Professional Documents
Culture Documents
Forecasting
Agenda
Tool Landscape
Contacts
• Performance Management
is a top priority
• Improving financial
processes is a top concern
• Integration of Performance
and Risk Management is a
growing trend
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
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
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
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
Business Units
Create Detailed Plan
(e.g., driver based modeling,
approval based workflow,
scenario planning)
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
• Internally focused, historical • Forward looking, more market- • Changes made to current plan,
perspective, bottom-up plan based, externally-focused, top- process and philosophy
development down planning • Timely and complete targets
• Multiple lines of targets • Less overall effect • Reduced data elements
provided, but not formal firm • Few top-down targets
targets (e.g., revenue) …can be • Improved data collection tools
• Fewer iterations and less detail …but only if
• Multiple iterations of detailed replaced changes • Close linkage with other planning
churn at sites processes
with this...
budget preparation
• Fewer data lines sent to made...
• Detailed data required at all • Continuous planning
corporate
levels • Increased line management
• Tightly linked to strategy focus on quarterly forecasts vs.
• Excessive handoffs
• Improved decision support single event
• Spring and Fall plans are
separate activities • Planning horizon refocused to
looking beyond year-end (e.g.,
• Forecast focus is only on 15 months)
current year …otherwise...
• “Annual Event” reduced in the
• Fall plan process results in Fall so increases continuous
large spike in workloads planning mind-set
• Incompatible systems/software • Improved, uniform I/T tools and
used throughout 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
• 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
‒ Real time response to calculations, analytics with • Distributed architecture pushes real-time processing to
write-back capabilities, simple modeling the client which may compromise performance of large
cubes if client processing limitations exist
• Cognos Controller (for consolidation & related reporting)
• TM1 uses 64 bit technology and stores cube in memory
• Cognos Report Studio and Query Studio (ad hoc for quick response times
querying, production report templates)
• Integrate with Microsoft Excel, PowerPoint and Word
• Cognos PowerPlay/Analysis Studio (BI, analysis) through Cognos Office Connection
• Web or Excel interfaces
• Highly configurable and flexible
Jeff Torstenson
Senior Manager
Deloitte & Touche LLP
612-397-4647
jtorstenson@deloitte.com