Best practice in the budget and planning process

June 2017

Robert Lanzkron Management Consulting, PwC Israel

www.pwc.co.il

PwC Israel

Top 10 reasons why budget and planning stakeholders hate the process

1. It takes too @“!%?# long!

2. Doesn’t help me run my business

7. It involves too many

people

3. It’s out of date before it’s even finished

4. Too much game playing

5. Too many iterations

10. Doesn’t match the objectives to which I’m held

accountable

6. Cast in stone although business

conditions are always changing

9. By the time it’s done, I don’t even

recognize my numbers

8. Includes allocations that I can’t control

PwC Israel

Common Challenges in Planning

Strategically disconnected

• Most companies report either “no link” or a “weak link” between the strategy and budget processes…

• Whereas more than half reported that creating closer links between strategy and operations was one of their top two priorities.

Slow

• Completing an annual budget can take too many months (best practice is 28 days*)

Expensive

• Finance departments alone spend considerable corporate revenue on budget creation each year

• Yet less than 50% of the budget and forecasting process is spent on analysis, strategy development and target setting.

Unreliable

• Management and investors are routinely surprised by the variances between communicated expectations and results …

• No wonder if you have a high prevalence and dependency on spreadsheets for example.

*APQC 2016 survey: Cycle time in days to complete the budget

PwC Israel

What happens when the planning process is broken?

Inaccurate financial projections leading to

• PROFIT WARNINGS

• INACCURATE INFORMATION TO INVESTORS

• INABILITY TO RAISE FUNDING

Functional plans out of sync with business strategy

Poor customer service

Too much inventory – but never where or when it’s needed

Lost sales resulting in missed revenue goals

Inability to respond to changes in the market and new sales opportunities

Lack of financial insight to make effective decisions

Cash flow and/or working capital crisis

PwC Israel

Every business is different and we do not propose or support a one size fits all solution to planning and budgeting

3.0 3.5 5.55.04.5

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13

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4

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INDUSTRY

1

1 1

5

6

2

3

2

2

5

12

Industrials4Financial services3Healthcare2Technology1Retail

1,000+

200 – 1,000

50 – 200

1 – 50

1 Includes software / semiconductors / electronics / IT / analytics / cybersecurity / online marketing, 2 Includes biotechnology / medical devices / kuppot holim / pharma 3 Includes banking / insurance / investment advisory / fintech 4 Includes energy, chemicals & mining / industrial manufacturing / construction & engineering

Sample size is 80 companies

PACE OF PRODUCT CHANGE

S C

A L

E &

C O

M P

L E

X IT

Y

…there are common processes and principles that apply

PwC Israel

Commercial Function

Finance Function

Operations Function

Strategic planning and target setting process • Three to five years time horizon with clear alignment to the business strategy • Includes non financial and relative metrics • Targets set with clear guidelines on how business units work to the targets

Budget process

• Strategic, operational and financial plans are integrated • Driver based plan blended with bottom up • Integrated system used is focused on modelling and analysis

Forecast process

• Forecasting is event driven and therefore by exception • Is summarised and rolling beyond the fiscal year for key account lines • Is integrated with monthly performance reporting

Our view on the framework for Integrated Business Planning in Practice “Put simply it’s about improving performance by integrating the business plans, budgets, and forecasts, across functions and business units. ”

PwC Israel

How do we work with our clients to improve their planning process?

• Start with aligning on the purpose, use and value of the budget process

• Reduce and remove complexity

• Standardisation of process and systems

So why do we Plan, Budget and Forecast?

• To control costs?

• To forecast revenue?

• To set targets for the bonuses?

• To adjust direction?

• To influence behavior?

• To drive action?

• To beat the competition?

• To create value more effectively?

PwC Israel

Key characteristics of best practice processes

• Control the number of budget iterations developed

• Reduce the number of budget line items

• Flexibility modelling of scenarios based on differing business assumptions

• Standardize budgeting methods with the rest of the company and what senior management is expecting to see

• The link to strategy needs to be clear and clearly linked

• Base budgets on business drivers

• Align incentives and rewards to strategic objectives

• Link the annual planning process to rolling forecasts and management reporting

• Active engagement of the business in the budget process • Done by them and not to them, Controlled process and communication

• People are key • The right team – finance and business • Analytical capabilities • Big picture and the detail

PwC Israel

And what about systems…?

PwC Israel

Does this look familiar??

FINANCE MARKETING

SUPPLY CHAINSALES V1

V2 V22

Expensive IT solution

PwC Israel

Why does effective planning need more than Excel??

• Enabling trust and confidence in the data that informs business decision making

ONE version of the truth across ALL functions

• Enabling accumulation and analysis of huge amounts of data from different sources (e.g. ERP(s), ePoS, customers, consumers, market analysts, suppliers …)

BIG data

• Enabling a fast and reliable data-based assessment of different options taking into account a variety of inputs SCENARIO planning

• Enabling the collaboration between Finance, Commercial and Operations • Enabling visibility of the “so what?”

FINANCIAL evaluation

• Enabling transparency and accountability for performance • Enabling management of performance (“if it’s not tracked, it does not exist”)

Powerful and automated REPORTING

• Enabling trust and confidence in the process and the data • Enabling collaborative decision making with traceability of actions and resultsGovernance and CONTROL

• Enabling mobility and visibility; engaging the decision makers, removing the need for taking decisions “offline” because data is not available there and then

Real time access, anytime, ANYWHERE

PwC Israel

Key characteristics of best practice systems

• One system and one method of input and analysis

• One language: common assumptions, input, terminology – making it as easy as possible

• Single charts of accounts and consistent costing methodology

• Ensure it is readable and usable in the ERP – to understand, measure and reforecast

• Single system not requiring constant tailoring – ‘interfaces’ are waste by their very nature

PwC Israel

Thank you

Robert Lanzkron Senior Manager Management Consulting,PwC Israel Office: 972-3-7963809 Mobile: 972-54-4954194 Email: [email protected]

© 2017 Kesselman & Kesselman. All rights reserved.

In this document, "PwC Israel" refers to Kesselman & Kesselman, or, as the context requires, PricewaterhouseCoopers

Advisory Ltd. or PwC Trust Company (1971) Ltd., which are member firms of PricewaterhouseCoopers International

Limited, each member firm of which is a separate legal entity

This content is for general information purposes only, and should not be used as a substitute for consultation with

professional advisors