forecasts
and plans
‒ Capable of managing complex calculations with
complete Excel integration
‒ Reporting is limited and lacks formatting
flexibility
• SAP-IP
‒ Robust planning and forecasting capability
‒ Complete integration with SAP Netweaver and
BI environment
‒ Highly scalable
‒ Limited installations
‒ Complete dependence on IT for support, no
forward deployed or self-service administration

Copyright © 2009 Deloitte Development LLC. All rights reserved. 16

Vendor Overview - Cognos
Cognos is a leader in the business intelligence and analytics space coupled with business performance
management capabilities
Product Offerings
• Cognos Planning
‒ Analyst is a localized modeling and analytics
product
‒ Contributor is a web-based data collection and
modeling product
• Cognos TM1
‒ Real time response to calculations, analytics with
write-back capabilities, simple modeling
• Cognos Controller (for consolidation & related reporting)
• Cognos Report Studio and Query Studio (ad hoc
querying, production report templates)
• Cognos PowerPlay/Analysis Studio (BI, analysis)
Copyright © 2009 Deloitte Development LLC. All rights reserved.
Highlights
• Cognos 8 allows for integration of Cognos BI products
but limited integration of Cognos financial products
• Ease of developing planning functionality by using built-
in-functions (BIFs) or the Analyst product that does not
require programming knowledge
• OLAP engine
• Distributed architecture pushes real-time processing to
the client which may compromise performance of large
cubes if client processing limitations exist
• TM1 uses 64 bit technology and stores cube in memory
for quick response times
• Integrate with Microsoft Excel, PowerPoint and Word
through Cognos Office Connection
• Web or Excel interfaces
• Highly configurable and flexible
17
Vendor Overview - Hyperion
Hyperion is a leading player in the Business Performance Management space
Product Offerings
• Offers a suite of solutions for financial management,
business intelligence, and data management
• Hyperion Financial Management (for consolidation)
• Hyperion Analytic Services (Essbase)
• Hyperion Planning
• Hyperion Reports
• Hyperion Analyzer (dash board)
Copyright © 2009 Deloitte Development LLC. All rights reserved.
Highlights
• Hyperion Analytic Services (Essbase) is the dominant
OLAP engine in financial analytics space offering a
powerful and sophisticated multi-dimensional OLAP
engine
• Hyperion System 9 serves as an integration platform
across all Hyperion products
• Centralized architecture provides simpler
administration and deployment of the various products
but compromises end-user flexibility in defining rules,
calculations, etc.
• Server-based processing
• Fully integrated with Microsoft office through
SmartView
• Web-enabled across products
18
Contacts
Vic Katyal
Principal
Deloitte & Touche LLP
612-397-4772
vkatyal@deloitte.com

Jeff Torstenson
Senior Manager
Deloitte & Touche LLP
612-397-4647
jtorstenson@deloitte.com

Copyright © 2009 Deloitte Development LLC. All rights reserved. 19