More efficient planning with advanced budgeting

Transcription

1 More efficient planning with advanced budgeting How simplified processes and the right IT support can improve corporate planning Better decisions. Better business.

2 CONTENTS 1. Introduction 4 2. Management summary 4 3. The authors 5 4. Status quo: inefficient processes and 6 insufficient IT support for planning 5. Advanced Budgeting in theory 8 6. Technical implementation 9 7. Summary Editors 12

3 4 Whitepaper: More efficient planning with Advanced Budgeting Introduction Planning is a crucial instrument for active management control. In a February 2014 study by BARC and ICV, 63% of those surveyed said that this issue was growing increasingly important in their company. Despite this established situation, surveys regularly show that there is a fundamental dissatisfaction with the planning process. Taking into consideration the importance of this and the estimated resource requirements for it, the following question was raised: What is causing this dissatisfaction and what are companies doing about it? This whitepaper aims to look at where this dissatisfaction is coming from. Then we will explain how the Advanced Budgeting principle developed by Horváth & Partners can resolve the problems behind this situation and show how the BOARD toolkit can offer the best conditions to implement this method through IT. Management Summary Planning is an important instrument for shaping and controlling the future development of a company. Planning processes often consume lots of time and other resources. Efficiency is improved using a more top-down approach with an up-front target setting process. Avoiding unnecessary details removes a misleading semblance of precision and reduces costs. Special planning software supports modern planning. Planning and simulation functionalities, a flexible data model, a link with reporting and workflow support are more effective than using Excel-based planning processes.

4 Whitepaper: More efficient planning with Advanced Budgeting 5 The authors Bastian Borkenhagen is Senior Project Manager at Horváth & Partners Competence Center Finance & Controlling. In recent years, he has worked on a large number of projects to redesign and implement planning processes in medium-sized enterprises as well as in large corporations. Daniel Borghs is a consultant for Business Intelligence and Corporate Performance Management solutions at BOARD Germany. He regularly implements customised planning and reporting solutions with the BOARD toolkit in European companies of all sizes, and works closely with clients and corporate consultancy firms such as Horváth & Partners.

5 6 Whitepaper: More efficient planning with Advanced Budgeting Status quo: inefficient processes and insufficient IT support for planning Current cross-sector studies have revealed an array of planning problems. For example, 49% of those surveyed in The Planning Survey 14 saw long-winded planning coordination processes and high planning costs as a concern more than for any other problem (BARC, p 21). Horváth & Partners came to the same conclusion in their 2012 planning study: They identified, as the issue greatest in need of optimisation, the costs involved in the planning process. Spending less time on planning/implementing planning more quickly came up just behind in second place. Others points raised in the surveys included a lack of simulations/ scenarios and inadequate data quality (Horváth & Partners 2013, p 5). That fact that these surveys raise the same problems independently of each other leads us to the conclusion that the latter are very wide-spread concerns. This suspicion is backed up by project experience by Horváth & Partners and BOARD Germany. If then problems with planning are the same across sectors, are the reasons for them the same? A look at both studies shows the following typical planning practices: Inefficient planning process: 1. Bottom-up planning and mixed (i.e. top-down/bottom-up) planning with several iterations 2. Unclear or overlapping responsibilities and a lack of clarity in the approach to controlling can lead to double planning and time-intensive planning coordination processes 3. Intense negotiations, or budget gaming, following a lack of target-setting when planning 4. Insufficient focus on the essentials, a high degree of detail in the planning process Insufficient IT support for planning: 1. A lack of process support 2. Planning process depicted via several software solutions and/or spreadsheets, resulting in manual data consolidation using Microsoft Excel 3. Poor integration of the actual and planned figures 4. Manual planned data generation, insufficient use of (standard) planning functionalities It is quite apparent that the cause for the severe problems is directly connected to these planning practices. Often a very detailed mixed planning process is carried out, which means that it is iterative and potentially results in a lot of coordination rounds. Consequently, the time taken for planning is long and the resulting cost is high. At the same time, insufficient use of suitable software is another problem area. Microsoft Excel is a very widely used tool, and adds a considerable level of complexity: it involves time inputting data manually, and increases the incidence of error, partly because of data from various sources being manually brought together.

6 Whitepaper: More efficient planning with Advanced Budgeting 7 A mixed bottom-up/ top-down planning approach continues to be the most widespread planning practise 68% Mixed Planning Mainly bottom-up 17% Mainly top-down 15% Fig. 1: Preferred planning process (Horváth & Partners planning study) In most cases, planning is carried out at a high level of detail 11% 43% Significantly more aggregated than actual reporting data Somewhat more aggregated than reporting actuals Same as reporting actuals 46% Fig. 2: Level of detail in operational planning (Horváth & Partners planning study)

7 8 Whitepaper: More efficient planning with Advanced Budgeting Advanced Budgeting in theory The Advanced Budgeting approach sustainably reduces time and money spent on planning. At the same time, the quality of control information is improved. Modern planning, according to Horvath & Partners, comprises three columns: 1. Front-loading based on driver models 2. Increased efficiency, especially through IT support 3. Dynamisation, i.e. connecting planning and forecasting Typical planning process Targets with lack of commitment Consolidation & review Bottom-up planning by decentral entities Adjustment, reduction, buffer Advanced Budgeting Strategy process Benchmarking Forecast Target Setting and mid-term planning Efficient detail planning Fig. 3: Front-loading as a central column of modern (top-down) planning Frontloading means shifting the focus of planning: away from work-intensive mixed planning with several coordination rounds, towards a more aggregated target setting / mid-term plan that is signed off by the management and followed by a shorter planning process by the various divisions (see Fig. 3). Top-down planning is characterised by ambitious, but realistic targets. These targets are not set arbitrarily, but are derived from a driver-based simulation. Using a business-model specific driver model, the effects of important business drivers as well as strategic measures are simulated before they are incorporated into the planning process as management guidelines. The company strategy, current performance as a forecast, the level of ambition from investors and internal and external company comparisons of each of the divisions form the basis for deriving these factors. This process has two benefits: 1. The planning process is shortened, since intensive coordination meetings take place at the start of the process, based on aggregated data. 2. The company strategy and external factors are consistently operationalised and fixed into operational planning.

8 Whitepaper: More efficient planning with Advanced Budgeting 9 The details required for operational controlling and cost accounting are planned based on binding targets and fixed assumptions. When planning out these details, a whole range of approaches for reducing expenditure is available: the efficient generation of figures from the corresponding planning functionalities of the tool through to the lack of need for individual details. Planning based on aggregated planning cost items or on product groups, or similar, are conceivable. Technical implementation Requirements The participation of various divisions within the company means that the point of view changes constantly, and company data is viewed in varying levels of detail. The areas of data used vary according to the role of the user, just as the level of detail varies. The principal condition for profitable and comprehensive technical implementation is a flexible and highly efficient planning system that contains a lot of company data, and manages it during the planning process. It must be possible to extensively influence this data and update it, if need be, at short notice. The planning system must also be available to employees for tasks other than recording planning data. During the planning process, both reports on the existing planning status, and on previous data units must be available. In this way, the processes and results can be meaningfully monitored. Spreadsheet-based solutions lack flexibility. This leads to more manual work for data acquisition and processing. Furthermore, this process is very susceptible to errors. To circumvent these problems, a planning solution is required whereby the necessary data can be downloaded via an interface from the company system and made available in the planning application. In addition, the planning solution must be accessible by all planners based on the single point of truth principle via a single data storage unit that has a central point of access for all those involved in the process. Since Advanced Budgeting entails planning and analysis at different levels of aggregation, a multidimensional database is suited to this. Based on sector specifics and differences in culture and organisation between companies, there is no standardised Advanced Budgeting application. For a solution to be practical, it must be perfectly tailored to a specific company and its particularities. This concerns both operations and strategic planning, which are reproduced in a general overall planning process, including, ideally, a unified planning solution, and which mesh seamlessly with each other. Some flexibility in the data model for planning and the possibility of adjusting the planning workflow are also fundamental conditions. Thanks to its toolkit principle, BOARD brings exactly the level of adaptability and flexibility to the table required by this approach. Since it also meets the technical conditions, it is very well-suited for portraying integrated planning systems using the all-in-one approach.

9 10 Whitepaper: More efficient planning with Advanced Budgeting Implementation in BOARD The BOARD example application for Advanced Budgeting implements the set requirements as follows: The production data of the planning company is downloaded directly from the company s system (e.g. SAP ERP/BW) and can be replicated any time without manual intervention. Planning data and application can be accessed from a central location by all planners. Thanks to centrally located storage, at any point in time during the planning process, all participants have access to the same data truth. BOARD, as a programming-free Corporate Performance Management solution, also offers the possibility of revising or refining the developed planning workflows in the budgeting process or adjusting them to changes that take place within the company. A BOARD Advanced Budgeting solution offers, as it now stands, the possibility of accurately reproducing the process as described by Horváth & Partners. This is achieved by creating a driver and measure-based set of target variables in a two-tier planning process and to then incorporating this into the detailed planning. (1) Live simulation of the company s KPIs, including related information (2) Adjustment of relevant influencing variables (drivers) (3) Inclusion/exclusion of planned measures in the scenario (4) Graphic representation of the breakdown of EBITDA from the basic scenarios (1) and planned measures (3) (5) Save/reset buttpns for the simulation (6) Link to the measures input screen (7) Transfer of the created scenario into the planning by the various departments

10 Whitepaper: More efficient planning with Advanced Budgeting 11 First of all, influences (summarised under measures ) from the investment planning, strategic measures, efficiency measures and opportunities/risks sections are defined. To do this, the effects of each measure are planned per planning position and organisational unit. Once measure planning has been completed, BOARD Advanced Budgeting is initialised with costs and receipts from a previous period and depicted along a company specific KPI tree (1). In the lower half of the application screen (2) the consequences of the effects of various company drivers (such as the rate of returns, material costs and market volumes on company success) can be simulated live. A change may be made to the variable via the individual influence variables (drivers). Each change has a direct effect on the variables shown on the KPI tree. In the measures section (3) the measures planned in the first part can be inserted and removed individually, which in turn has an effect on the remainder of the elements on the screen. The individual measures can be selected in isolation from the rest of the planning process and shown along the driver tree. The section (4) shows the selected measures and the basic simulation across the planning horizon. Using the Planning button (7), the active scenarios can be transferred to the planning workflow. Then regular sales planning sessions usually take place, followed by, for example, capacity, product and cost planning sessions. Summary Planning is one of the core processes of controlling. It involves many resources, both in controlling and in the various departments. At the same time, planning is a crucial instrument for operationalising strategy and management guidelines, and frequently serves as the basis for company controlling. With the Advanced Budgeting approach by Horváth & Partners, planning can be undertaken in a much more efficient manner. Advanced Budgeting can be structured into three main pilars: front-loading, increased efficiency and dynamisation. In addition to the fundamental planning methodology, adequate utilisation of automation potential using IT support plays a key role. BOARD is a Corporate Performance Management solution that thoroughly supports the Advanced Budgeting approach. This includes both the underlying method of frontloading, the planning process, and the provision of an integrated solution for data analysis and reporting. The combination of best practice planning and professional tool support form the basis of modern planning.

11 12 Horváth & Partners Management Consultants Horváth & Partners are independent, international management consultants with over 600 highly qualified employees. Founded in 1981 and headquartered in Stuttgart, Germany, we have offices at locations in Germany, Austria, Hungary, Romania, Switzerland, Saudi Arabia and the United Arab Emirates. Moreover, Horváth & Partners are a proud member of the Cordence Worldwide global management consulting partnership, which strengthens our ability to undertake consulting projects in important economic regions of the world with the highest professional expertise and precise knowledge of local circumstances. Our core competences lie in the fields of Corporate Performance Management and Performance Optimization both for the entire company and for the business and functional areas of Strategy, Innovation, Organization, Sales, Operations, Purchasing, Controlling, Finance and IT. Horváth & Partners stand for project results which create sustainable benefit, which is why we accompany our clients through the entire process from developing the business concept through to anchoring via integration into processes and systems. Contacts: Horváth & Partner GmbH Phoenixbau Königstr Stuttgart Tel: info@horvath-partners.com BOARD International BOARD International is a global provider of Business Intelligence and Performance Management software. Founded in 1994, BOARD has enabled over 3,000 companies worldwide to improve the effectiveness of their management decision making processes, unifying BI and CPM in a single integrated environment. BOARD provides a seamless solution for the support, control and management of core processes such as: Reporting and Business Analytics Budgeting, Planning & Forecasting Profitability Modelling and Optimisation Simulation and What-if Analysis Scorecarding and Strategy Management Financial Consolidation Thanks to its programming-free toolkit approach global enterprises like Acer, DHL, GSK, Mitsubishi, NEC, Puma rapidly deployed BI and CPM applications in a fraction of the time and cost associated with traditional solutions. Headquartered in Switzerland, BOARD International has branches in US, UK, Germany, Italy, Spain, France, Benelux, UAE, Singapore, Australia, India, Japan, China, Mexico, Argentina and a worldwide network of distributors and certified partners. Contacts: BOARD International Piazza Bernasconi 5, Palazzo Mercurio 6830 Chiasso, Switzerland Tel: info@board.com Amsterdam, Austin, Barcelona, Boston, Buenos Aires, Chiasso, Dubai, Frankfurt, Geneva, Hong Kong, Lima, London, Madrid, Melbourne, Mexico City, Milan, Mumbai, Munich, Paris, Rome, Singapore, Sydney, Tokyo