Presentation by Jason Lundell on budgeting, forecasting, and improving the closing process

1. Budgeting, Forecasting, and Closing process Presented by Jason Lundell

2. Budgeting Techniques Rolling Budget (typ. 12-18 mo. out) Zero-based Activity Based SALY (Same As Last Year) Fixed Incremental (last yr + %) Flex Bracket (best/worst case scenario)

3. Budget Reporting Budget Variance Report Assumed: Budget is always right Problems: Doesn’t clearly define purpose Confusion, many don’t trust it Seasonality mismatch, not trended Budget may be wrong Report only in $ (need rates, %, units, etc) Timing

4. Strategic Planning Cycle

5. Problem If compensation is based on company performance or meeting certain target levels, it undermines any strategic plan

6. Beyond Budgeting Book by Jeremy Hope, Robin Fraser Examined mostly non-US companies Conclusion: Working with budgets, as practiced in most corporations, should be abolished.

7. Beyond Budgeting Organizations of any size and industry can use Beyond Budgeting Examples Toyota SvenskaHandelsbanken (Swedish bank) Aldi (German retailer) Southwest Airlines Ahlsell (Swedish building materials wholesaler) ISS (Danish facilities service group) World Bank Sightsavers International (UK charity)

8. TraditionalHierarchical Control

9. TraditionalFixed Process

10. AdaptiveDevolved Network

11. AdaptiveDevolved Network Six principles for Devolution Provide a governance framework based on clear principles and boundaries Create high-performance climate on relative success Give people freedom to make local decisions that are consistent with governance principles and the organization’s goals

12. AdaptiveDevolved Network Place responsibility for value creation decisions at front line teams Make people accountable for customer outcomes Support open and ethical information systems that provide “one truth” throughout the organization

13. AdaptiveAdaptive Process Radical Devolution Adaptive Processes

14. AdaptiveAdaptive Process Six principles for Adaptive Management Goals are based on maximizing performance potential Base evaluation and rewards on relative improvement contracts with hindsight Make action planning a continuous and inclusive process

15. AdaptiveAdaptive Process Make resources available as required Coordinate cross-company actions according to prevailing customer demand Base controls on effective governance and on a range of relative performance indicators

16. Beyond Budgeting Commonality: All successful companies examined in Beyond Budgeting adopted the balanced score card Focused on four broad categories (FCIL) Financial Customers Internal Learning

17. Beyond Budgeting Balanced Score Card Linkage Cause & effect Drivers & outcomes Leading vs. lagging

18. Beyond BudgetingBalanced Score Card example

19. Beyond Budgeting Identify what matters to company Must be measurable, quantifiable Hindsight Numbers need to be flexible Relative

20. Planning How do you document your planning assumptions? Need minimum of 3 (per experts): Source of information (where did you get it?) What are the interdependencies between various assumptions? (sale are dependant on…, cost of sales depend on…) Timing issues (when is it going to happen, how long will it take, etc)

21. Forecasting information flow and level of detail

22. Forecasting Trumpet Next 12 months Strategic Plan Harvard: Cone of Uncertainty Larger the cone, greater the uncertainty and precision Cone of Uncertainty is inevitable

23. Forecasting U.S. National Average: Predict, plan, and forecast with 90% accuracy only 90 days in advance Intel model Budgets in 90 day increments 90 – 100 – 90 Forecast a year out

24. Final Thought Budgeting is a poor attempt at micromanagement

25. 10 Tools for More Effective Close Motorola Identified 10,000 defects in closing process 10 day close Finance & Accounting costs: $140 million or 2.4% of annual revenues

26. 10 Tools for More Effective Close Flow chart the close process Check sheet for recording instances and frequencies of defects Brainstorming – ask questions and scrutinize the process (why is this taking so long?, etc) Nominal group technique – through process of discussing & voting, prioritize and narrow down list of reasons why things take so long

27. 10 Tools for More Effective Close Line chart / graphical analysis Scattergrams for regression analysis Pareto chart – 80 / 20 law – “law of the significant few & insignificant many”

28. 10 Tools for More Effective ClosePareto Chart

29. 10 Tools for More Effective Close Stratification – cure the disease once and for all, don’t just treat symptoms Cause & effect – “ishilowa” or fish bone

30. 10 Tools for More Effective CloseCause & Effect – fish bone Man Machine Defect # 1 Method Material

31. 10 Tools for More Effective Close Force field analysis – focuses on goal Assume goal is 2 day close. List support and constraints

32. 10 Tools for More Effective Close Motorola End result at end of six year study and enhancement to closing process: Reduced defects to 200 95% reduction in overtime hours Finance & Accounting costs reduced to 1% (U.S. benchmark)