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Steve Player, Program Director of the Beyond Budgeting Round Table (BBRTA) North America, Details five financial budgeting mistakes that all business financial professionals should avoid while explaining how modern business intelligence (BI) and corporate performance management (CPM) technology can help Finance teams maintain focus on the metrics that matter most to the business' success.
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1© 2014 Adaptive Insights | Confidential & Proprietary
T H E G L O B A L L E A D E R I N C L O U D B I & C P M
5 Budgeting Mistakes You Should Avoid
2© 2014 Adaptive Insights | Confidential & Proprietary
5 Budgeting Mistakes You Should Avoid
How You Can Get Started
Product Demonstration of This Approach
Q&A
Agenda
Learning goals:• Describe five key budgeting mistakes to avoid…and how to do so.
• Multiple down and up process• Adding more detail• Trying to control costs• Tying incentives to budgets• Relying on Excel spreadsheets
• Review the software support that is overcomes these pitfalls
3© 2014 Adaptive Insights | Confidential & Proprietary
Steve Player
Five Budgeting Mistakes You Should Avoid
4© 2014 Adaptive Insights | Confidential & Proprietary
1. Using multiple budgets iterations
Why so long?
Multiple iterationsField Corporate
SUBMITS
RE-SUBMITS
RE-REJECTS
REJECTS
5© 2014 Adaptive Insights | Confidential & Proprietary
5 Budget Mistakes You Should Avoid
1. Taking a top down / bottom up approach Results in multiple iterations and no ownership
1. Up and Down/ No Ownership
6© 2014 Adaptive Insights | Confidential & Proprietary
Mistake #2: Adding more detail
“Can’t see the forest through the trees”
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The 80/20 Rule
Focus on key drivers = Quick data gathering, less calculation more time for analysis
? 80% analysis
20% data gathering
80% data gathering
20% analysis
Which one would you choose?
100+ drivers 5-20 drivers
8© 2014 Adaptive Insights | Confidential & Proprietary
5 Budget Mistakes You Should Avoid
2. Adding more detailsResults in more places to be wrong
1. Taking a top down / bottom up approach Results in multiple iterations and no ownership
2.More detail = More Places to be Wrong
9© 2014 Adaptive Insights | Confidential & Proprietary
How does your team control costs?
Cost control by a Whack-a-mole CFO
10© 2014 Adaptive Insights | Confidential & Proprietary
What is your spending pattern?
1) Consistent throughout the year
2) Steady increase throughout the year
3) Consistent until a hockey stick up at year end
4) Consistent until a hockey stick down at year end
5) Volatile with several ups & downs
11© 2014 Adaptive Insights | Confidential & Proprietary
Budget
OK
Not OK
OK?
OK?
OK?
OK?
OK?
Dynamic resource allocation: A different mindset - cost conscious from the first penny
Is this really necessary?
Do I have a budget for this? •Does it support Ambition to
action?
•Is it within our decision criteria, decision authority and capacity?
•Can I justify this?
12© 2014 Adaptive Insights | Confidential & Proprietary
5 Budget Mistakes You Should Avoid
3. Using budgets to control costsResults in cost freezing and sandbagging
2. Adding more detailsResults in more places to be wrong
1. Taking a top down / bottom up approach Results in multiple iterations and no ownership
3. Budget cost control freezes flexibility
13© 2014 Adaptive Insights | Confidential & Proprietary
The negotiation game
The budgeting exercise is a game of liars’
poker…
…destroying your ethical foundation.
14© 2014 Adaptive Insights | Confidential & Proprietary
5 Budget Mistakes You Should Avoid
4. Tying bonuses to reaching budget targetsCreates control conflicts and results in
lowballing
3. Using budgets to control costsResults in cost freezing and sandbagging
2. Adding more detailsResults in more places to be wrong
1. Taking a top down / bottom up approach Results in multiple iterations and no ownership
4. Tying bonus to budget creates conflict
15© 2014 Adaptive Insights | Confidential & Proprietary
Mistake #5: Relying on Excel Spreadsheets
There is “ample evidence that errors in spreadsheets are pandemic. Spreadsheets, even after careful development, contain errors in one percent or more of all formula cells.”
Professor Raymond R. PankoUniversity of Hawaii
15
16© 2014 Adaptive Insights | Confidential & Proprietary
Customers
Suppliers
Finance
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Partners
Supply Chain Planning
Demand Planning
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Financial Planning & Goals
Strategic Planning
Collaborative Planning
Design Collaboration Sales Forecasts
Market Requirements
Business Plans
Sales Forecasts
New Product Launch
Product Life Cycle Plans
Product Forecasts
Promotion Plans
Forecast Collaboration
Product Requirements
Operating Plan
Excess & Obsolete
Inventory Exposure
Key Account Planning
Revenue Planning
SKU Rationalization
New Products Planning
Product Allocation
Profit Planning Working Capital
Planning
Planning Across the CorporationMany critical planning processes, too many spreadsheets
17© 2014 Adaptive Insights | Confidential & Proprietary
Spreadsheets are inefficient for collaborative efforts
18© 2014 Adaptive Insights | Confidential & Proprietary
5 Budget Mistakes You Should Avoid
5. Using Excel spreadsheets as a planning tool Creates control risks and impedes
collaboration
4. Tying bonuses to reaching budget targetsCreates control conflicts and results in
lowballing
3. Using budgets to control costsResults in cost freezing and sandbagging
2. Adding more detailsResults in more places to be wrong
1. Taking a top down / bottom up approach Results in multiple iterations and no ownership
5. Spreadsheet planning creates risk
19© 2014 Adaptive Insights | Confidential & Proprietary
Move from annual budgeting to rolling forecasts – now!
20© 2014 Adaptive Insights | Confidential & Proprietary
5 Budget Mistakes You Should Avoid
5. Using Excel spreadsheets as a planning tool Creates control risks and impedes
collaborationAdopt a dedicated planning tool.
Recap
4. Tying bonuses to reaching budget targetsCreates control conflicts and results in
lowballingPay bonuses based on actual results relative to
competition.3. Using budgets to control costs
Results in cost freezing and sandbaggingShift to relative measures for
costs control.2. Adding more detailsResults in more places to be wrong
Focus on key drivers through out.1. Taking a top down / bottom up approach
Results in multiple iterations and no ownershipReplace with continuous planning.
21© 2014 Adaptive Insights | Confidential & Proprietary
Who is Adaptive Insights?
22© 2014 Adaptive Insights | Confidential & Proprietary
23© 2014 Adaptive Insights | Confidential & Proprietary
2,000customer
s
200+partner
s
50%+growth
85countries
#1 share
Our cloud business analytics platform empowers management teams to transform their planning, reporting, consolidations
and analysis – improving productivity, costs & decisions.
THE GLOBAL LEADER IN CLOUD BI & CPM
24© 2014 Adaptive Insights | Confidential & Proprietary
DEMONSTRATIONJohn Sindel
Senior Solution Specialist
25© 2014 Adaptive Insights | Confidential & Proprietary
Q&A
26© 2014 Adaptive Insights | Confidential & Proprietary 26
John StillMarketing [email protected]
John SindelSolution [email protected]
Talk to us anytime!
Take the Next Step! Visit Adaptive Insights Web Site:
– Complete Demo: http://www.adaptiveinsights.com/demo_recorded.php
– Free Trial: http://www.adaptiveinsights.com/enterprise_trial/
Don’t forget to…
– Download your copy of the Harvard Business Review article, “Why Budgeting Fails”
– Complete the short survey at the end of this webinar for CPE credits
– Join the Beyond Budgeting Round Table – North America at www.bbrtna.org
– Attend the next Beyond Budgeting Training led by Steve Player. For more details call Robin Baumgartner at 214-239-0155 or email at [email protected]
27© 2014 Adaptive Insights | Confidential & Proprietary
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