BEST PRACTICE IN THE BUDGET AND PLANNING PROCESS - JUNE 2017 ROBERT LANZKRON MANAGEMENT CONSULTING, PWC ISRAEL
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www.pwc.co.il Best practice in the budget and planning process June 2017 Robert Lanzkron Management Consulting, PwC Israel
Top 10 reasons why budget and planning
stakeholders hate the process
1. It takes too 2. Doesn’t
@“!%?# long! help me run 3. It’s out of
my business date before it’s
even finished
5. Too many
iterations 6. Cast in stone
7. It involves
although business
4. Too much too many
conditions are always
game playing people
changing
9. By the time it’s
done, I don’t even
8. Includes recognize my 10. Doesn’t match
allocations that numbers the objectives to
I can’t control which I’m held
accountable
PwC IsraelCommon 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?
Functional plans out of sync with business strategy
Too much inventory – but never where or when it’s needed
Cash flow and/or working capital crisis
Poor customer service
Inability to respond to changes in the market and new sales
opportunities
Lost sales resulting in missed revenue goals
Lack of financial insight to make effective decisions
Inaccurate financial projections leading to
• PROFIT WARNINGS
• INACCURATE INFORMATION TO INVESTORS
PwC Israel
• INABILITY TO RAISE FUNDINGEvery business is different and we do not propose
or support a one size fits all solution to planning
and budgeting
4.5
1,000+4.0 1 1 2 2 1
& COMPLEXITY
3.5
# EMPLOYEES
200 –
1,000 3.0 5 9 3 5
2.5
50 – 200
2.0 4 13 5 1 6
SCALE
1 – 50 1.0 6 12 2 2
0.5
0.5 1.0 1.5 Technology
2.0 1 2.5 Healthcare
3.0 2 3.5 Financial
4.0 4.5 Industrials
5.0 4 5.5
Retail
services3
PACE OF PRODUCT
INDUSTRY CHANGE
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
…there are common processes and principles that apply
PwC IsraelOur 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. ”
Commercial Finance Operations
Function Function 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
PwC IsraelHow do we work with our clients to improve their
planning process?
So why do we Plan, Budget and Forecast?
• Start with aligning on the
purpose, use and value of • To control costs?
the budget process
• To forecast revenue?
• To set targets for the bonuses?
• Reduce and remove
complexity • To adjust direction?
• To influence behavior?
• Standardisation of process
and systems • To drive action?
• To beat the competition?
• To create value more effectively?
PwC IsraelKey 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 IsraelAnd what about systems…? PwC Israel
Does this look familiar??
FINANCE MARKETING
Expensive IT
solution
V1
SALES V2 SUPPLY CHAIN
PwC Israel
V22Why does effective planning need more than
Excel??
ONE version of the truth • Enabling trust and confidence in the data that informs business
across ALL functions decision making
• Enabling accumulation and analysis of huge amounts of data from different
BIG data sources (e.g. ERP(s), ePoS, customers, consumers, market analysts, suppliers
…)
• Enabling a fast and reliable data-based assessment of different options taking
SCENARIO planning into account a variety of inputs
• Enabling the collaboration between Finance, Commercial and Operations
FINANCIAL evaluation • Enabling visibility of the “so what?”
Powerful and automated • Enabling transparency and accountability for performance
REPORTING • Enabling management of performance (“if it’s not tracked, it does not exist”)
• Enabling trust and confidence in the process and the data
Governance and CONTROL • Enabling collaborative decision making with traceability of actions and results
Real time access, anytime, • Enabling mobility and visibility; engaging the decision makers, removing the
ANYWHERE need for taking decisions “offline” because data is not available there and then
PwC IsraelKey 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 IsraelThank you
Robert Lanzkron
Senior Manager
Management Consulting,PwC Israel
Office: 972-3-7963809
Mobile: 972-54-4954194
Email: robert.Lanzkron@il.pwc.com
© 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
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