Budgeting, Forecasting, and Planning In Uncertain Times

Budgeting, planning and forecasting are critical management tasks that not only impact the future success of an organization, but can threaten its very survival if done badly.

Yet in spite of their importance, the speed and complexity of today’s business environment has caused a rapid decrease in the planning time horizon. As a consequence, the traditional planning processes have become unsuitable for most organization’s needs.

In this book, students will find new, original insights, including:

• 7 planning models that every organization needs to plan and manage performance
• 6 ways in which performance can be viewed
• A planning framework based on best management practices that can cope with an unpredictable business environment
• The application of technology to planning and latest developments in systems
• Results of the survey conducted for the book on the state of planning in organizations

Michael Coveney has more than 35 years of experience in the financial analytic software industry, where he specialized in helping enterprise combine “best management practices” with technology to improve the efficiency and effectiveness of their performance management processes. In recent years he has focused on conducting management workshops aimed at bringing senior executives and their management teams together around the topic of managing corporate performance and the role that technology can play.
His energetic style and extensive experience has led him to become a regular speaker at many international events, a course leader with the Antwerp Management School, and the author of many articles and books including his latest Strategy to the Max published by FSN. He also has a blog (theCPMblog.com) where he discusses the last development and observations in performance management.

Gary Cokins is an internationally recognized expert, speaker and author in advanced cost management and performance improvement systems. He is the founder of Analytics-Based Performance Management LLC at garycokins.com.  Gary received his BS degree in Industrial Engineering/Operations Research from Cornell University and his MBA from Northwestern University’s Kellogg School of Management. Gary began his career with Deloitte Consulting. Next with KPMG Peat Marwick, Gary was trained on ABC by Harvard Business School professors Robert S. Kaplan and Robin Cooper. Gary headed the National Cost Management Consulting Services for Electronic Data Systems (EDS)/A.T. Kearney and from 1996 to 2012 was a Principal Consultant with SAS, a global leader in business intelligence and analytics software. Gary’s thought leadership in this arena is broadly recognized and his books and articles are widely read.

INTRODUCTION 1

SECTION 1: BACKGROUND TO THE PLANNING FRAMEWORK 5

1 PLANNING FUNDAMENTALS 7

What is Planning? 7

Components of Planning 8

Planning in Today’s Business Environment 10

The Increasing Speed of Business and Globalisation 10

The Increasing Complexity of Business 11

The Decreasing Planning Time Horizon 11

Planning Challenges 12

Dissatisfaction With the Planning Process 12

Issues With the Planning Culture 13

Need for a Holistic Approach 13

Need for Better Planning Technologies 13

Planning Principles 13

Principle 1: Planning Connects Inputs and Outputs and is Therefore Directly Related to Organisational Activities 14

Principle 2: Planning is About Maintaining a Shared Understanding of the Economics of a Business 14

Principle 3: Planning is About Shifting Focus From the Past and Onto the Future 15

Principle 4: Planning is About Aligning Budgets With Strategy to Achieve Corporate Objectives 16

Principle 5: Planning is a Continuous Process 16

Principle 6: Planning is a Learning Process 17

Objectives of the Planning Framework 17

2 PLANNING METHODS AND METHODOLOGIES 21

Planning: Who, What, When, and How 21

Planning Within a Sole Trader 21

Planning as a Small Manufacturer 22

Planning as a Listed Company 23

Planning as an International Group 23

The Rise of Management Frameworks and Methodologies 24

Popular Management Methodologies 25

Budgetary Control 25

Quality Management Movement 26

Lean Management 27

Balanced Scorecard 28

Beyond Budgeting 29

Planning and Success 30

Planning Process Maturity 31

Planning Objectives 31

Planning and Forecasting Maturity Levels 33

Basic Planning 33

Financial Integration 34

Partial Integration 35

Matrix Planning 35

Dynamic Planning 36

3 PLANNING TECHNOLOGIES 39

Supporting the Decision-Making Process 39

Planning Technologies: The Spread Sheet 40

Two or Three Dimensional 41

Cell Meaning 41

Limited Business View 42

Single User 42

Lack of Workflow Capabilities 43

Planning Technologies: Multi-Dimensional Databases 43

Multi-Dimensional 44

Business Hierarchies 45

Name-Based Rules 45

Multi-User, Role-Based Security 46

Unlimited Size 46

Financial Intelligence 46

Spread Sheet Access 47

Multi-Dimensional System Issues 47

Comprehension 47

Complexity 48

Data Uniformity 48

Effort and Price 49

Modelling Tools 49

SECTION 2: BUSINESS PLANNING FRAMEWORK 53

4 BUSINESS PLANNING FRAMEWORK 55

Logical Overview of the Framework 55

Framework Components 56

Operating Activity Model (OAM) 56

Cash Funding Model (CFM) 59

Detailed History Models (DHM) 59

Target Setting Model (TSM) 61

Detailed Forecasting Model (DFM) 61

Optimise Resources Model (ORM) 61

Performance Measures Model (PMM) 62

Strategy Improvement Model (SIM) 62

Management Processes 64

Knowledge 65

Reporting From the Planning Framework 66

Case Study Overview 66

About the Case Study Organisation 66

Company Structure 67

Company Strategy 68

Versions and Other Information 68

5 OPERATIONAL ACTIVITY MODEL 69

Overview 69

Model Structure 69

Measurement Types and Relationships 70

Step 1: Define High-Level Objectives 71

Step 2: Define Core Business Processes and Assumptions 72

Step 3: Identify Core Business Process Activities 73

Step 4: Identify Support Activity Measures 79

Step 5: Define Profit and Loss and Other Financial Measures 80

Putting the Model Together 85

Measures and Attributes 85

Model Dimensions 86

Model Rules 86

Reporting From the OAM 87

Departmental Outcomes, Activity, and Resources 87

Outcome Versus Activity 89

Outcome Versus Assumptions and Resources 90

6 CASH FUNDING MODEL 91

Model Purpose 91

Defining the Model 92

Model Content 92

Additional Data Requirements Within the OAM 93

Identifying Cash Payment Profiles Within the OAM 93

Defining Payment Profiles Within the CFM 94

Other Cash Measures and Rules 95

Reporting From the CFM 97

Displaying Cash Requirements by Department 97

Evaluating Sources of Cash 99

Scenario Analysis 100

7 DETAILED HISTORY AND PERFORMANCE MEASURES MODELS 101

Reporting Past and Future Performance 101

Relevance 101

Context 102

Data Issues 103

Reporting Performance From the Planning Framework 104

Identifying DHMs 105

Case Study—DHMs 106

Sales Analysis 106

HR 107

General Expenses 108

Defining the PMM 109

PMM Content 109

PMM Business Dimensions 110

Case Study Measures for XYZ, Inc. 110

Reporting From the PMM 112

8 PREDICT AND OPTIMISE PLANNING MODELS 113

Predicting the Future 113

Target Setting Model (TSM) 115

Driver-Based Modelling 115

TSM Content for XYZ, Inc. 116

Using the TSM 120

Detailed Forecast Model (DFM) 121

Overview 121

Developing the DFM 121

Linking the DFM to the OAM 123

Optimise Resources Model (ORM) 123

Overview 123

Case Study Example 124

9 STRATEGY IMPROVEMENT MODEL 127

Responding to Change 127

Model Focus 128

Link to the OAM and CFM 129

Defining SIM Content 130

Linking SIM Content to Management Methodologies 131

Planning Capabilities 132

Communicate Goals 132

Propose and Validate Projects 133

Select and Approve Projects 133

Monitor and Forecast Projects 133

Assess Alternatives 134

10 THE PLANNING AND MONITORING PROCESS 135

Defining Processes 135

Components of a Process 135

Performance Management Processes and Tasks 137

Strategic Planning 138

Purpose 138

Tasks: Inputs, Outputs, and Sequence 138

People and Planning Models 139

Tactical Planning 140

Purpose 140

Tasks: Inputs, Outputs, and Sequence 141

People and Planning Models 141

Financial Planning 142

Purpose 142

Tasks: Inputs, Outputs, and Sequence 142

Forecasting 143

Purpose 143

Tasks: Inputs, Outputs, and Sequence 144

Management Reporting 145

Purpose 145

Tasks: Inputs, Outputs, and Sequence 145

Moving Toward Continuous Planning 145

SECTION 3: IMPLEMENTING A PLANNING FRAMEWORK 147

11 LATEST DEVELOPMENTS IN PLANNING AND ANALYTICS TECHNOLOGIES 149

Corporate Performance Management (CPM) Applications 149

The Rise of Business Analytics 150

The Next Competitive Edge 150

BI Versus Analytics Versus Decisions 151

Business Analytics, Big Data, and Decision Management 151

Predictive Business Analytics: The Next New Wave 152

Game-Changer Wave: Automated Decision-Based Management 153

Application Integration 153

Cloud-Based Applications 154

In-Memory Chip Technology 155

12 IMPLEMENTING THE PLANNING FRAMEWORK 157

Planning and the Role of the Chief Executive 157

Entrenched Beliefs Concerning Performance 157

Organisational Culture 158

The Unwritten Rules of Budgeting 158

Rewarding Bad Behaviour 159

Failure to Execute 159

Implementing Change 159

Agree on the Role of Planning 160

Model Existing Processes 160

Establish Improvement Themes 161

Plan- and Resource-Specific Change Programmes 161

Monitor Implementation 161

Use Technology to Support Change 162

Continually Develop the Planning Models Within the Framework 162

APPENDIX I: CGMA BUDGET AND PLANNING SURVEY RESULTS 165

APPENDIX II: REQUIREMENTS OF A PLANNING SYSTEM 213

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