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Fp&a operating model
- 1. FP&A Operating Model Business Planning & Analysis 2011 October 21, 2011 Jim Robertson © 2011 James A. Robertson, Jr.
- 2. Agenda FP&A Design Considerations Case #1 : Creating an FP&A Function Case #2: Driving FP&A Towards World Class Making It Happen 2
- 3. FP&A Has an Almost Unlimited Reach Strategic Planning/Execution New Business Support • Coordinating/leading the process • Pricing analysis • Developing business plans to achieve strategic objectives • Sales administration • Modeling financial outcomes of strategic initiatives • Contract review • Identifying KPI’s which link to the strategy • Business cases – KPI Tracking and Reporting • Product development modeling – Identifying initiatives driving KPI’s and linking to budgets Financial Planning API Between Data and Information • Annual Planning – driver based • Single and multi-quarter forecasting • Tools, methodologies, templates Managing/Coordinating/Reporting Business Performance • Monthly/Quarterly/Annual Business Reviews Financial Analysis • Investor Relations Support • Return on Investment – e.g. projects, IT, marketing • Reporting/analysis packages for internal and external • Profitability analysis – market, customer, product, business customers • Variance analysis • Capital expenditures Compensation • Incentive compensation design/measurement for annual Other Areas and long term plans • MA& support – due diligence, integration planning • Sales compensation plans and administration • Product development modeling How do you decide your priorities?
- 4. FP&A Design Considerations Company Processes and Systems • External • What is currently working/not working well • Industry Maturity • How strong is IT group • Competitiveness • Availability of and access to transactional and • Smart or Dumb Competitors operational data • Rate of Change • ERP • Customers • Planning software • Customer needs • Current reporting in place • Products • Technology • Ownership structure and FP&A Team expectations • Current Team • Internal • Strengths, weaknesses • Where is company in its life cycle • Ability/Interest to stretch/grow • How do leaders make decisions • Organization • Approach to accountability • Where does FP&A report • Like/Dislike of process • Centralized/Decentralized • Where are pain points • Relationship with Accounting • How predictable is the business
- 5. There Will Be Some Pain Involved!
- 6. Plan for FP&A! • Every Enterprise is unique •There is no one way to get from to • What is certain is that you will not end up where you wanted to be how you thought you would get there. •Need to flex and adjust during the voyage “Which road do I take?" "Where do you want to go?" "I don't know," Alice answered. "Then, said the cat, it doesn't matter.” 6
- 7. Agenda FP&A Design Considerations Case #1 : Creating an FP&A Function Case #2: Driving FP&A Towards World Class Making It Happen 7
- 8. Assessment - 1 • Strategic Plan – Developed March – June • Lots of thought, people below leadership team not clear how they contribute to the company’s • Leadership team has not seen the strategy, which makes alignment difficult • No process in place to cascade strategy through the company or measure performance against the strategy. • Annual Plan – Developed July – September • Finalized 3 months after Strategic Plan with major variances. • Result of negotiation and ultimately “these are your numbers.” – Linkages to strategic plan are inconsistent. – Minimal focus on how corporate supports the businesses. • No feedback loops between corporate support and businesses after first submission. • Forecasts – Provided monthly to the end of the current quarter. – Limited accountability for changing/missing forecast. – Focus is “are you going to make your number.” Limited visibility into forecast internal or external drivers of financial results. 8
- 9. Assessment - 2 • Monthly Operating Reviews – Happen 3-4 weeks after prior month, focus on “what happened” vs. Plan. – Lack of emphasis on applying lessons learned or discussion of where business is heading. – No discussion of corporate support performance. • Compensation – Incentive compensation paid based on hitting plan numbers. • FP&A Team – One new dedicated resource, primarily overlay function on Finance & Accounting Team. • FP&A Processes – Some standard assumptions provided but not required. – How plan is put together is up to each group to decide. – Focus on consolidation and rollup, not analysis. • FP&A Systems – Intensely manual, Excel only. 9
- 10. Internal Perceptions We lack of information about where we are And… We have almost no visibility into the future So we don’t discuss the future. Instead… We focus on what’s happened The situation is compounded by the fact that… We don’t communicate well And… Our current process and structure adds little value: As a result… PEOPLE WANT HELP 10
- 11. External Perceptions - 2 •“The budgeting process at most companies has to be the most ineffective practice in management. It sucks the energy, time, fun, and big dreams out of an organization. It hides opportunity and stunts growth. It brings out the most unproductive behaviors in an organization, from sandbagging to settling for mediocrity. Most companies use budgeting as the backbone of their management systems. And the right budgeting process can actually change how a company functions – and reinventing the annual ritual makes winning so much easier, you just can’t afford not to try.” Jack Welch, Winning “If a train wreck happens, it’s interesting to go back and report why it happened. The key, though, is to try to do things that avoid the train wreck altogether. This is where the real (finance) value is: anticipating how the environment is going to change and making sure the business is properly positioned.” Gary Crittendon, CFO Citigroup (also Sears Roebuck, Monsanto, American Express) •“Planning ought to help run the business, to inform, to focus on longer term strategic business opportunities, how to forecast and achieve objectives -- not how to meet an annual plan done 6 months ago.” Steve Player, Director, Beyond Budgeting Round Table 11
- 12. FP&A Mission and Goals FP&A Mission Help the company become the world’s leading provider of electrical and communications services and systems through effective financial and business planning, resource allocation and management of business performance, both short term and long term. Key Goals (1-3 years) • Continually improve FP&A team, processes, and systems towards world class performance. • Enable a better understanding of where the business is heading • Become a valued business partner. • Help company become more strategy focused by better linking and reporting business and financial plans to strategic goals • Ensure that resource allocation is driven by strategy and optimizes performance across the entire business portfolio. 12
- 13. FP&A Year 1 Strategy • Begin to improve FP&A capabilities • Identify operational drivers/KPI’s and create visibility into the future • Become a valued business partner with the group VP’s and corporate functional leaders • Support the business in tracking execution of strategy 13
- 14. FP&A Year 1 Strategy • Begin to improve our FP&A capabilities – Recruit the team – Build relationships – Create forecasting tools using Excel – Define the future vision for FP&A (process, tools, integration into broader mgmt. processes) – Begin to execute the vision • Identify operational drivers/KPI’s and create visibility into the future – Understand business performance and impact on financials – Identify key operational drivers/KPI’s • External • Internal – Implement prototype, manual dashboards to be automated after KPIs are validated – Integrate KPI’s into the planning, forecasting, and MOR process • Become a valued business partner with the group VP’s and corporate functional leaders – Provide insightful and actionable business analysis • Work with groups to help identify opportunities for revenue growth and cost savings – Create processes which speed up decision making (Flawless Execution – Plan/Brief/Execute/Debrief) • Redesign reporting (board, MOR, monthly package) to be more forward looking, insightful, and action-oriented – Knowledge Management: Get data to the people who need it in a timely and efficient way • KPI’s and financial information • Benchmarking, economy, market, competitor trends – Help other corporate teams achieve their 09 objectives • Support the business in tracking execution of strategy – Clarify and translate the strategy into operational terms so that strategic objectives are clear and precise enough to be understood, communicated, executed against and measured. – Provide “early warning” on the successes and failures of IES’ strategy. • Create quarterly strategic reviews 14
- 15. FP&A Organization CFO VP FP&A CAO VP, Finance &Accounting Group VP Manager, Business Analysis Commercial VP, Finance Open Group VP Manager, Business Analysis Industrial & Residential VP, Finance Open Group VP Manager, Corporate Planning Key VP, Finance Open General Mgr Financial Analyst, Business Analysis Sr. Financial Analyst, Corp. Planning Director, Finance Filled Open 15
- 16. Agenda FP&A Design Considerations Case #1 : Creating an FP&A Function Case #2: Driving FP&A Towards World Class Making It Happen 16
- 17. Assessment - 1 – Clearly defined strategy, operating objectives, – Clearly defined BU objectives – Established driver-based financial planning and forecast process – Gaps exist: • Corporate targets based on Wall Street expectations – No ability to know whether the company is committing right resources to the right investment opportunities • BU targets based on run rates – Lack quantitative basis to allocate resources between BU’s • No direct linkage between BU objectives and financial plans • No business planning process – No executive visibility to programs/projects – No roll up, consolidation of programs/projects – How do you know proposed programs/projects support the strategy and fit the budget • Lack of a Performance Management System to track non-financial plans to actuals • BU’s currently investing in processes and systems that are not scalable – Will drive redundant capital and operating expenses 17 – Ability to manage projects varies widely across the company and within BU’s
- 18. Assessment - 2 What are the factors impacting What must we do in the future to address these the company today/near future? factors successfully? Develop the “right” strategy and then clearly define and communicate it to the organization • Growth imperative • Corporate-wide measures which define success • Integrated business planning • Business diversification Have the right financial & business intelligence • “One version of the truth” • Increasingly complex business/strategy • Relevant & timely information • Common decision support tools • Need for continued leverage from the business model Integrate the business and leverage synergies • Common business language • Integrated business planning • Execution risk • Standards and business rules • Business process focus • Increased competitive penalties for lack • Accountability model of cross-business integration Execute the strategy effectively • Expanding definition and requirements • Allocate resources to the right things of business controls and corporate • Link operations and financial performance governance (business risk) • Tightly manage performance against our strategic goals • Effectively and efficiently implement program and projects • Implement the strategy with any organization structure 13
- 19. Corporate Planning & Performance Management Mission and Goals Organizational Mission … Enable the company to achieve its strategic and business goals through effective business planning, strategic resource allocation and management of business performance Key Operating Principles & Goals (1-3 years) … Enable the company to become more strategy driven by better linking operational planning, budgeting and performance management to the company’s strategic goals Broaden the definition of business performance beyond near-term financial results vs. plan Longer term, ensure that accountabilities and incentives are effectively linked to strategic goal performance Ensure that company financial resource allocation (capital, operating expense) is driven by company strategy and optimizes corporate performance across the entire portfolio of business/organizational units Institute processes, information and tools to encourage business integration, collaboration and synergies 14
- 20. Corporate Planning & Performance Management Process - “To-Be” Future View Strategic Planning Business Planning Environmental Business Plan Scan Addendums (August-September) • Operating model Strategic Plan Business Plans Gap Closing Business Plans (October) (3 year) (3 year) (3 year) (July) Business Plans (3 year) (3 year) • Financials External • Strategic Goals •Performance Measure Targets Expectations • Financials Today • BU Goals • BU Level Initiatives • BU Financials Budget •Corporate Strategies •BU Level Initiatives With Resources (1 year by month) • Corp. Performance Targets (VPM measures) • BU Performance Targets (VPM measures) • Strategic Resource Allocation Performance (October/ Monthly Reporting Executive Report Card November) Package/Binder Strategy Session (April-May) •Actual vs. plan, plan vs. plan • Performance Measures (VPM) VPM Reports • Financials • Issues for Decision Corporate Rolling Forecast Operating Business Update (4 quarters (April, July, Reviews (Quarterly) by quarter) (April, July, October) October) •State of the Business • BU by BU (April, July, Oct.) • First 2 Quarters - detailed • Key Decisions • Agenda: • Last 2 Quarters - higher level -Corporate Performance Report Card - BU Management Summary Exists today, minor or no changes required Performance -BU Performance Review - BU Initiative Review Exists today, some changes required New activity Management - BU Financial Review 18
- 21. Corporate Planning & Performance Management Process - “To-Be” Future View Strategic Planning Environmental Business Scan Planning Strategic Plan (3 year) (July) Recommended Improvements … External Refine the company strategy to further clarify company strategic goals and • Strategic Goals define how these goals will be achieved (specific initiatives, performance Expectations • Financials Today goals, timing, capabilities required, accountabilities, etc.) • BU Level Initiatives •Corporate Strategies Establish corporate targets and accountability for VPM strategic performance • Corp. Performance Targets (VPM measures) measures linked to company strategic goals • Strategic Resource Allocation Perform a high-level financial resource allocation/commitment to strategic priorities over the planning period Executive (April-May) Strategy Session What Do We Get? Further clarification of company strategic goals and how these goals will be achieved Strategic performance goals & timing Performance targets for strategic measures Capabilities required Corporate strategies to achieve strategic goals Performance Clearer accountabilities for strategy execution Strategic resource allocation Management What Is the Business Benefit? Strategy is further “translated” and “operationalized” Better ability to monitor strategy execution Exists today, minor or no changes required Cross-company accountability for achievement of the strategic goals Exists today, some changes required New activity 15
- 22. Corporate Planning & Performance Management – Functional Organization Senior Vice President Corporate Planning & Performance Management Planning (+1 FTE) Finance & Business (+2 FTEs?) Performance (+2 FTEs) Intelligence Management Business Business Performance Management Modeling Management Systems • Model Development, • Systems Requirements • VPM Administration Maintenance & Integration • Systems Strategy • Business Analysis • System Maintenance/Upgrades • Performance Review Process (TM1, Hyperion, VPM, VBIS, • Business Rules & Standards Project Mgt., Profitability) Planning & Program Reporting Forecasting Management •Reporting Standards • Project Management • Planning Process • Common Business Language Processes and Tools • Budget Administration • Standardized Reporting Business Capital Process Management Excellence • Capital Program Administration • Business Process Improvement • Business Case Review/Approval • Best Practice Benchmarking
- 23. Agenda FP&A Design Considerations Case #1 : Creating an FP&A Function Case #2: Driving FP&A Towards World Class Making It Happen 23
- 24. D x V x S x A > Resistance to Change • Dissatisfaction with Status Quo – Burning issue helps • Vision of Future State – Somebody has to know what a better world looks like and how to move an organization there – Right tools and processes in the right place at the right time • Status of 1st Steps towards change – Something has started • Ability to Change – Planning Team - process and change management skills – Planning group as the vanguard of the revolutionary movement • Make it look evolutionary, not revolutionary • Incognito if needed – Company – how used is it to change? – Top Mgmt support – great if it’s there, but you can structure an approach which includes winning their confidence by demonstrating how planning helps makes better decisions. 24
- 25. Concluding Thoughts • Organizing Theme: Planning helps people make better decisions – at all levels of an organization • Integrated process makes sure nothing (well, as little as possible) falls between the cracks – Strategic Plan (3+ years) Business Plan (1 year) Budget (1 year) • Focusing upstream drives simplicity downstream – Eliminate multiple budget iterations which strip away ownership and linkages • Tools can help, but introducing or using a tool at the wrong time will wreak havoc • The world is not your oyster – Understand scope of influence and ability to change • Plan for planning, continue to adapt to changing situations • [email protected] 25