2007 budgeting forecasting study

7/31/2019 2007 Budgeting Forecasting Study

1/50

2007Budgeting andForecasting Study*

PwC AdvisoryPerormance Improvement


2/50


3/50

Table o contents

Overview 2

Highly eective nancial planning is now recognized by leading nanceorganizations as critical to the successul execution o business strategy.

Trends

1. Budgeting and orecasting processes ace signicant transormation;linkage to strategy is top o mind. 5

2. Todays process is too granular and not ocused onvalue-added activities. 15

3. Underlying technologies and applications lack integration. 18

4. Finance and operations must be more closely aligned. 23

5. Standardizing processes and systems is a primary ocuso improvement eorts. 25

Lessons learnedcorporate insights 33

Optimizing the nancial planning process 39

How to tackle budgeting and orecasting improvements 40Conclusion 43

Methodology 44


4/50

OverviewHighly eective nancial planningis now recognized by leading

nance organizations as criticalto the successul execution obusiness strategy.

2


5/50

2007 Budgeting and Forecasting Study 3


6/50

Trends


7/50

2007 Budgeting and Forecasting Study

1. Budgeting and orecasting processes acesignicant transormation; linkage to strategyis top o mind.

5


8/50

Figure 1. How satisfed are you with your companys current budgeting process?

Very satised: 17% Somewhat satised: 70%

Not satised: 13%


9/50



10/50

8

Figure 2. Looking back at the past fve years, how would you best describe your budgeting process?

Somewhat/seldom aligned: 8% Highly aligned: 32%


11/50



12/50

Note: Respondents were asked to check all that apply.

10

Figure 3. Which area do you see as requiring the most improvement?

0% 50%Percent o respondents

Improving budget accuracy

Investing in technology

44

3

35

31

29

28

Improving organizational structural barriers that impede eciency

Reducing time spent on data collection

Reducing cycle time

Improving link between budget and strategy

Improving budget competencies/skills 2


13/50



14/50

12

Figure 4. What key elements do your company or business unit orecast?


Cash fow

8

77

7

73

54

SGA

Operating income

Gross prot

Sales/revenue

Other 4

Key balance sheet items 5



15/50



16/50

14

Figure 5. What value does your company derive rom its budgeting process?


73

7

4

53Drives compensation plans

Provides a system o accountability

Determines operational direction

Provides a mechanism or monitoring and controlling



17/50


2. Todays process is too granular and not ocused onvalue-added activities.


18/50

1

Figure 6. O the total time spent completing a budget cycle, how much time is allocated to each o the

ollowing activities?

0% 50%Percent o time

Value-added

Non value-added

25

22

22

17Review/approval

Strategy/target setting

Analysis

Data collection/consolidation

Report prep 14


19/50


Figure 7. How long does your company take to complete the budget cycle?

< 2 months: 12% 23 months: 28% 34 months: 30% > 4 months: 30%


20/50

18

3. Underlying technologies and applications lackintegration.


21/50


Figure 8. What applications are used to manage your companys budgeting process?

Home- Spreadsheet

Best o grown only or withbreed only: Spreadsheet with homegrown:

ERP only: 1% only: 8% % best o breed/ERP: 58% 12%


22/50

20

Figure 9. Where does your company complete budget to actual reporting?

Ofine

system:Ledger system used to capture actuals: 42% Spreadsheet: 27% Budgeting tool: 25% %


23/50



24/50

22

Figure 10. What is lacking in the budgeting sotware that you use today?

0% 100%Percent o respondents who were dissatised with their sotware applications

70

70

59

48Scalability

Customization to the business

Flexibility

Ease o use

Aordability 11



25/50


4. Finance and operations must be more closelyaligned.


26/50

24

Figure 11. Please rank your companys priorities or investment initiatives around the budgeting and

orecasting process.

0% 50%Percent o respondents ranking the goal rst among their priorities

42

31

13

9Movement to rolling orecasts

Shorter cycle times

Closer links between strategy/operations

Increased accuracy

More requent cycle times 7


27/50


As noted earlier, aligning activities across unctional areas is critical toimproving the budgeting and orecasting process. Standardizing datarequirements, data-capture processes, technology platorms, andapplications helps to align dierent parts o the organization. While somemay think that standardization means more in-depth data collection andconsolidation, the reality is that organizations typically need to reducethe level o data granularity to ocus eort and attention on whats trulyrelevant to strategic success. Respondents recognized that timely, relevant,

and accurate data is the number-one requirement related to launching abudgeting and planning improvement eort (gure 12).

5. Standardizing processes and systems is aprimary ocus o improvement eorts.


28/50

2

Figure 12. What do you think are the stepping stones to improve budgeting and orecasting?

0% 50%Percent o respondents ranking the goal rst among their priorities.

41

31

29Investment in automated tools

Re-evaluation o budgeting and orecastings strategic positioning within organization

Assessment o budgeting and orecasting processes and data fows


29/50


In addition, organizations should consider utilizing a driver-based rollingorecast approach to ensure that nance stays constantly in step withchanging corporate strategy. This provides the added benet o being able toextend orecasts out past your year-end. Employing rolling orecasts enablesa company to react quickly to market conditions and alter long-range plansaccordingly without worrying about articial end points, like the end o a scalperiod.

The majority o organizations (52 percent) orecast until the end o their scal

year. Rolling orecasts continue to create great interest in the market: Thosethat extend beyond the end o the scal year are employed to some extentby 42 percent o respondents (gure 13). Many companies continue to bechallenged with implementing rolling orecast concepts and eliminating theannual budget due to the high linkage to annual incentive compensationplans. Some companies are implementing rolling orecasts but have not beenable to completely eliminate the annual budget process.

Furthermore, most organizations surveyed update their orecasts on amonthly (33 percent) or quarterly (41 percent) basis (gure 14). Leadingcompanies are less concerned about the number o times they update theorecast throughout the year but are more ocused on speed, accuracy, andthe ability to update the orecast as market conditions change.


30/50

28

Figure 13. How ar out does your orecast extend?

Next

quarter:% Year-end: 52% 18 months: 20% 24 months or more: 22%


31/50


Figure 14. How oten does your company update its orecast?

Semiannually: 13% Quarterly: 41% Monthly: 33% Other: 13%


32/50

30


33/50


34/50

32

Figure 16. In your opinion, which o the ollowing describes why your organizations orecasting process

may go o track?


40

33

32

31Lack o consensus around orecasting objectives

Inaccurate revenue orecasts by general managers

Poor integration o key data inputs limits the degree o visibility into whats truly happening

Our models do not take into account the degree o variability that impacts actual perormance

Lack o ownership and accountability 23



35/50


In addition to ocused research, we conducted a series o in-depth interviewsto determine budgeting and orecasting approaches and lessons learned thatcould be shared with organizations looking to improve the overall planningprocess.

How Pfzer is transorming its global budgeting and orecastingprocesses

Pzer, Inc. is the worlds largest research-based pharmaceuticals company,with annual revenues o approximately $50 billion.

In 2005 Pzer launched an initiative called Adapting to Scale to reducecomplexity, push down decision making, and better leverage standardizedprocesses. Global teams working across Pzer identied many opportunitiesor improvement, including optimization o global budgeting and orecastingprocesses.

The planning environment was highly complex and ragmented due to thehigh volume o acquisitions in the preceding years. According to GeorgeHenninger, senior vice president or nancial operations, The Pzer planningsystems environment included a host o applications including Oracle,Hyperion, Cognos, GEAC, and assorted spreadsheet models. In addition,our various business unitscommercial, manuacturing, and research

each approached the planning process with dierent types o models, datarequirements, and orecast calendars.

In 200, the company embarked on the Global Budget and Forecasting (GBF)initiative. Working with more than one hundred employees rom across alldivisions worldwide, the GBF team developed a common operating modeland systems architecture to support uture deployment.

Management realized that standardizing on one technology platormwould be an enabler, but the real benets to the organization were throughstandardizing processes and eliminating low-value activities. To ensure thatthis initiative would not just be another corporate-driven project, businessunit input and buy-in was made a critical part o the process change. Wehad to show the markets/regions and business units how the change would

benet them in how they do their work, explains Ben Valentini, Pzers vicepresident o nance transormation, who leads this GBF initiative.

Lessons learnedcorporate insights


36/50

34


37/50



38/50

3


39/50



40/50

38


41/50


Optimizing the nancial planning process


42/50

40


43/50



44/50

42


45/50


As companies ace a aster-paced market, they are struggling to matchtheir sometimes antiquated budgeting and orecasting process with theneed or strategic planning to help the organization improve perormance.According to our survey results, many organizations are not satised withtheir budgeting and orecasting approach, especially as a strategic lever.To improve and reocus budgeting and orecasting, organizations need tostandardize, streamline, and integrate these activities with the companysshort- and long-term goals. I done properly, budgeting and orecasting

processes can play a leading role in an organizations strategic direction bybecoming a way to rapidly assess and adapt to a changing marketplace.Companies that take ull advantage o an ongoing strategic budgeting andorecasting process will:

Use budgeting and orecasting as a tool to integrate strategic planning andday-to-day operations.

Reduce the budgeting cycle time (perhaps even by creating anongoing rolling orecast process) and improve orecasting accuracy bystandardizing data collection and consolidation across the organization.

Deploy rolling orecast concepts, which extend orecasting beyond year-end. This reduces the dependency on manuactured deadlines that are notaligned with a constantly changing marketplace.

Shit the ocus o the budgeting and orecasting process rom datacollection and reporting to target setting, analysis, and ongoingmeasurement.

Break organizational silos by using the budgeting and orecasting unctionas a way to increase collaboration between nance and operations.

Increase the organizations understanding o creating value throughthe budgeting and orecasting process and supporting it with a robustperormance-management unction.

Consider developing or using a methodology that provides a fexibleapproach to changing business processes, technology and systems,organizational structure, and data.

By ollowing these steps, an organization can use improvement o nancialplanning processes and activities to eect strategic change and better adaptto the constantly changing marketplace.

Conclusion


46/50

44

Methodology


47/50



48/50


49/50

For more inormation, please contact:

Gary ApanaschikPartner

[email protected]

Or visit:www.pwc.com/us/perormanceimprovement

2007 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers reers toPricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, thePricewaterhouseCoopers global network or other member rms o the network, each o which is a separateand independent legal entity.*connectedthinking is a trademark o PricewaterhouseCoopers LLP (US).


50/50

Perormance ImprovementCorporate Perormance Management

2007 budgeting forecasting study

Documents