U N I F I E D P E R F O R M A N C E M A N A G E M E N T

Proven Techniques for

Optimizing FP&A Processes

Peri Pierone

CEO

Agenda

2

• The Strategic Role of Finance

• Axiom Research

• Keys to Improving Management Reporting

• Keys to Improving Planning

3

The Strategic Role of Finance….

How is that evolving in your organization?

As a Data Steward Increasingly ‘own’ data to drive decisions Own ‘non-GL’ systems, (i.e., cost accounting)

As a Partner to Operations Educating managers on cost realities Supporting the monitoring function (policing)

As a Strategic Advisor to the Organization Being more agile and responsive to needs Supporting data-driven decision making

4

Analytic Capability

Efficiency & Control

Scorekeeper

• Reporting• Accuracy• Retrospective• Disconnected

StrategicPartner

• Advising• Growth focused• Risk aware• Present & future• Connected

Controller

• Gatekeeper• Expense focused• Governance• Retrospective

Analyst

• Measuring• Planning• Calculating• Modeling• Past and future

The Evolving Role of Finance

Quadrant 4Embodies all the characteristics of the other three quadrants plus leadership and outbound activities

Question #1

5

2013 Research Demographics

5%

32%

23%

7%

7%

4%5%

17%

Role in the Organization

CFO

Finance VP/Director

Financial Analyst

Budgeting/Reporting

IT

Executive

Consultant

Other

15%

10%

25%

12%

38%

Company Size

$0-$50M

$50-$100M

$100-$500M

$500M-$1B

$1B+

* 2013 Axiom EPM Survey

6

Market Research

2014 Performance Management Priorities

Performance Initiatives

Providing more insightful reporting and analysis to support decision making

Understanding key drivers of profitability across various dimensions (customer, channel etc.)

Cost containment and efficiency

Improving and shortening budgeting and planning process

Scenario modeling to analyze the impact of various drivers, initiatives and risk factors

Linking long-range strategic planning and forecasts to short-term operational plans

Becoming a better strategic partner to the business

Streamlining the financial consolidations and close process21%

23%

35%

41%

47%

48%

53%

76%

0% 20% 40% 60% 80%Axiom EPM 2013 Performance Management Survey

7

Challenge #1: More Insightful Reporting

• Provide more insightful reporting and analysis to support decision making

Management reporting

Ad hoc end user reporting

Legal/Statutory reporting

Prepackaged eternal reporting (SEC formats, XBRL etc.) 13%

16%

59%

94%

0% 50% 100%

Which areas of reporting are most important for you to address?

8

What is your Most Significant Reporting Challenge?

27%

19%

16%

14%

8%

7%

6% 3%Ability to pull data from multiple data sources

Accessing clean, consistent and trusted data

Ability to "drill" into reports and understand details

Need for better dashboards and visualizations

Ability to deliver meaningful ad hoc analysis

Ease of report creation

Ability to integrate with MS Office Etc.

Other

9

Report Example Financial and OperationalQuestion #2

10

Showcasing Effective Use of Visualization

Question #3

11

Add Intelligence to Reporting*

Customer

Wait

Times

Relevancy

Tolerance

Trend

!Early alert

!

Call to Action

ForecastImpact

Unplanned

Staff Turnover

Increased 14%

AdditionalContext

Q3 Q4 Q1 Q2 Q3

* Courtesy of David Axson - Accenture

Question #4

12

Survey Research on Budgeting

12%

26%

28%

19%

8%7%

How long is your budgeting process?

1 - 2 months2 - 3 months3 - 4 months4 - 5 months5 - 6 monthsGreater than 6 months

32%

8%36%

13%

6%

What is the most important factor impacting your budgeting timeline?

Internal business processes

Technology (or lack thereof)

Lack of resources

Iterating and negotiating to reach an acceptable plan

The number of participants

Other (please specify)* 2013 Axiom EPM Survey

Question #5

13

Axiom Thought Leadership

Proven Approaches to Improving the Planning Process

Reduce the size of the chart of accounts

Driver-based intelligent modeling

– Financials are outcomes and should be treated as such

Scenario-based planning – sensitivity analysis

Initiative-based planning

Introduce Rolling forecasts

1

2

3

4

5

14

Ideas for Improving the Budget Cycle Time – COA Reduction

1. Streamline the input required –take a more calculation rich approach

2. Reduce the size of your chart of accounts1. Detail does not equal accuracy

0% 20% 40% 60%

50 - 100

100 - 200

201 - 300

>300

# of Accounts in Budget

Question #6

15

Best Practices in Planning

Driver Based Planning Revenue / COS / Margin

Gross Margin AnalysisModel: A4 2013MY JAN FEB

Unit Forecast Wholesale Pricing Manufacturer’s Cost Per Unit Stats – Options,

Freight, Port Processing, Incentives etc.

Audi A4

16

Key Drivers:

• Number of Agents

• Applications Per Agent

• Policies In Force

• Rate Changes

• Commission Rates

• Customer Retention

•Consumer/Producer Price Index

• Loss Frequency

• Loss Severity

• Claim Cycle Time

• # of Claims

• # of Adjusters

• # of Underwriters

• # of Customer Service Reps

Driver-based Planning is the Key – Insurance Example

INVESTMENT INCOME

Net Investment Income Earned

Net Realized Capital Gains (Losses)

Net Investment Gain (Loss)

OTHER INCOME

Net Gain (Loss) from Agents’ or Premium Balances Charged Off

Finance and Service Fees Not Included in Premiums

Aggregate Write Ins for Miscellaneous Income

Total Other Income

Dividends to Policyholders

Net Income, after Dividends to Policyholders

Federal & Foreign Income Taxes Incurred

Net Income

ROA / ROE

UNDERWRITING INCOME

Written/Earned Premiums

Losses Incurred

Loss Expenses Incurred

Other UW Expenses Incurred

Aggregate Write Ins for Underwriting Deductions

Net Underwriting Gain (Loss)

Question #7

17

Best Practices in Planning

Scenario Planning and Uncertainty

The notion of uncertainty is at the crux of both finance and risk management domains Even so when it comes to strategic planning, budgeting and forecasting, most

practitioners are content with completing the “the budget” or “the forecast” without addressing the issue of uncertainty

There is false sense of security when underlying assumptions are treated as facts vs. assumptions – masking both exposure and opportunity

90% 8%…Of the organizations surveyed take

at least 2 months to complete a budget – many more than 4 months

…Only 8% of organizations surveyed do scenario planning regularly.

Source: Business Finance, April 2012

18

Easiest to set up and process

Useful in quantifying the impact of a particular DV

Can be a great educational tool

Primary criticism is its simplicity – market variables seldom move on a stand-alone basis

Best Practices in Planning

Single Variable Sensitivity Analysis Question #8

19

Best Practices in Planning

Initiative Based Scenario Planning

Forecasting Methods Include:

Examples:

• Statistically-Driven Modeling• Payor Mix and Revenue Forecasting• Labor Rate & Efficiency Targets• Cost Modeling

• Re-Design ER, Flow Thru Implications• Expand Cardiac Cath Lab• Open an OP Urgent Care (Northside)

Analysis Contains:

1. Income Statement2. Balance Sheet3. Cash Flow4. Key Ratios

Consolidated Results

Base Case(Conservative)

Initiative #1

Initiative #3

Initiative #2

Initiative #4

Base CaseGiven current trends, what is our financial outlook 3-10 years?

InitiativesAs we prioritize growth or cost containment initiatives, what is the incremental impact?

ScenariosWhat is the impact on our baseline projections given the initiatives we’ve proposed?

Question #9

20

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Feb Forecast

May Forecast

Aug Forecast

Nov Forecast

Actual Forecast Out Period

Rolling nature provides consistent business outlook Tends to be more accurate than aspirational budgets Enables waterfall analysis and trending

Best Practices in Planning

Rolling Forecasts Question #10

21

Score Your Organization

• Count the “Xs” for each column and write result in each column box

• Multiple each column total by its column multiplier

• Sum the multiplied totals for the five columns into a single score

22

Performance Management Assessment

0 – 17EPM Novice

• Reporting & analytics aren’t providing the value they could

• The organization likely lives on spreadsheets

• Planning processes are not well evolved

18 – 34EPM Intermediate• Your organization has

some insightful reporting

• Likely good investments in enabling technology

• You’ve moved beyond simple budgeting

34 – 50EPM Expert

• The analytical nature of your reporting is impressive

• Technology is well leveraged

• Planning processes are highly evolved