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1BA 003--SPRING 2000
Punitive Budgets• Budgets usually mean spending
constraints• “Financial Plan” is more
appropriate Revenue goals Spending support plan
• Standard element of overall financial mgt.
2BA 003--SPRING 2000
Driving the Complete Planning Process
• Also known as “Integrated Planning”
• Defining the process• Timetable• The planning environment• Planning for Operating Results
3BA 003--SPRING 2000
The Integrated Planning Process
SP $P
MBO
PARTICIPATION
INTEGRATION
COMMITMENT
4BA 003--SPRING 2000
Financial Planning: Setting the Scene
• Emphasize Use as Management Tool
• Focus on Reality• Focus on Teamwork• New Priorities Selected• Reinforce No Gamesmanship• Pump the Organization Up!• Eliminate the “B” Word
5BA 003--SPRING 2000
Remember the F.A.T. Factor
• Future in Direction• Action in Orientation• Trackable in Design
6BA 003--SPRING 2000
Role of the CEO
• Sets the Tone• Leads All Group Meetings• May Delegate but Not Abdicate• Supports Planning Urgency• Can Make or Break the Process
7BA 003--SPRING 2000
Top-down--Bottom-up Debate
• Classic Delimma• Strength and Weaknesses:
Both Ways
8BA 003--SPRING 2000
Top-down• Strengths
Speed Assured Results Cost Effective
• Weaknesses Gamesmanship Loss of Morale Loss of Commitment Ineffective Decisions Lack of Accountability
9BA 003--SPRING 2000
Bottom-up• Strengths
Participative Creates Ownership Creates Commitment Fosters KTT Better Decision Making
• Weaknesses Time Consuming Possible TMT Override Some Morale Issues
10BA 003--SPRING 2000
Soft Side of Financial Planning
• People Issues• Forced Numbers = Unrealistic Results• Unrealistic Goals = Games• Poor Incentive Comp. Plans = Inaccurate
and/or Ill-advised Action• Focus on Human Resource Value• Motivated Employees Create Incredible
Results• Expect Baggage and Some Discontent
11BA 003--SPRING 2000
Simplified Plan Schedule
ACTION RESPONSIBILITY DUE DATE
1. KICK OFF MEETINGCEO, CFO, MGRS -12
2. PRELIM SALES CEO, MKTG -11
3. MACRO-SCENARIO CEO, CFO, STAFF -10
4. PLAN PACKAGE FINANCE -9-MACRO-SCENARIO
-BASELINE ANALYSIS-ACTUALS-SCHEDULES A, B & C
12BA 003--SPRING 2000
Simplified Plan Schedule-II
ACTION RESPONSIBILITY DUE DATE
5. FINAL REVENUE CEO, MKTG -8
6. MFG RESPONSE MFG -4
7. INPUT #1 ALL -4 REVIEW #1 STAFF -4
8. ITERATIONS #2-4 ALL -4 TO -1 FINAL REVIEW STAFF/BOARD -1
9. PUBLICATION STAFF/FINANCE 0
13BA 003--SPRING 2000
Kick-off Meeting• CEO Driven• Corporate Tone Reinforced• M/S and Values Discussed• Key Issues and Strategies Reviewed• Integration Changes Discussed• Calendar Presented• Major Assumptions Discussed• Major Attribution Algorithms
Discussed
14BA 003--SPRING 2000
Preliminary Sales
• CEO-VP Sales/Marketing Driven• Negotiated Level of
Achievement• Several Weeks in Process• Compiled from Multiple
Sources
15BA 003--SPRING 2000
Revenue Consideration• Backlog• Direct Customer Contact• Strategic Plan• Product Development and Timing• Capacity• Historic Trends• Competitive Reaction
16BA 003--SPRING 2000
Macro-Scenario ModelFinancial Plan
ABC COMPANYSTRATEGIC PLAN MACRO-SCENARIO FY 1996
Q196 Q296 Q396 Q496 1996$ % $ % $ % $ % $ %
SALES 10 100 20 100 30 100 40 100 100 100COGS 5 50 10 50 15 50 20 50 50 50GM 5 50 10 50 15 50 20 50 50 50R & D 1 10 2 10 3 10 4 10 10 10SALES 2 15 3 15 4 15 6 15 15 15G & A 1 5 1 5 1 5 2 5 5 5OP. EXPS 4 30 6 30 8 30 12 30 30 30PRE-TAX 1 20 4 20 7 20 8 20 20 20
17BA 003--SPRING 2000
Some Financial Planning “Adders”
• Baseline Spending• Zero-Based Spending• Productivity Improvement
Plans
18BA 003--SPRING 2000
Baseline Spending Plan• Comparison with Last Year’s
Spending• Only Salary Changes Allowed• No Change in Discretionary
Spending• One Time Items Eliminated• No New Headcount or Capital
Equipment
19BA 003--SPRING 2000
Zero-based Spending
• Authorized $ Reset to Zero• Each Expenditure is Justified• Recommended Every 4-5 Years• Time Consuming• Potentially Confrontational
20BA 003--SPRING 2000
Productivity Improvement Plans
• Makes Planning a Value-added Activity
• Leads to Control or Reduction in Spending with Same or Higher Output
• Includes Operational Guidelines• Eliminates Built-in Inflation
21BA 003--SPRING 2000
Final Revenue and Manufacturing
Response
• Preliminary Sales in Direct Cost Detail
• Will Vary by Company• Completion Should Provide for
4 Weeks Production Analysis
22BA 003--SPRING 2000
Interim Review
• Chaired by CEO• Functional VP Driven• CEO and CFO Compile Action
Items and Summarize• Open to Financial/Operational
Trade-offs• Interative and Inter-active
23BA 003--SPRING 2000
Financial Plan Package Content
• Narrative• P & L• Balance Sheet• Cash Flow Statement (Receipts
and Disb.)• Headcount• Department Expenses• Capital Asset Analysis
24BA 003--SPRING 2000
Role of Financial Executive
• Leadership• Innovation• Experimentation• Analysis• Compilation• Reality Check
EVA analysis
• Catalyst
25BA 003--SPRING 2000
Planning Traps and Risks
• Operations Abandonment• Poor Assumptions and
Allocations• Lack of Reality• Analysis Paralysis• No Contingencies
26BA 003--SPRING 2000
Bringing the Plan to Life:
Monitor and Adjust
• Yuck #2• Sales Opportunities• Cost Opportunities• Productivity Opportunities• When To Revise
27BA 003--SPRING 2000
Modified MNC Planning
• Complete HQ Strategic Plan• Complete Subs. Strategic Plan
(1-3) Situational Analysis & Subs. SWOT
• Complete Subs. Financial Plan (4)
• Collect Data (Monitor) (5)• Adjust (6)
28BA 003--SPRING 2000
Effective Mgt. Control
• Goal Congruence• Communication of Plans• Communication of Results• Communication of Feedback