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