December 2017 FM Webinar - Slide Deck

The world’s foremost authority in benchmarking, best practices,
process and performance improvement, and knowledge management.
CREATING A MORE AGILE & EFFECTIVE PLANNING

PROCESS
An APQC Webinar
Wednesday, December 13 | 2:00 p.m. CDT

Speaker: Steve Player
PLEASE NOTE
 Audio is available through
your computer or through
dial-in. All lines are muted.
 You can submit questions
or comments at any time.
We will address all
questions during the Q&A
session at the end of
today’s presentation.
 Links to the
slides/recording will be
sent to all registrants via
email within a few days.
©2017 APQC. ALL RIGHTS RESERVED. 2

SPEAKER
Steve Player
Managing Director, Live
Future Ready
About the Speaker
• 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. He 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.
Copyright 2017 © Live Future Ready | BBRTNA 4

What is Live Future Ready?
“Live Future Ready expresses our ambition of

helping organizations prepare and be ready for
whatever comes. We cannot perfectly predict the
future. But if you stop doing the "dumb stuff"
required for traditional budgeting you create time
to do forecasting and scenario plans that create
contingency plans for whatever comes.”
Steve Player

Session Agenda
1. Identifying 5 Key Problems with Traditional Budgets
2. Overcoming These Problems by Moving Beyond Budgeting
3. Companies Who are Already Showing You How
4. Question and Answer Time

Five Key Problems with Traditional Budgeting
A. Too much of FP&A time adds little value

B. Budget processes create work spikes
C. Budget processes create static pictures, inadequate
for a world in real time
D. Different purposes require radically different levels of detail
E. Still using a craft guild when 21st Century tools are required

A. Too Much of FP&A Time Adds Little Value
Current Financial Analyst Time
23%
Providing vale-added
analysis
47% Administering the
process
Collecting and validating
data
30%

A. More Time to Create Greater Value
Desired Financial Analyst Time
5%
10%
Providing value-added
analysis
Administering the
process
Collecting and
validating the data
85%

B. Budget Processes Create Work Spikes

C. Budget Processes Create Static Pictures

D. Different Purposes Require Radically Different Levels of Detail
General Ledger
D. Different Purposes Require Radically Different Levels of Detail
General Ledger Key Drivers

D. When Less is More
100+ drivers = 80% data gathering = 20% analysis
Which one would Focus on key drivers = quick data

gathering, less calculation,
you choose? more time for analysis
5 to 20 drivers = 20% data gathering = 80% analysis

E. Still Using a Craft Guild When 21st Century Tools are Required
1920’s

E. Still Using a Craft Guild When 21st Century Tools are Required
1920’s 2020’s

Stop Forecasting to the Wall
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17
Shifting to Continuous Planning
Shifting to continuous monitoring

Year x Year x+1
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Strategy/Midterm Goals
• Fast KPIs & trends
1st Review
2nd Review • Nature & Frequency

3rd Review
of Demand
4th Review
Check
Forecast Actual
• Rolling Forecasts
Annual Plan
x+1
• Peer Comparisons
Do we need to
act? Value Centre “Fund activities,
team not budgets”
Plan Act
Forecast
Copyright Live Future ReadyTM| BBRTNA 18
Session Agenda

What is the real objective of our organization?
Budget
or
Clean sheet? Cumulative Cost Structure Profile?

What does that require?
• Initiatives 5 YEAR
• Major Projects STRATEGIC VISION
• Acquisitions
• Divestitures
• Ongoing Operations
• Expected economic changes
• Maintenance Activities
• Reorganizations
CURRENT POSITION
12 Beyond Budgeting Principles
Change in leadership Change in processes
Governance & transparency Goals & rewards
1. Values – Bind people to a common cause; 7. Goals – Set ambitious medium-term goals;
not to a central plan not short-term fixed targets
2. Governance – Govern through shared values and sound
8. Rewards – Base rewards on relative performance;
judgement; not detailed rules and regulations
not on meeting fixed targets
3. Transparency Make information open and transparent; Planning & Controls

don’t restrict and control it 9. Planning Make planning a continuous and inclusive
process; not a top-down annual event
Accountable teams
4. Teams Organize around a seamless network of accountable 10. Coordination Coordinate interactions dynamically;
teams; not around centralized functions not through annual budgets and planning cycles
5. Trust – Trust teams to regulate and improve their 11. Resources Make resources available as needed;
performance; don’t micro-manage them not through annual budget allocations
6. Accountability – Base accountability on holistic criteria and 12. Controls Base controls on fast, frequent feedback;
peer reviews; not on hierarchical relationships not on budget variances
Source: The Leader’s Dilemma, Hope, Bunce, and Röösli (2011, John Wiley & Sons)

You Begin With Actual, Detailed Results
(Transparency and Control)
Why? You need to know a lot about your current ship

Compare to Targets Where you Want to Go
(Goals)
FIVE YEAR
STRATEGIC GOALS
5y
4y
3y
2y
1y
X
CURRENT POSITION

What’s the objective of target setting?
“Get there as quickly as possible”
If the wind blows hard, If the wind doesn’t blow at all,
Break out the oars

Sail fast

Eliminate Budget-Based Bonus Plans:
Decide if Incentives are Needed (Rewards)
• Let competition (NOT BUDGETS) set the standard
• Let each team set their own goals
• Use ratios and benchmarks to drive the right behaviour
• Make all results transparent but don’t force feed
Region to region
Company to company
(ROE) Branch to branch
(ROE) 1. Region A 38% (Cost/Income ratio)
1.Company A 31% 2. Region B 27% 1. Branch C 37%
2.Company B 24% 3. Region C 20% 2. Branch J 38%
3.Company C 20% 4. Region D 17% 3. Branch A 41%
4.Company D 18% 5. Region E 15% 4. Branch E 41%
5.Company E 15% 6. Region F 12% 5. Branch D 44%
6.Company F 13% 7. Region G 10% 6. Branch F 45%
7.Company G 12% 8. Region H 7% 7. Branch I 46%
8.Company H 10% 9. Region I 6% 8. Branch B 54%
9.Company I 8% 10. Region J 5% 9. Branch G 54%
10.Company J 2% 10. Branch H 65%
What roles will bonuses play in the compensation scheme?

Provide Relative Rewards With Hindsight Rather
Than Fixed Goals

Add Light Touch Driver-Based Rolling Forecasts
(Coordination)
Media Potential Response Total Phone call
exposures Customer rate Leads unproductive
Universe
Appointment
ratio
Total
- Salesmen reschedule appointment
Leads
issued to - Branch not issued leads
branch
- Customer reschedules appointment
- No results completion ration
Total
sales Unproductive sales
calls appointments
Close ratio
Gross Finance Unsuccessful

sales sale
Released to Installation
production
Average selling price Net revenue
Why? Because you need to know where you are headed

Become Better at Understanding and Closing Gaps
Target 10%
Improvement
plan?
your Projection
is Actual Trend
= 6% growth
What
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4

Creating Agile Action Plans for Continuous Improvement
(Dynamic Planning and Resource Allocation)
Also supports
driver-based
rolling
forecasts

Session Agenda

American Express:
Transform to Continuous Planning
Targets
Annual
Aligned Timely
Plan
Allocation of
Enablers: Resources
Long
• Finance/Business Range Monthly
Collaboration Plan Results
Integrated Review
• Robust Tools/
Technology Decision Focus on
Support Shareholder
Future
• Information Value
Business Processes Performance
Monthly of Company Optimization
• External Visibility Strategy Risk/Opportunity
Validation Flexibility
• Application of Assessment
Six Sigma
Principles Visibility to
Quarterly
Ongoing improve/
Forecasts
Investment adjust
Optimization strategy
Decisioning formulation
and
Case Example A: Continuous Planning at American Express execution

HOLT CAT Squashing the Budget
“The ‘budget’ was and is like a

cockroach – it is almost dead, but
we have to bring out ‘Raid’ every
once in awhile to spray it again.”
-Paul Hensley, CFO

Unilever’s Slimfast Using Expense Ratio Analysis
Revenue 100% (20% )

Cost of sales 50%
Gross margin 50%
Marketing spend 20%
G&A 10%
Net income 20%

Unilever Evolutionary Implementation Approach
DYNAMIC PERFORMANCE MANAGEMENT
LEVEL 4 ADAPTIVE SYSTEM

characterized by continuous improvement against peers and/or
Relative the competition managed largely through a self regulating processes
LEVEL 3 CONTINUOUS SYSTEM
characterized by continuously beating medium term goals derived from
Continuous strategy and corporate mission using rolling forecasts and trend analysis
LEVEL 2 TARGET BASED SYSTEM
characterized by decoupled targeting, planning and reward processes
using continuous planning and year on year measures to manage performance
Decouple LEVEL 1 PLAN BASED SYSTEM

characterized by interlocking plans and targets negotiated on an
annual basis subject to ‘hit the numbers’ processes
CONTRACTUAL PERFORMANCE MANAGEMENT

Guardian Industries
“Is cash flow growing?”

Yes.
Invest in Geographic Expansion
(horizontal)
Invest in Vertical Integration
Invest in Cost Reduction Initiatives
No.
Pull back until cash growth resumes.

Flying My Plane – Quote from a Wisconsin CEO
“Running my company is like flying my plane… but the company just keeps flying.”

QUESTIONS
CONNECT WITH US
www.apqc.org/facebook @apqc www.apqc.org/linkedin www.apqc.org/blog
©2017 APQC. ALL RIGHTS RESERVED. 39

The world’s foremost authority in
benchmarking, best practices,
process and performance improvement,
and knowledge management.
123 N. Post Oak Lane, Third Floor | Houston, TX | 77024 | apqc.org

Next Steps
To learn more...
 Attend our Implementers’ Academy to learn more about creating
and improving your company’s driver-based rolling forecasts.
 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 steve@theplayergroup.com.
Copyright Live Future ReadyTM| BBRTNA 41

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The world’s foremost authority in benchmarking, best practices,

process and performance improvement, and knowledge management.

CREATING A MORE AGILE & EFFECTIVE PLANNING

Wednesday, December 13 | 2:00 p.m. CDT

©2017 APQC. ALL RIGHTS RESERVED. 2

Copyright 2017 © Live Future Ready | BBRTNA 4

“Live Future Ready expresses our ambition of

Copyright 2017 © Live Future Ready | BBRTNA 5

1. Identifying 5 Key Problems with Traditional Budgets

2. Overcoming These Problems by Moving Beyond Budgeting

3. Companies Who are Already Showing You How

4. Question and Answer Time

Copyright 2017 © Live Future Ready | BBRTNA 6

A. Too much of FP&A time adds little value

Copyright 2017 © Live Future Ready | BBRTNA 7

Current Financial Analyst Time

Copyright 2017 © Live Future Ready | BBRTNA 8

Desired Financial Analyst Time

Copyright 2017 © Live Future Ready | BBRTNA 9

Copyright 2017 © Live Future Ready | BBRTNA 10

Copyright 2017 © Live Future Ready | BBRTNA 11

General Ledger Key Drivers

100+ drivers = 80% data gathering = 20% analysis

Which one would Focus on key drivers = quick data

5 to 20 drivers = 20% data gathering = 80% analysis

Copyright 2017 © Live Future Ready | BBRTNA 12

Copyright 2017 © Live Future Ready | BBRTNA 15

Copyright 2017 © Live Future Ready | BBRTNA 16

Shifting to continuous monitoring

2nd Review • Nature & Frequency

1. Identifying 5 Key Problems with Traditional Budgets

2. Overcoming These Problems by Moving Beyond Budgeting

3. Companies Who are Already Showing You How

4. Question and Answer Time

Copyright 2017 © Live Future Ready | BBRTNA 19

Clean sheet? Cumulative Cost Structure Profile?

Copyright 2017 © Live Future Ready | BBRTNA 20

3. Transparency Make information open and transparent; Planning & Controls

Copyright 2017 © Live Future Ready | BBRTNA 22

Why? You need to know a lot about your current ship

Copyright 2017 © Live Future Ready | BBRTNA 24

“Get there as quickly as possible”

If the wind blows hard, If the wind doesn’t blow at all,

Break out the oars

Copyright 2017 © Live Future Ready | BBRTNA 25

What roles will bonuses play in the compensation scheme?

Copyright 2017 © Live Future Ready | BBRTNA 27

Gross Finance Unsuccessful

Average selling price Net revenue

Why? Because you need to know where you are headed

Copyright 2017 © Live Future Ready | BBRTNA 29

Copyright 2017 © Live Future Ready | BBRTNA 30

1. Identifying 5 Key Problems with Traditional Budgets

2. Overcoming These Problems by Moving Beyond Budgeting

3. Companies Who are Already Showing You How

4. Question and Answer Time

Copyright 2017 © Live Future Ready | BBRTNA 31

Copyright 2017 © Live Future Ready | BBRTNA 32

“The ‘budget’ was and is like a

Copyright 2017 © Live Future Ready | BBRTNA 33

Revenue 100% (20% )

Copyright 2017 © Live Future Ready | BBRTNA 34

DYNAMIC PERFORMANCE MANAGEMENT

LEVEL 4 ADAPTIVE SYSTEM