Financial Planning, Budgeting, and Forecasting (2010)
1. Financial Planning, Budgeting
and Forecasting:
Will the Economy Emerge? Will You?
Cindy Jutras
Vice President & Research Fellow, Aberdeen Group
Nasreen Quibria
Senior Analyst, Aberdeen Group
Jeffrey Frank
Business Analyst, GROWMARK
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5. Financial Planning, Budgeting
and Forecasting:
Will the Economy Merge? Will You?
Cindy Jutras
Vice President & Research Fellow, Aberdeen Group
Nasreen Quibria
Senior Analyst, Aberdeen Group
Jeffrey Frank
Business Analyst, GROWMARK
Slide 5
6. Ric Ratkowski
Vice President of Product Strategy
Host Analytics, Inc.
Ric oversees product design and product marketing of the Host Analytics CPM
Suite. Ric has over 25 years experience in Finance and Accounting and has
held strategic roles in the design of financial analytic and performance
management applications within the top software companies in the industry.
Additionally, Ric held financial executive level positions at multi-national
corporations with first-hand involvement in the financial planning and
budgeting process. Ric is a CPA.
Slide 6
7. Cindy Jutras
Vice President and Research Fellow
Aberdeen Group
Cindy has over 33 years of business experience in enterprise applications. She conducts
fact-based research on enterprise applications and business performance management.
Cindy’s past experience covers a variety of manufacturing, consulting and software
companies where she held a diversity of positions in marketing, sales, software design
and development, project and general management. She has spoken at executive
conferences on her original supply chain concept, Virtually Vertical Manufacturing. She
is the author of the book ERP Optimization as well as numerous magazine articles and
published white papers.
Slide 7
8. Nasreen Quibria
Senior Analyst
Aberdeen Group
Nasreen Quibria is a Senior Analyst in the Financial Management and GRC Practice at
Aberdeen Group. Before joining Aberdeen, she was Director of Payments at the
Association for Financial Professionals. Nasreen has a track record of leading successful
initiatives in financial services and technology industries. Nasreen also brings expertise
in risk management and financial services from her experience at Marsh and CIBC
World Markets. Nasreen holds a B.A. in economics from Wellesley College and an
M.B.A. in finance and strategy from Boston College.
Slide 8
9. Jeffrey Frank
Business Analyst
GROWMARK
Jeff is a Business Analyst for GROWMARK in the Business Analysis and Research
department. He is charged with leading the corporate budget effort for GROWMARK.
Jeff has been in his role for a little over a year and has been with GROWMARK for a little
over two. Prior to joining GROWMARK, Jeff spent three and a half years at a public
accounting firm that specialized in auditing agribusiness cooperatives, including many of
the members of the GROWMARK family. Jeff began his work there as an auditor and
transitioned to handling the internal accounting and IT needs of the firm. Jeff holds a
Bachelors degree in accountancy from Northern Illinois University and is a Certified
Public Accountant.
Slide 9
10. Agenda
Agenda
Financial Planning, Budgeting and
Forecasting:
Will the Economy Emerge? Will You?
Cindy Jutras, Vice President & Research Fellow
Nasreen Quibria, Senior Analyst
Aberdeen Group
Experiences at GROWMARK
Jeffrey Frank, Business Analyst
GROWMARK
Q&A
Slide 10
11. Financial Planning, Budgeting,
and Forecasting
Will the Economy Emerge?
Will You?
Cindy Jutras
Vice President & Research Fellow
Nasreen Quibria
Senior Analyst
12. o Aberdeen PACE Model
Aberdeen o Pressures
Benchmark o Actions
Survey o Capabilities
Structure o Enablers
o Strategies and Tactics
o KPIs – Usage and
Specifics
o Follow-up Surveys
interviews
12
13. Aberdeen’s History in Financial Planning, Budgeting, and
Forecasting Research – Following the Trends in Real GDP
8.0
Financial Planning Budgeting,
and Forecasting: Managing in
Percent Change in U.S. Real GDP
6.0
Uncertain Economic Times,
January 2009
4.0
2.0
0.0
2007 2008 2009 2010
-2.0
-4.0
-6.0 Financial Planning
Budgeting, and
-8.0 Financial Planning Forecasting: Will the
and Budgeting, Economy Emerge? Will
April 2008 You?, February 2010
13
14. Survey Demographics
Company Size Geography
25% 30%
Large EMEA
(>$1 billion)
39%
Small (< $50m)
57%
Americas
13%
Asia/Pacific
36%
Midsize ($50m to $1 billion)
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15. Satisfaction Level with Company’s Current Financial
Planning, Budgeting, and Forecasting Process
Best-in-Class Industry Average Laggard
60%
Percentage of Respondents, n = 171
49%
50%
44%
40% 35% 35%
28%
30%
22%
19% 20%
20%
13% 13%
10% 9%
6% 6%
3%
0%
0%
Very satisfied Somewhat Neutral Not satisfied Very
satisfied dissatisfied
15
16. Top Pressures Year over Year
Market volatility creates the need to 47%
39%
dynamically account for change ('agility') 37%
Need to better align Planning / 41%
Budgeting with corporate goals 29%
34% 2010
Corporate mandates for cost control 32% 2009
34%
2008
Current / past accuracy of the budget 22%
25%
negatively impacts corporate performance 42%
Current processes are too long & 21%
24%
resource intensive 34%
0% 10% 20% 30% 40% 50%
Percentage of Respondents
16
17. Best-in-Class Criteria
Definition of
Mean Class Performance
Maturity Class
Best-in-Class: 102% overall budget accuracy*
Top 20% 99% forecast accuracy
of aggregate 20% improvement in profitability year over year
performance scorers 66% “always” finalize budget prior to the next fiscal year
Industry Average: 92% overall budget accuracy*
Middle 50% 89% forecast accuracy
of aggregate 6% improvement in profitability year over year
performance scorers 37% “always” finalize budget prior to the next fiscal year
Laggard: 66% overall budget accuracy*
Bottom 30% 73% forecast accuracy
of aggregate 8% decline in profitability year over year
performance scorers 27% “always” finalize budget prior to the next fiscal year
*Ratio of actual to budget
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18. Strategic Actions of Best-in-Class
2010 2009
Develop a formal planning / budgeting / 47%
forecasting workflow process 40%
Automate the process flows associated 41%
with the budget process 20%
Involve more decision-makers in the 38%
planning / budgeting / forecasting process 40%
19%
Improve data quality
52%
Develop a consolidated view of the process 19%
and the results, to be available on demand 28%
0% 10% 20% 30% 40% 50% 60%
Percentage of Respondents
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19. How Do Companies Approach Financial Budgeting?
Percentage of Respondents, n = 171
Best-in-Class Industry Average Laggard
71%
75%
50%
44%
50% 30% 28%
26% 22%
25% 14% 14%
0%
Budget drives strategy Strategy drives budget Strategy and budget are
independent
For top performing companies, strategy drives budget
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20. What Budgeting Methodology are Companies Using?
Best-in-Class Industry Average Laggard
Percentage of Respondents, n = 171
75%
59%63%
50% 38%
28%
22% 20%22%
25% 14% 13%
6% 7% 8%
0%
Budgets prepared Zero-based Performance Based Driver-based
based on historical budgeting (start Budgeting (PBB) budgets (for
data (Previous with a clean slate / (Result oriented example: net new
Year’s Actuals) no historical data) planning and customers drives
budgeting) customer service
budget)
Laggard companies are predominantly focused on historical data
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21. How has this shifted?
2009 2010
80% 69%
56%
60%
40%
16% 13% 18% 22%
20% 9% 8%
0%
Budgets Zero-based Performance Driver-based
prepared based budgeting (start Based budgets (for
on historical with a clean Budgeting (PBB) example: net
data (Previous slate / no (Result oriented new customers
Year’s Actuals) historical data) planning and drives customer
budgeting) service budget)
More companies are adopting performance based budgeting
21
22. Process Capabilities
Best-in-Class Industry Average Laggard
80%
Percentage of Respondents, n = 171
71% 71%
66% 65%
59% 61% 60%
59%
60%
52%
49%
40%
40% 38%
32%
27%
20%
20%
0%
Ability to Ability to perform Ability to Finalized goals Corporate
reforecast as “what if” scenarios incorporate and budgets are process for
market conditions and change business drivers clearly budget revisions,
change analysis into the on-going communicated to roll-ups, and
forecasting those who are approvals have
process held accountable been established
and implemented
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23. Ability to Conduct “What if” Scenario Analysis
with Forecasting / Re-forecasting…
100%
Yes , but selectively because it’s
entirely manual
Yes, some portion of the
75% process is automated
30%
Yes , it’s automated
50% 41%
33% 45%
25%
22%
20%
9% 14%
0%
Best-in-Class Industry Average Laggard
More Best-in-Class companies have fully automated or semi-automated “what if” scenario
analysis capability with forecasts / re-forecasts 23
24. Current “Systems” – Enabling Technologies
Planning/budgeting/forecasting 45%
(stand-alone) application 33%
Budgeting and forecasting features Best-in-Class
27%
of an ERP or other financial All Others
23%
application
Financial reporting and consolidation 71%
(stand-alone) application 40%
Financial reporting and consolidation 37%
features of an ERP or other
33%
application
0% 20% 40% 60% 80%
Percentage of Respondents, n = 171
24
25. Business Intelligence and Analytic Tools
Query and reporting tools 65%
57%
47%
Dashboard / scorecard tools 30%
Enterprise BI platform 45%
26%
Corporate / Enterprise performance 32%
management application 21%
Best -in-Class
Event management 30% All Others
(triggers and alerts) 17%
Data integration tools 29%
(including ETL) 17%
Data cleansing tools 23%
12%
0% 10% 20% 30% 40% 50% 60% 70%
Percentage of Respondents, n = 171
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26. What about spreadsheets?
88% still rely heavily on them 0% 20% 40% 60% 80%
52%
Data is exported from applications to 64%
spreadsheets and is manually shared 71%
Why? Data is exported from applications to 58%
spreadsheets and can be securely 40%
Comfort level accessed from a shared server 27%
Can’t make a Data from multiple spreadsheets must
39%
46%
business case be manually consolidated 50%
Expense Spreadsheets are our only method of 19%
communication and interaction through 24%
the process 46%
Spreadsheets are our primary method 26%
today, but we are planning to replace 25%
this within the next 12 months 44%
Spreadsheets are our primary method Best-in-Class
10%
today despite the fact that we have 12% Industry Average
implemented applications intended to 8% Laggard
replace them
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27. Financial Planning, Budgeting and Forecasting 2010
Survey Results Revealed
Jeffrey Frank
Business Analyst, GROWMARK
Slide 27
28. Agenda
• Overview of GROWMARK
• The budget process
– Process overview
– Old way of budgeting
– Budgeting with Host Analytics
• The benefits
• Future use
• Questions
Slide 28
29. Overview of GROWMARK
GROWMARK, Inc. is a regional agricultural
cooperative providing products and services
through FS supply and grain member
cooperatives and retail outlets to more than
250,000 farmers in the U.S. and Ontario,
Canada.
Slide 29
30. Overview of GROWMARK
• Wholesale and retail product sales
– Seed
– Fertilizers and ag-chemicals
– Energy products
– Facility equipment (trucks, tanks, etc.)
– Grain systems
• Grain marketing for farmers
• Sales to non-farmers
– Energy accounts
– Turf business
Slide 30
31. Overview of GROWMARK
• History
– Organized in 1927
– Entered Canada in mid 90s
– First big jump into retail in 2002
• 2009 sales of $6.1 billion
• 1,400 full-time employees
• Geography
– 35 states (mostly mid-west and northeast)
– Southern Ontario
Slide 31
32. The Budget Process
• My role
• Other staff
• Budget overview
• Scale and complications
• The old way
• Budgeting with Host Analytics
Slide 32
33. My Role
• Coordinate entire budget process
• Performs consolidation of all budgets,
including budgeting consolidation entries
• Prepares final published report for
Budget/Audit Committee and GROWMARK
Board
• About to begin third budget cycle, second as
budget lead (always worked in Host Analytics
environment)
Slide 33
34. Other Staff
• Approximately 100 active participants in
budget process
• One other primary staff member in my
department
– Capital budget
– Overhead departments
• Three others in my department available to
help pull things together and review
components
Slide 34
35. Budget Overview
• Performed annually
– Forecast for current year (annually)
– Budget for next year (monthly)
– Plan for next two years (annually)
• Bottom-up approach
– Zero-based budgeting
– Lots of detail
– Market outlook used for corporate consistency
Slide 35
36. Scale
• 16 core business units
• 30+ general ledgers inside consolidation
• Multiple levels of consolidation
• Canadian operations (7 different currency
tables)
• Over 6200 unique accounts/sub accounts in
home office ledger
• 200+ budgeted units
Slide 36
37. Major Complications
• Commodity driven business
• Weather has huge impact
• Farmers planting decisions effect more than
our seed sales
Slide 37
38. Other Complications
• Decentralized operations
• Staff reporting structure (lack of control)
– Retail units have separate operating boards
– Some unit staff aren’t employed by GROWMARK
• Inconsistent software use
• Heavily customized software
Slide 38
39. Budgeting the Old Way
• Several years ago
– Entirely in Excel
– Lots of linked worksheets
• More recently
– Distributed Excel worksheets
– Loaded into Access for consolidation (common
COA)
– Pivot tables for reporting
– Manual prep of published document - Word
Slide 39
40. Problems with the Old Way
• Very iterative
• Lots of manual operations
• No real-time output available
• Budget changes were time consuming
• Couldn’t keep up with growing business
model
• Expensive to maintain (time required)
• Access not supported by IT department
Slide 40
41. How We Use Host Analytics
• Hierarchy designed around Lawson G/L structure
– Carried forward from prior Access database
• Load all ledger data for comparison
– Perform monthly reconciliation
• 7 attribute columns
– 2 years of actual
– Prior budget period
– Current year forecast
– Budget Year (calculated from spreads)
– 2 years for financial plan
• Templates usually mirror internal statement layouts
• Global drivers for retirement premiums, depreciation, etc.
Slide 41
43. Benefits of Host Analytics
• More easily accommodates late changes
• Reduced time spent on manual processes
• Accuracy
– No more plugging the balance sheet
• Excellent slicing of data with reporting
• Budgets easily compared to actual
• SaaS model requires very little help from IT
Slide 43
44. Future Improvements
• Develop templates for retail units that better
align to their own statements
• Reduce use of Excel worksheets used to create
template inputs – move into Host Analytics
• Design templates based more on relationships
rather than financial statement location
– Debt/interest expense
– Fixed assets/depreciation
• Move towards true driver-based budgeting
– Market outlook
– Interest rates
Slide 44
45. Potential Future Uses for Host
Analytics
• Initiatives templates for capital budgeting –
prioritization of capital
• Building our patronage calculation
– Hundreds, maybe thousands, of allocations
– Over 70 pages of Excel worksheets
• Forecasts and year-end estimates
– Make forecasts for management a few times a year
– Report results at annual meeting before year is closed
• Part-year budget for spring/fall seasons
Slide 45
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47. Your Feedback is Important to Us
Once the webcast is completed,
there will be brief survey questions.
Please let us know what you think!
As a thank you for completing the survey, your
name will be entered in for a drawing to win a
copy of the book “Five Key Principles of
Corporate Performance Management” by Bob
Paladino.
47
Slide 47