BUILDING SKILLS Future-proofing your career - Driving innovation in management accounting | March 2021 - Financial Management magazine
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Driving innovation in management accounting | March 2021 BUILDING SKILLS Future-proofing your career
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CONTENTS
8 26
26 BACK TO BASICS: A
TOOLSET TO SIMPLIFY
BUSINESS PROCESSES
Simplifying the complex
by asking straightforward
questions and using a
solution diagram can enable
informed decisions to be
taken with confidence.
30 ACTIVATING YOUR
NETWORK TO IMPROVE
YOUR JOB SEARCH
Here’s how to tap into your
professional network of
associates and friends to
5 GETTING SMART 12 AN INTRODUCTION TO 20 INSIGHTS FROM A power up your next career
ON SUPPLY CHAINS MICROSOFT POWER BI BOTTOM-UP SALES move.
ON THE COVER: IMAGE BY ARCHY13/ISTOCK; ON THIS PAGE: TOP, FROM LEFT: IMAGE BY ROY SCOTT/IKON IMAGES;
CIMA President Nick Meet the business AND PRICE VARIANCE
Jackson, FCMA, CGMA, intelligence software seen ANALYSIS 34 ADAPTING
says management as the next step after Excel. Follow step by step how a BOSS-WORKER
accountants should use comprehensive sales and RELATIONSHIPS IN THE
their considerable power at 18 OVERCOMING THE price variance analysis can PANDEMIC
the head of supply chains to TOP 3 NEGOTIATION help management improve Employees and managers
drive sustainable business. DILEMMAS business performance must work together
When to make an offer, across currencies. on communication
6 5 STEPS TO MORE when to collaborate, and more in a changed
VALUABLE FORECASTING and when to listen in work environment.
Ash Noah, CPA, FCMA, negotiations are challenges
CGMA, managing director– that can be overcome. 36 RENEWING PURPOSE
Learning, Education, TO DRIVE VALUE
IMAGE BY LISSART/ISTOCK; BOTTOM: IMAGE BY LUCADP/ISTOCK
and Development at the By returning to their “why”,
Association of International organisations can find new
Certified Professional ways to deliver value in a
Accountants, highlights tough economy.
how short-term forecasting
can be a value-creating 40 DELIVERING RESULTS
activity. THROUGH BUSINESS
PARTNERING IN THE
8 THE FINANCE PUBLIC UTILITIES
STRATEGIST: A NEW SECTOR
PARADIGM FOR A NEW A management accountant’s
WORLD strategic contribution to
Taking a forward-looking capital decision-making
view while sticking with at a public water and
fundamentals will ensure
finance offers value.
18 waste business in
Queensland, Australia.
FM-MAGAZINE.COM March 2021 I FM MAGAZINE I 3
44 COMMON INTERNAL 50 SEA CHANGE: HOW 58 INSTITUTE NEWS
CONTROL LAPSES THE NORTHERN SEA Get updates on issues
MADE WORSE BY ROUTE COULD AFFECT affecting the profession and
MANIPULATION GLOBAL SUPPLY CHAINS your membership.
A case study shows how Russia wants to open up an
employee fraud occurred Arctic shipping lane, but it 62 EGYPT’S MEGA
and how it could have may take years to fully break CAPITAL
been prevented. through the ice. Cairo is set to be replaced
48 EMPOWERING 54 THE UK-EU TRADE 56 by a new capital with
government buildings, an
A CULTURE OF DEAL: 3 IMPLICATIONS airport, and a tower that will
SPEAKING UP FOR FINANCE TEAMS 56 SEEING A MOUNTAIN be the tallest in Africa.
Creating effective channels Management accountants OF POTENTIAL
of communication can help should lead on cost An energy plant in
catch problems before they containment and work Copenhagen incorporates
become unmanageable. with commercial and an artificial ski slope and a
strategy teams to identify climbing wall in an example
Brexit opportunities. of dual-purpose design.
CIMA HONORARY OFFICERS United Kingdom
The Helicon, One South Place. London EC2M 2RB
Nick Jackson, FCMA, CGMA Paul Ash, FCMA, CGMA
Tel.: +44 (0)20 8849 2251
President, CIMA Deputy President, CIMA
Vice-Chair, Association board United States
Melanie Kanaka, FCMA, CGMA 220 Leigh Farm Road, Durham, NC 27707-8110
Amal Ratnayake, FCMA, CGMA Vice-President, CIMA Tel.: +1 919-402-4500
Immediate Past President, CIMA
www.aicpa-cima.com
www.fm-magazine.com Publisher: Kim Nilsen Associate Publisher: Karin DeMarco
(Kim.Nilsen@aicpa-cima.com) Associate Director, Business Development: Shreyas
CONTACT US
Managing Editor: Rocky S. Rosen Mecheri
Editorial inquiries: Assistant Managing Editor: Jeffrey Gilman Advertising Representative: Barbara Kates
fm-magazine@aicpa-cima.com Lead Manager, Magazine Production: Eric Olson
Editorial Director: Ken Tysiac
+1 919-402-4449 Digital Advertising Production Manager: Jason
Creative Director: Michael Schad Johnstone
Advertising inquiries: Reese
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Senior Editors: Drew Adamek, Neil Amato, Jeff Drew,
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To subscribe, contact: The contents of this publication are subject to worldwide copyright protection, and reproduction
in whole or in part, whether mechanical or electronic, is expressly forbidden without the prior
fm@c-cms.com written consent of the Association of International Certified Professional Accountants. For PLEASE RECYCLE
+44 01580 883844 permission to reprint FM magazine, email copyright-permissions@aicpa-cima.com. THIS MAGAZINE
A note from Andrew Harding, FCMA, CGMA, chief executive– work with global partners to transition to remote testing for the CGMA
Management Accounting at the Association of International Certified designation and opening CPA Exam access in new markets, to building
Professional Accountants: our influence with governments and regulators to continued investment
The combined strength of the AICPA and CIMA through the in improving our member and student experience — these are all a result
Association is allowing us to move forward on many fronts — 2020 proved of creating the Association. We have exciting plans as we move through
to be a significant proof point in this journey and how it is benefiting 2021. Look out for more evidence of the value AICPA & CIMA is delivering
members and students alike. From delivering the scale and power to as we focus our combined efforts to benefit you and the profession.
4 I FM MAGAZINE I March 2021
THE VIEW FROM THE PRESIDENT
NICK JACKSON, FCMA, CGMA
H
ow much do you know COVID-19 has dramatically
about every link of every exposed the weaknesses in global
supply chain that makes up supply chains, and business has
your business? Probably been forced to respond. Longer,
significantly more than if I’d efficiency-focused models have
asked this question a generation been superseded by those that are
ago. Formerly, supply chains — less exposed to the risk of
the back-office systems that disruption. Stakeholders, from
magically caused products to NGOs and governments to
appear — were hidden. Were consumers, are closely watching
consumers and customers how we respond to the pressures
interested in the process that on our cash flows. Unlike
produced the goods or services previously, there is now a great
they were buying? Some maybe, deal of awareness. Being at the
but not the majority. head of the supply chain, the
Sometime in the late 1980s and decision-makers, we have
early 1990s, that changed. Global
names such as Nike found
themselves battling the fallout
Getting smart on immense economic power, which
we can use to support sustainable
operations. We need to
from exposés of working
conditions in the factories that
supply chains interrogate each part of our
extended business, making
made their desirable trainers and informed decisions about whom
sportswear. I remember seeing ‘COVID-19 has dramatically we work with (and whom, in turn,
stickers on lampposts berating big they work with) and why. We need
name retailers for dubious labour exposed the weaknesses in global to be prepared to invest in these
practices: “Nice clothes made in
nasty sweatshops”. Civil society
supply chains, and business has relationships for the long term,
perhaps making them less
stepped up its interest in how the been forced to respond.’ transactional.
products we bought were Fortunately, it has never been
produced, and what had been in easier to improve visibility of
the background was now under the microscope. supply chains. For example, you can implement
Coordinated international campaigns to boycott internet of things-based technologies that will integrate
goods were a popular tool to force household names with your logistics solutions to provide end-to-end
to reconsider their operations. “track and trace” capabilities. Similarly, there are
That was decades ago, and you might think that mature tools that support more integrated and rapid
businesses would be much more alert at least to the scenario planning. These enable you to quickly
reputational risks that opaque supply chains present, understand the sensitivities of different elements of
if not the ethical consequences. However, supply your supply chain to different circumstances. They also
chain scandals keep appearing. The economic fallout allow you to test the impact of alternative decisions you
of COVID-19 may generate conditions that incentivise might take — such as how close to real time you can
companies to take risks with their business models. continue to operate your supplies.
Moreover, if the findings of a recent EY survey of Other actions you can take include reviewing
employees around the world — the Global Integrity contracts and meeting with the most strategic
Report 2020 — is indicative, it’s clear we have some suppliers.
way to go. It revealed a fifth (20%) of respondents Even without a serious global shock, taking a closer
believe that ethical business conduct will decrease KEEP IN TOUCH look at your supply chain in terms of its wider value as
following the COVID-19 pandemic. If we are serious Follow me well as its financial costs is an exercise in smart — and
about being responsible finance leaders, this should on Twitter: responsible — finance. It will safeguard the business’s
deeply concern us and be a call to action. @CIMA_President reputation, longevity, and bottom line.
FM-MAGAZINE.COM March 2021 I FM MAGAZINE I 5
5 steps to
more valuable
forecasting
By Ash Noah, CPA, FCMA, CGMA
L
ong-range forecasting is need for heightened responsiveness and enterprise, such as geo-positional,
strategic in nature, linking the imperative for rapid decision-making, weather, demographic, retail,
financial planning to strategy how can finance ensure that the time and economic, passenger, and traffic data,
and driving the determination effort expended on forecasting is more as proxies for other data that might
of capital allocation to effective and truly becomes a value- have been more reliable before the
value-creating activities. This article creating activity? Follow this five-step pandemic. The ability to leverage
addresses short-range forecasting, which approach: unstructured data, such as voice
traditionally has been for the purposes of 1. Set clear objectives. Increasing recordings of customer interactions or
business performance management. forecast frequency should align with customer sentiment expressed on
The COVID-19 pandemic has increased specific business purposes, eg, social media, can provide rich insights
businesses’ need for greater frequency of ensuring adequate production input and forward-looking estimates.
forecasting financial results and available for future sales, alignment of 5. Leverage automation and
monitoring key metrics. Production lines staffing to demand, etc. technology. Many finance functions
and the supply chains that feed them 2. Establish the right level of detail. have automated the forecasting
require increased monitoring to improve Use the objectives identified in step process. They’ve leveraged the
planning across all of an organisation’s one to determine the necessary availability of a significant volume of
functional areas. A poll conducted during amount of detail. Forecasting for the data and the technology to ingest,
the Association’s Agile Finance Reimagined purposes of cash liquidity planning process, digest, and model the
webcast series (available at tinyurl.com/ does not require a detailed forecast of outcomes to achieve on-demand or
y97rmpv7) found that 33% of the P&L by each line item, whereas continuous forecasting.
organisations are forecasting monthly, forecasting supply chain needs will Value is not created in the production
26% weekly, and 14% continuously. This require a detailed breakdown of of the forecast, but in the deployment of
has increased workload and stress across products and services. plans and actions that follow. To truly
all areas of the business, but more so on 3. Leverage enterprise systems and create value from a forecast, it needs to be
the FP&A function. data. Key drivers and activity data used to drive decisions that will change
It’s challenging to forecast in these required for forecasting reside in and improve business outcomes.
uncertain times. Established relationships various functional and operational
between underlying business drivers, and systems. Build data feeds to obtain this
assumptions that determine outcomes are information. A digitally connected
Ash Noah, CPA, FCMA, CGMA, is
no longer valid. This absence of historical enterprise enables the finance
managing director–Learning,
established trends, macroeconomic function to automate and make data
Education, and Development at the
uncertainty, and the constantly changing more accessible.
Association of International Certified
landscape have made forecasting 4. Leverage sources of rapid frequency
Professional Accountants.
significantly more challenging. Given the data. Use data sources beyond the
6 I FM MAGAZINE I March 2021
Your learning
starts here.
No matter where you are in your finance
career or what your learning style is, there’s
something for you at the CGMA Store.
Explore our extensive range of online CPD
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a wide range of practice areas.
Visit cpd.cimaglobal.com.
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The finance strategist:
A new paradigm
for a new world
IMAGE BY ROY SCOTT/IKON IMAGES
As the finance role becomes more
demanding, keep an eye on the
basics while focusing on staying
future-ready.
By David A. J. Axson
P
ayables, receivables, closing the books, creating
budgets, analysing variances — for decades
these have been the core of the accountant’s
job. But times are changing. While assuring the
integrity of financial statements remains job
one, it is becoming an increasingly smaller part of the
accountant’s role.
The combination of process redesign and automation
has reduced the core accounting workload by more than
50% over the last 20 years; further advances through
machine learning, robotic process automation, and
artificial intelligence will see the effort reduced even
further. The accountant’s role is changing from doing the
work to making sure the work is done correctly. However,
as rapidly as the productivity of core accounting
operations improves, the demands on finance are
increasing faster, especially during these uncertain and
volatile times.
Finance is being asked to expand its role in many
ways: add insight by combining market, financial, and
operational data; move from static budgets to dynamic,
driver-based rolling forecasts; and address risk,
uncertainty, and compliance, all while fully leveraging
available new technology. It’s a daunting mandate but
also an incredibly exciting one. Finance professionals are
increasingly at the heart of the strategic process: assessing
portfolio performance, modelling alternative investment
scenarios, and ensuring adequate cash and capital are on
hand to weather economic storms and invest in attractive
growth strategies.
What does it take to be an effective finance strategist?
Let’s review some of the main attributes:
Don’t forget job one
It is easy to get wrapped up in exciting stuff that now
appears on the finance agenda, but organisations still rely
primarily on finance to produce accurate financial
March 2021 I FM MAGAZINE I 9
statements. New technology and upgraded Being agile and responsive when that track the cost and availability of cash
processes are helping, but finance cannot events don’t go as expected is the hallmark and capital; the amount of time finance
overlook its core role. of not just a high-performing organisation professionals directly engage with
but also of a high-performing team. management on forward-looking
Adopt a future-oriented mindset Consider how many plans or budgets planning and resource allocation tasks;
Accounting means we are recording things correctly anticipated the COVID-19 the percent of finance information that
that have already happened. Strategy is a pandemic. Those that performed best provides advice on actions to be taken, not
forward-looking discipline. We care more were those that looked at their plans and just explanations of past variances; and
about the next quarter or year than the last forecasts and used them as a basis for finance quality measures that address
quarter or last year. Unlike the past, detail adjusting strategies, reprioritising audit quality, compliance and control
does not equal more accuracy, and things investments, and adjusting resource effectiveness, and process quality. The
don’t always add up or balance. Being able allocations to a new reality. These events focus on simple cost metrics is misplaced.
to pivot to a world of uncertainty and risk explain the increasing importance of Any CEO would spend more on finance for
requires a new paradigm that is tolerant of scenario planning and sensitivity analysis a 5% reduction in enterprise operating
ambiguity and able to weigh probabilities to finance professionals. The ability to costs, a 3% improvement in working
and risks. embrace unpredictability and model capital, and a one-step upgrade to the
alternative situations in advance equips company’s credit rating — all things a
Go from being descriptive to management with tools to help them high-performing finance team can deliver.
prescriptive navigate turbulent waters. The impact of these changes reflects a
Traditional accounting and financial radical realignment of where finance
reporting are overtly descriptive in nature. Focus on actions taken, not reports professionals spend their time.
They describe past events and maybe seek produced Instead of being mired in transaction
to explain them. For example, revenue was Historically, many finance processes were processing, accounting, internal controls,
below plan last quarter, and this was slow and manually intensive and required compliance, and reporting activities, a
driven by customers’ switching from multiple checks and balances to ensure finance strategist’s job starts when they
higher-priced to lower-priced offerings. A their accuracy. Closing the books took deliver the report or analysis. Strategists
finance strategist goes beyond answering days, reports required hours of careful spend time helping business leaders
the what happened and why did it happen manipulation and formatting, and understand the analysis, providing advice
questions; they focus on the future budgeting could consume six months or on alternative courses of action, and
implications: What can we do differently more. It was not uncommon to see office planning the outcome of the chosen
in the future? How do we mitigate lights in the accounting department actions. No matter how good the analysis
negative trends and accentuate positive burning long into the night during the or reporting that finance provides, it is
ones? close or budget season. Finance teams only as effective as the decisions that
were exhausted by the time reports were result.
Move beyond finance data delivered and budgets approved. The events of the past year have
The financial results of any business event For some, the combination of process increased the urgency for finance to pivot
are the last thing that happens. By the time simplification and automation has eased from bookkeeper to strategist. The good
anything is recorded in the financial some of the burden, but for many the news is that finance professionals have
statements, it is too late to do anything journey is far from complete. There is no the skills, passion, and energy to make the
about it. The good news is that over the reason why core accounting and finance change. They must be provided with the
last few years, we have gained access to costs should be more than 0.5% of any data, technology, tools, and leadership to
incredibly rich sets of new data that can company’s revenue. Current benchmarks truly fulfil their potential.
inform our view of future financial indicate the average remains around 1%. Those who make the shift will find
outcomes in the near and long term. Closing the books should take no more themselves in more challenging but
Market, customer, and operational data than three days and budgets no more than immeasurably more satisfying roles that
power almost all strategic finance models four weeks. open up the path to leadership positions
by connecting events and actions to throughout the organisation. ■
financial outcomes. Embrace new measures of finance
value
Being right is not always the goal Many of the benchmark metrics used by
This can be hard for someone with finance have barely changed in the last 30
David A. J. Axson is a consultant and
accounting training to accept, but as soon years, yet the finance function has
author and a retired partner from
as one looks towards the future, being changed beyond all recognition. The
Accenture, a co-founder of The Hackett
right is more about luck than skill. Our metrics in the previous paragraph are
Group, and former head of corporate
crystal ball simply isn’t good enough to typical of the cost and process
planning at Bank of America. To
predict the future accurately. We need to measurements that still predominate. It is
comment on this article or to suggest
develop forecasts that incorporate time to move on and adopt metrics that
an idea for another article, contact Neil
uncertainty by testing different embrace the enterprise value of finance,
Amato, an FM magazine senior editor,
assumptions and modelling how to not the enterprise cost of finance. This
at Neil.Amato@aicpa-cima.com.
respond in different situations. shift should put the focus on measures
10 I FM MAGAZINE I March 2021Learn anytime, anywhere. Get CPD on-demand with CGMA Essentials. Busy schedules don’t have to get in the way of your growth as a CGMA®. Subscribe to CGMA Essentials and grow your expertise by accessing hundreds of hand-picked CGMA content on-demand. Whether it’s just two videos a month or one hundred, CGMA Essentials gives you the freedom to decide how much learning you can commit to. Learn more at cimaglobal.com/CGMAEssentials. The Association of International Certified Professional Accountants, powering leaders in accounting and finance around the globe © 2020 Association of International Certified Professional Accountants.All rights reserved. 2005-01103
An introduction to
Microsoft
Power BI
M
Extract, transform, and icrosoft Power BI combines Power Query and PowerPivot
technology with a user-friendly charting and reporting interface
analyse data with business in an enterprise-friendly dashboard reporting/sharing
IMAGE BY IVANASTAR/ISTOCK
intelligence software that framework. Accountants can use Power BI to extract, transform,
and analyse data from a multitude of sources in real time.
connects with Excel. This is no trivial matter. Accountants are uniquely qualified to mine data
for business insights, but they usually spend much more time preparing
the data than undertaking the value-added analysis. A business intelligence
By Liam Bastick, FCMA, CGMA
tool such as Microsoft Power BI may help reverse that trend. That promises
to be a big deal as technological advances such as big data and 5G open the
12 I FM MAGAZINE I March 2021gates to a flood of real-time business
information. Power BI is far from being the
Power BI is far from being the only
business intelligence software available,
but it’s not as expensive as many of the
only business intelligence
other BI tools (SAP, SAS, and Tableau),
and it’s easily accessible as part of the
Microsoft ecosystem.
software available, but it’s
Most users can choose from three
Power BI options:
not as expensive as many
y Power BI Desktop is the primary tool
that you will use to get and transform
data, build calculations, and produce
of the other BI tools, and is
reports. This is what a financial
planning and analysis team might use easily accessible as part of
the Microsoft ecosystem.
to generate and manage the reporting
process. You do not even need to pay
for it — just download it for free from
either the Office Store (Windows 10) or
powerbi.com.
y Power BI Service is the cloud-based
service where you will typically
upload your data, run cloud-based
analytics tools, and share reports and
dashboards. You can use this to get
data as well, but you lose much of
the ability to transform and perform Selecting data source
calculations on such data. You will
need to sign up for this, as you will be
using services hosted on Microsoft’s
servers. You can choose between the
free version and a paid (“Pro”) version
— the key difference is that the latter
allows you to share your data with
others. For larger organisations
that see heavier usage, there is
an alternative Power BI Premium
product, too.
y Power BI Mobile is an application
on your mobile device or tablet
that allows you to view reports and
dashboards that you own or that are
shared with you. Reports that may be
viewed or accessed in the Power BI
Service will also be viewable in Power
BI on your mobile device. Again, you
need to sign in using your Power BI
Service account.
When to use Power BI
Let’s be honest, the first analytical
tool most accountants reach for on
a daily basis is good old Excel. Many by extracting data to create reports. this direct link in place, Power BI really
accountants still use it to produce You can find data in various forms simplifies your period-end procedures,
financial insights for managers and and from many sources: enterprise as it can automate the extraction from
C-level executives. However, when it data, cloud-based platforms (eg, different systems and combine them as
comes to creating reports and sharing Facebook, QuickBooks Online, and opposed to manually doing it yourself.
them throughout an organisation, Xero), and Excel spreadsheets, to name Simply press the Get Data button on
Power BI can take advantage of the hard but a few. Power BI lets you bring it all the Ribbon, as shown in the screenshot
work performed in Excel spreadsheets together in one place to visualise. With “Selecting Data Source”.
FM-MAGAZINE.COM March 2021 I FM MAGAZINE I 13Power BI’s online service While Power BI is much more flexible
than Excel when it comes to creating
allows you to share the results and sharing data visualisations, its
underlying query tools are mainly built
of your reports. into Excel, too. In Excel 2010 and Excel
2013, you can download the Power Query
add-in from the Microsoft website;
in Excel 2016/2019 and Office 365, the
Get & Transform feature is built into
the Data tab in the Ribbon, as shown
Excel path to Get & Transform data in the screenshot “Excel Path to Get &
Transform Data”.
Presently, the technology in Power BI
is more advanced: Any new features are
generally available in Power BI before
they are introduced to Excel. Excel is
more than 30 years old; Power BI, being
newer and designed for these sorts
of tasks, tends to be faster and more
efficient at getting and transforming
datasets.
Your initial conclusion might be that
you should use Power BI rather than
Excel. It’s not as simple as that, though:
y Excel is designed for ad hoc analysis.
The great thing about it is that it’s
powerful and flexible enough to do
what you want to do and relatively
easy to use. This is why so many of
us use it: It’s simple to put in place
manual processes and tweaks in
order to get our reports to look and
calculate exactly the way we want.
The problem is that we often rely on
this flexibility and end up locking
Power BI dashboards
14 I FM MAGAZINE I March 2021ourselves into undertaking tasks Publish to Power BI
manually (eg, copying and pasting,
copying formulas down columns and
across rows, updating dates, deleting
items, and re-sorting).
y Power BI is designed for
business-as-usual reporting —
quarterly, monthly, daily, real-time,
etc. It’s not so easy to perform ad
hoc calculations outside of the
“standard” reporting tools that you
have — you can do it, but it may
take longer than it would in Excel.
However, where Power BI shines is in
its ability to automate the process of
data cleansing and transformation,
and to set up consistently applied
calculations that span the entire Adding a Power BI tab in Teams
dataset, without the need to manually
adjust and tweak the formulas.
Further, Power BI’s online service
allows you to share the results
of your reports. You can simply
provide access to the live dataset to a
colleague, rather than email a file and
run the risk of having version control
issues.
Therefore, perhaps Power BI may
be more suitable for regular reporting
processes. Once the reports and
dashboards have been set up, it’s a case
of set-and-forget — the reports will
continue to be updated without further
input from users.
Such a set-up allows you to reduce
the amount of work that is performed
regularly, and report users can log in and
access their reports on demand, without
the need for manual intervention.
This could even be set up as part of
the budgeting process, where each
business unit saves its files in a common
location to be picked up by a Power BI
consolidation report.
However, if you require the data back
in Excel afterwards, or the calculations
may not be consistent each reporting
period, it’s generally faster to make the
change in Excel. It also allows you to
customise your calculations so they
apply only to certain rows or columns.
FM-MAGAZINE.COM March 2021 I FM MAGAZINE I 15Finally, it gives you more flexibility in Teams”. Select Power BI in the first Word to the wise
to highlight and flag which cells and screen and then the report source in the Power BI’s capabilities and use cases
tables might be works in progress rather second screen. are far too vast and varied to cover
than finalised. For example, transaction Since every application is connected in one article. You can’t do it in two
or financial modelling work, due to in the Microsoft ecosystem, sharing is either, but if you want more, check
the ever-changing nature of a deal, is extremely simple. out an online-only article that looks
arguably better to perform in Excel. Having emphasised how easy it is, it’s at the programming languages that
In summary, which to use? It’s the important to note that you may restrict underpin Power BI and how artificial
common sage piece of accounting access to data at the row level (record) intelligence really revs up Microsoft’s
advice: It depends. by employing row-level security, where business intelligence software.
the visibility of specific data is limited to You can access the article at
Dashboards and row-level security specific users. tinyurl.com/fm-power-bi-oct-2020. ■
When you build reports, you need to be This security feature allows you to set
able to share. Historically, this would be up rules using Data Analysis Expressions
undertaken by printing to PDF (say) and (DAX) filters that restrict users from
circulating the report. Power BI lets you seeing certain information (eg, different
share the same report but now with live divisional data, products and services, or Liam Bastick, FCMA, CGMA, FCA, is
data and interactivity to drill down into salaries). For example, for an Australian director of SumProduct, a global
the things that matter most. manager, we may set up a restriction that consultancy specialising in Excel
Dashboards may be shared and he or she may only view Australian data, training. He is also an Excel MVP (as
viewed through publishing to the Power as shown in the screenshot “Manage appointed by Microsoft) and author of
BI Service, as shown in the screenshot Roles for Security”. Introduction to Financial Modelling.
“Power BI Dashboards”. In this instance, anything that is Send ideas for future Excel-related
An Excel file may be published to a related back to the Geography table with articles to him at liam.bastick@
custom workspace in Power BI Service, a country name other than “Australia” sumproduct.com. To comment on this
too, as indicated in the screenshot will be excluded from the reports and article or to suggest an idea for
“Publish to Power BI”. dashboards that they are able to view. another article, contact Jeff Drew,
Power BI files can also be shared This way, you do not need to create an FM magazine senior editor, at
in Microsoft Teams, as shown in the myriad data tables, dashboards, and Jeff.Drew@aicpa-cima.com.
screenshots “Adding a Power BI Tab reports. Simple!
Manage roles for security
16 I FM MAGAZINE I March 2021Get more with a CIMAplus subscription. Exclusive for CIMA® members, CIMAplus allows you to purchase CPD in advance. Save time and money with access to resources worth hundreds of pounds to gain skills to support your day-to-day work. Your 12-month subscription includes: Three courses from the CGMA Store Three videos or webcasts from the CGMA Store Subscribe today at cimaglobal.com/cimaplus. © 2021 Association of International Certified Professional Accountants. All rights reserved. 2011-96017
Overcoming the
top 3 negotiation dilemmas
Skilful negotiators follow these key principles to achieve optimal results.
By Raju Venkataraman, FCMA, CGMA
W
hen and how to make an may increase the other side’s sense of When should we claim value (compete)
offer, when and how satisfaction by giving them opportunities to and when do we create value
much to collaborate or get you to lower your demands. Also, when (collaborate)? How much?
compete, and when and the other party lacks information, it is Creating value means enlarging, to the
how to listen or speak in possible they use your first offer to draw optimal extent possible, the total value to
negotiations are the top three dilemmas conclusions about the value of an item. be divided between the parties. Claiming
negotiators wrestle with from time to time. Your response to an extreme first offer value means making sure that the final
Skilful negotiators consider conflicting from the other party might go like this agreement generates an acceptable amount
thoughts, remind themselves of the key (refer to the assessment process outlined in of value for your side, and you leave
principles, and then go on to execute and the graphic “First Offer Strategies”): something for the other party.
achieve a majority of their goals. Creating new value improves both
Here are ways to resolve these dilemmas Thanks for sharing your first offer with parties’ outcomes. However, having created
and negotiate in any facet of business: us. We know your side has put thought new value, negotiators must still claim their
into this. share of the resulting larger pie. The
Should we make the first offer As you might imagine, we too spent primary tools to create value include:
(propose) or let the other party make time prior to today’s meeting on what y Building trust and sharing
the first offer (respond)? might meet our interests and, I am information.
I used to sit tight and wait in the belief the afraid, that represents a very different y Asking questions and listening well.
other party’s offer would shed light on their viewpoint on value than what you have y Disclosing information incrementally,
goals, preferences, and alternatives and offered. back and forth, with reciprocity. This
IMAGE BY LUCADP/ISTOCK
better equip me to handle the negotiation. Rather than zeroing in on a number minimises your own risks. If the other
Then I found experiments showing the this early, shall we discuss and agree on party is still reluctant to discuss, you
anchoring effect. It means the first offer can the various standards and can decide to hold back as well.
drop an anchor, impact the other party’s methodologies that might be y Focusing on the underlying interests
idea of the bargaining zone, and set the appropriate in arriving at the valuation of the parties. Why do they want what
tone for further exchange. that might work for both of us? Does they want? I’ve repeatedly (in varied
By making an aggressive first offer, you that sound reasonable? circumstances, in business and in life)
18 I FM MAGAZINE I March 2021First offer strategies
Yes, you should make the first offer. No, you should not make the first offer.
• Can set up a powerful anchor/baseline around which • By waiting, you can protect yourself from committing
further negotiations pivot. errors.
• Research shows strong correlation between the first • Belief that the first to make an offer loses.
offer and the final negotiation outcomes. • Allowing the other side to make the first offer gives
insight into their goals/preferences upfront.
When is this a good option? When is this a good option?
• When you want to take the initiative and set the tone for • If you are not familiar with the market or you think the
the discussions. other side has more information.
• If the initial assessment shows a wide separation • When you lack information about the real value of the
between the two sides on the issues under negotiation subject of the negotiation (both to yourself and the
for the first offer. other party).
What if the other party makes an extreme first offer with a view to anchor?
• Don’t feel obligated to promptly counteroffer. Diagnose their offer’s legitimacy and demonstrate why it is not acceptable.
• If the relationship is important, keep them engaged and maintain rapport even as you cast off the anchor.
• This may be the time to make a counteroffer that is nonpositional and backed with justification.
realised that when we dig beneath (say achieving specific profitability or y Be willing to outwait your opponent.
seemingly incompatible positions, we turnover targets). The purpose of the
can discover reconcilable underlying earnout is to bridge the valuation gap. Should we listen or should we talk?
interests and pave the way to resolve There are two things to be careful about Negotiation is not about talking. Successful
conflicts and create value. during the process of creating value: negotiators listen well and listen more than
y Negotiating multiple issues y As far as is possible, do not reveal your they talk.
simultaneously. Multiple issues reservation point (bottom line) since y Have a genuine interest in the other
allow for creative options to concede the other party has no incentive to person and their problems.
things that you do not value highly offer you anything beyond that. y Listen and ask good questions.
but are valued highly by the other side y Never precisely specify your trade-offs Experienced sales trainers have said
and vice-versa (called negotiating among issues, while being truthful that a good salesperson talks no more
tradeables). Say receiving early about discussing the relative than 30% of the sales process.
payment is important for the seller, importance of issues. y Listen not just for what is being said
while the buyer, who has a good cash To claim value in a negotiation, you use but also for what is left unsaid, and
flow, is more focused on lower price. competitive tactics to try to convince the what might be behind the words.
This is a chance to dovetail opposing other side: y Calm down any team member who
interests and create value. y Start high, ie, high initial demand (not talks too much and tries to fill in
y Making multiple package offers of absurdly high, though). silence.
equivalent value simultaneously. The y Concede slowly and make Training, such as role-playing, helps
other party’s response will help you progressively smaller concessions to people gain negotiation skills and strategies
understand how they value different signal increasing resistance. and acquire the right conceptual framework
elements of the offers. y Exaggerate the value of your and practice to conduct successful
y Leveraging the power of contingent concessions and minimise the value negotiations more consistently. ■
contracts. With a contingent of the other’s concessions.
contract, differences of opinion y Frame your terms of offer,
Raju Venkataraman, FCMA, CGMA, is a
about future events don’t have to highlighting what is in it for them.
negotiation skills trainer and
be bridged. They become the core y Set deadlines (that you intend to keep)
credentialed leadership and career
of the agreement. Parties bet on the and use decisive language to move
coach (PCC) based in Singapore,
future rather than argue about it. things forward.
serving clients worldwide. To comment
In an M&A deal, payment by way of y Research and estimate their best
on this article or to suggest an idea for
earnout is a contingent consideration alternative to a negotiated agreement
another article, contact Sabine Vollmer,
(a potential future payment) (BATNA) and reservation terms (also
an FM magazine senior editor, at
promised to the seller upon the called a walkaway point). These are
Sabine.Vollmer@aicpa-cima.com.
achievement of specific milestones not static and will keep evolving.
FM-MAGAZINE.COM March 2021 I FM MAGAZINE I 19Insights from a
bottom-up sales and
price variance analysis
F
or any well-managed company, a y What’s the indication under the six vital components that can be
comprehensive analysis and surface of the average price change analysed and calculated at the
profound understanding of its between the two periods? individual-customer level for a company
sales and price variance over y To what extent does a shift in with numerous customers embracing
time are critical. Driven by customer mix affect the average price different pricing structures. As shown in
multidimensional factors, these variances change? the graphic “Sales and Price Analysis
repeatedly perplex management teams and y How do you effectively adjust the Components”, the six components form
can derail the overall business performance. customer-specific pricing to optimise a hierarchy that includes sales variance,
A bottom-up sales and price analysis I the gain or to minimise the loss? average price variance, volume variance,
developed for a large global company to Unlike the traditional top-down analysis customer mix, foreign currency
help the leadership gain valuable insights model, the sales and price analysis employs exchange rate changes, and price
and facilitate the decision-making process a bottom-up approach to address the above increases/decreases.
is discussed step by step in this article. The concerns by first slicing the sales and price Let’s start with the sales variance and
analysis can be integrated into business data into layers and then drilling down to then dive into the price variance. The sales
intelligence reporting tools to render identify other drivers of the variances at a variance is simply the difference in the
accurate and effective insights. granular (bottom) level. These specifics values between the two periods, which
allow management to identify where the comes from the impact of volume and
Key management concerns significant impacts occur and make optimal average price variances.
The sales and price analysis is designed to decisions. If you are building the sales and The volume impact is relatively
address the most important management price analysis model for a multinational intuitive for most analysts. However,
IMAGE BY STUDIOM1/ISTOCK
concerns: company, it would make sense to apply the explaining the change in average price
y What’s the root cause of the sales standard approach across the board after between the two periods can be an
increase or decrease between two grouping the sales by region. intricate job, especially when changes
periods? from dynamic aspects of customer mix
y Which factors primarily drive the The components of the sales and shift, foreign currency exchange rates, and
sales up or down? Is the uptrend or price analysis price increases/decreases are mixed
downtrend going to persist? The sales and price analysis incorporates together. More on this later.
20 I FM MAGAZINE I March 2021Follow step by step how a comprehensive sales
and price variance analysis can help management
improve business performance across currencies.
By Ying Liu, CPA/ABV
Sales variance analysis Sales and price analysis components
As illustrated, the sales and price analysis
breaks sales variance into two parts: Customer mix
volume variance and average price
variance. To quantify the volume variance
impact, we use the Q1 price to multiply
the volume difference between Q2 and Q1.
The purpose is to isolate the volume
change impact to the sales from the Average price
FX rate changes
average price change impact. This variance
calculation allows us to explain how
significant the sales changes are that have
originated from the volume increases or
decreases. A similar idea is used to
quantify the average price variance Price increases/
Sales variance
impact. decreases
Let’s use a numerical example to
demonstrate how this works. (See the
graphic “Sales Details for Q1 and Q2”.)
Our fictitious company, Taylor
Brothers, sells one product to five
customers under different contracts at Volume variance
various prices. Its customers, at a range
of volume-based discount rates that
result in price fluctuations, purchase
different quantities of the products in
Q1 and Q2:
FM-MAGAZINE.COM March 2021 I FM MAGAZINE I 21Sales details for Q1 and Q2
Quarter 1 Quarter 2
Customers Price Volume Sales Price Volume Document Currency
A $320 500 $160,000 $350 200 $70,000
B $280 1,000 $280,000 $300 800 $240,000
C $400 600 $240,000 $450 200 $90,000
D $500 300 $150,000 $550 225 $123,750
E $270 2,000 $540,000 $280 1,800 $504,000
Total 4,400 $1,370,000 3,225 $1,027,750
Customer mix impact between Q1 and Q2
Quarter 1 Quarter 2
Difference between Customer
Volume @ Q2 Volume and the Mix Impact
Customers Price Volume Mix Price Volume Mix Q1 Mix Volume at Q1 Mix
A $320 500 11% $350 200 6% 366 -166 –$1,438
B $280 1,000 23% $300 800 25% 733 67 –$2,103
C $400 600 14% $450 200 6% 440 -240 –$21,253
D $500 300 7% $550 225 7% 220 5 $965
E $270 2,000 45% $280 1,800 56% 1,466 334 –$13,819
Average Price $311 $319
Sales variance = Q2 sales – Q1 sales = impact on sales in the amount of $23,602. addressing the impact from customer mix
$1,027,750 – $1,370,000 = –$342,250 In such a way, we simply identify how shift:
changes in volume and average price
Sales decreased by $342,250 in Q2 contribute to the sales variance. Section 1: Customer mix shift impact
compared with Q1. As we just discussed, Apparently, the volume decrease has a To offer the flexibility to quantify the
the total sales variance can be better greater effect leading the total sales down magnitude from an individual customer,
understood after calculating the average in Q2. the sales and price analysis calculates the
price variance impact and the volume customer mix impact at the customer
variance impact. Here is how we codify: Average price variance analysis level. The sales and price analysis
The above average price variance impact calculates the difference in volume for
Total sales variance = Volume variance doesn’t help management understand the each customer from the Q2 volume and
impact + Average price variance impact = root causes that explain the variance at a the volume as if each customer would
Q1 average price × (Q2 total volume – more granular level. The exact impacts purchase at the Q1 mix in Q2. And then we
Q1 total volume) + (Q2 average price – from three components — customer mix take the difference of the customer’s Q1
Q1 average price) × Q2 volume shift, foreign currency exchange rate, and price and Q1 average price to multiply the
price changes — need to be thoroughly calculated difference in volume:
In our example, volume variance examined one by one at a specific level. (In
impact is ($1,370,000 ÷ 4,400) × (3,225 – contrast to reconciling amounts produced Customer mix impact =
4,400) = −$365,852, which indicates the by the top-down approach to fill gaps in (Customer’s Q1 price – Q1 average price)
volume decreases had an adverse impact the equation, the calculated impacts of × (Customer’s Q2 volume – Customer’s
on sales in the amount of $365,852. these three components play important Q2 volume at Q1 mix)
Meanwhile, average price variance impact roles in explaining the underlying root
is ([$1,027,750 ÷ 3,225] – [$1,370,000 ÷ causes.) Customer C has the most adverse
4,400]) × 3,225 = $23,602, which indicates For the same company, let’s continue impact from customer mix shift. (See the
the increased average price had a positive our average price variance analysis by graphic “Customer Mix Impact Between
22 I FM MAGAZINE I March 2021FX rate impact between Q1 and Q2
Quarter 1 Quarter 2
Document Document FX
Customers Price Volume Currency FX Rate Price Volume Currency FX Rate Impact
A $320 500 EUR 0.9 $350 200 EUR 0.85 $3,889
B $280 1,000 EUR 0.9 $300 800 EUR 0.85 $13,333
C $400 600 EUR 0.9 $450 200 EUR 0.85 $5,000
D $500 300 EUR 0.9 $550 225 EUR 0.85 $6,875
E $270 2,000 EUR 0.9 $280 1,800 EUR 0.85 $28,000
Price change impact between Q1 and Q2
Quarter 1 Quarter 2
Document Document Price
Customers Price Volume Currency FX Rate Price Volume Currency FX Rate Change
Impact
A $320 500 EUR 0.9 $350 200 EUR 0.85 $2,111
B $280 1,000 EUR 0.9 $300 800 EUR 0.85 $2,667
C $400 600 EUR 0.9 $450 200 EUR 0.85 $5,000
D $500 300 EUR 0.9 $550 225 EUR 0.85 $4,375
E $270 2,000 EUR 0.9 $280 1,800 EUR 0.85 –$10,000
Q1 and Q2”.) With this information, the to explain the foreign currency exchange Price change impact = ([Q2 price × Q2 FX
sales team should immediately start rate impact on sales for each customer. In rate ÷ Q1 FX rate] – Q1 price) × Q2 volume
investigations to initiate an action plan our example, one single foreign currency
and gain customer C’s business back. This is used for simplification. The same This analysis uncovered the real price
differentiates the sales and price analysis approach can be applied to transactions change without other interference. In our
from the traditional top-down approach with multiple currencies: example, customer E has an adverse price
analysis by showing the impact of each impact with a relatively higher dollar-
customer. That helps management Foreign currency exchange rate impact = denominated price in Q2. (See the graphic
pinpoint the issues and engage the sales (Customer’s Q2 price in USD – “Price Change Impact Between Q1 and Q2”.)
team to follow up with specific [Customer’s Q2 price in USD × Q2 FX rate Without this analysis, management could
customers. ÷ Q1 FX rate]) × Q2 volume miss the falling price, which is blended
with and covered by the positive FX effect.
Section 2: FX rate impact Our analysis shows that our company This information helps management
Now, let’s take a look at the second benefited from the sales transactions in optimise pricing decisions.
component: foreign currency exchange euros due to a weaker dollar (the FX rates
rate impact. Our example illustrates a are more favourable in Q2 than in Q1). (See Two-dimensional analysis
US-based multinational with transactions the graphic “FX Rate Impact Between Q1 At this point, we have discussed the sales
in euros; therefore, it is required to convert and Q2”.) and price analysis model and how to
to US dollars for reporting purposes. calculate all three bottom-level
Embedded in the average price variance, Section 3: Price change impact components that serve as drivers of the
the impact of the foreign currency Let’s proceed to calculate the price change average price variance at the customer
exchange rate must be quantified and impact by using the difference of the level. Putting all results together, as you
isolated from the price change effect. converted Q2 price at the Q1 FX rate and Q1 can see in the graphic “Bottom-Level
Again, by performing the sales and price price to multiply Q2 volume. The formula Overall Impact”, we focus on impacts from
analysis at the customer level, we are able is as follows: both the individual customers and the
FM-MAGAZINE.COM March 2021 I FM MAGAZINE I 23Bottom-level overall impact Customer mix impact per unit =
Customer mix impact ÷ Q2 volume
Customer Mix Price Change Average FX impact per unit = FX impact ÷
Customers Impact FX Impact Impact Price Impact Q2 volume
A –$1,438 $3,889 $2,111 $4,562 Price change impact per unit =
Price change impact ÷ Q2 volume
B –$2,103 $13,333 $2,667 $13,897
C –$21,253 $5,000 $5,000 –$11,253 The impact on the average price is
D $965 $6,875 $4,375 $12,215 driven by the three components —
customer mix, FX, and price change. (See
E –$13,819 $28,000 -$10,000 $4,181 the graphic “Waterfall Analysis for Impact
Total –$37,648 $57,097 $4,153 $23,602 of Average Price”.) Weighted in between the
two periods’ average prices, these drivers
visually explain how significant they are.
In our example, the favourable FX rates
help offset the adverse impact from
Waterfall analysis for impact of average price
customer mix shift.
To forecast next quarter, if the FX rates
325
are not sustainable, management should
not expect the increase in average price to
320 $1.3 $318.7 continue. In this case, management needs
$17.7
to have an action plan to improve the
315
customer mix.
$311.4 –$11.7
Use modern visualisation tools to
310 make the sales and price analysis
more impactful
305 Leadership should review the sales and
price analysis at least every quarter to
facilitate the intelligent business decision
300 and effective planning processes. To make
this more interesting, the sales and price
295 analysis can be integrated into other
modern data visualisation tools, such as
Power BI and Tableau. Management can
290
dynamically track the business
Q1 average Customer FX impact Price change Q2 average performance using the sales and price
price mix impact impact price analysis model by exploring the results in
multidimensional and interactive charts
on these platforms. n
underlying drivers. To integrate this into your business
The sales and price analysis establishes intelligence report, you can add a waterfall Resources
a robust two-dimensional model to analysis to help management visualise the
explain the variance thoroughly. average price change and its underlying CGMA tool
Step by step vertically, we broke down drivers. For management at a company Financial Risk Management: Market
the average price impact ($23,602) by with hundreds and thousands of Risk Tools and Techniques,
customers to show each customer’s customers wanting to know what tinyurl.com/yyo7jcaf
contribution to the sales variance caused happened to average price, you can convert
by average price changes. Management the results to unit price level by dividing
can comfortably pinpoint that customer C the component impacts by the Q2 volume
Ying Liu, CPA/ABV, MBA, is
has a negative impact. in the graphic “Price Change Impact
manager–Corporate Development at
Horizontally, the analysis provides the between Q1 and Q2”:
the Chemours Company, a global
insights into each driver (ie, customer mix,
chemistry company based in the US.
FX, and price change) and drills down to
To comment on this article or to
individual customers. Information
suggest an idea for another article,
extracted from both dimensions can
contact Sabine Vollmer, an FM
greatly help management understand that
magazine senior editor, at
customer C’s negative impact was
Sabine.Vollmer@aicpa-cima.com.
primarily driven by customer mix shift.
24 I FM MAGAZINE I March 2021You can also read
