COURSES

ROLLING FORECASTS AND BUDGETING

Volvo, the Swedish car manufacturer, reported 20% of all management’s time was taken up by budgeting and variance reporting, prior to their decision in 1996 to abolish budgets entirely.

3.1. A practical approach to developing and implementing rolling forecasts

Annual budgets don’t work anymore. The idea of budgeting once, for a year ahead, was developed in a time of stable markets, static costs, and predictable inflation. Fixed plan business models can’t be used to run businesses in today's rapidly changing world. Instead, many line managers are turning to rolling forecasts to inspire and lead their organisations to superior performance.

Companies that update plans and forecasts quickly are in a better position to take advantage of opportunities and respond to threats.

This one day workshop will give you the opportunity to discover:

  • How to design an effective rolling forecast process,
  • How rolling forecasts work in practice,
  • The use of IT in rolling forecasts,
  • What business drivers you should use in a rolling forecast process,
  • How to identify the critical success factors for implementation,
  • The use of rolling forecasts in corporate governance,
  • How to integrate rolling forecasts into your management control system.

Objectives


On conclusion of this workshop you will:

  • Understand the principles of rolling forecasts and
  • Be able to address the practical implementation problems.

The workshop will:

  • Illustrate the principles with case studies drawn from a variety of industries,
  • Develop an outline plan for implementing rolling forecasts in your business,
  • Identify the process for preparing rolling forecasts,
  • Highlight how management should use rolling forecast information.

Budgeting was the most widely practiced business discipline in the 20th Century. In a world of manageable markets, predictable competition, and slow pace of change, directors tried to force commitment to achieving the plan at all costs. But static budgets and inflexible directors are not effective in our rapidly changing world. Companies report performance on a calendar basis, but as we know events - floods, stock market crashes, strikes, and a competitor's new product announcement - are random. Cracks started to appear in the fixed budget approach towards the end of the 20th century. The September 11 attacks on the Twin Towers in New York destroyed any remaining myths of predictability and proved that planning systems have to be dynamic, responsive and flexible.

Course Outline:

Why you should change to a rolling forecast
  • Auditing the effectiveness of your budget system
  • Elapsed time and FTEs in your current process
  • Benefits from rolling forecasts
Identifying the constituency for rolling forecasts
  • Providers of information
  • Who owns the view of the future?
  • Users of the information
Linking your business strategy to rolling forecasts
  • Using rolling forecasts to translate strategy into action
  • Moving from static budgets to rolling forecasts
Matching your rolling forecast time period and level of detail to your business needs
  • Matching forecast time periods to your business cycle
  • Determining the appropriate level of summary
Identifying business drivers to use in the rolling forecast
  • Identifying drivers
  • Understanding driver behaviour
Forecasting models, data warehouses and strategic sales analysis
  • Use of IT in Rolling Forecasts
  • New generation budget planning tools
  • Centralised forecast databases
  • Reporting tools
The process for rolling forecasts
  • Who owns the process?
  • When does it happen relative to strategic planning?
  • When does it happen relative to the monthly (fast) close?
  • Controls in the rolling forecast process
How managers use rolling forecast Information
  • Variance analysis in a rolling forecast environment
  • Rolling forecasts in the management committee
  • Impact on incentive compensation
  • Rolling forecasts and corporate governance
  • Relationships with stakeholders including analysts
Implementing rolling forecasts
  • Developing the rolling forecast model
  • Planning the implementation
  • The cut-over to rolling forecasts

3.2. Budgets, forecasts and monthly reports

"We spend so much time on our budgeting process , and at the end of the day , all we get is last year plus 6 percent" - Financial Director, JSE listed company

Timing: One day

Introduction

Budgeting was develope in a relatively static, easy to understand, industrial age. Managers complain that:

  • The numbers are out of date soon after the budget has been approved.
  • Business planning and budgeting are not linked.
  • Budgeting takes up too much management time, involves too many people, and costs too much.
  • The budget process doesn’t follow the organisation structure.
  • The budget just takes too long.

Today's rapidly changing economy makes the old, fixed plan budget model obsolete. Leading companies have re-engineered their budget processes and changed their approach to financial planning and control. This seminar will discuss new budget techniques and introduce new ideas for planning, measuring and reporting performance. It will also show you how to integrate the budget process with the other phases of the planning cycle.

We will focus on real organisations such as Microsoft, BP and even the IRS, to illustrate how to review and renew your budgeting, and apply new planning, forecasting and analysis techniques.

Course Objectives

This course gives participants with an excellent insight into the mechanics and principles of budgeting

After attending this course you will be able to:

  1. Implement world class practices into your budgeting process
  2. Integrate strategic planning with budgeting
  3. Build a strategic profitability model
  4. Deliver more timely and useful information to decision makers
  5. Successfully build an integrated planning, budgeting and reporting process

Who should attend?

Management accountants responsible for budget preparation and management reporting Financial managers and cost analysts Line managers with direct planning and budgeting responsibility.

Seminar Outline:

World class budgeting
  • Budgeting as a core competence in your business
  • Responsibility accounting and management control
  • Why traditional budgeting doesn’t always work
  • Specific budgeting approaches and techniques
  • Zero base budgeting
  • Activity based budgeting
  • Unit budgeting
  • Program budgeting
  • The beyond budgeting principle
Mapping your current process
  • Steps in development of a budget
  • Identifying strengths and weaknesses in your budgeting system
  • Designing budget timetables and working papers
FROM STATIC BUDGETING TO ROLLING FORECASTS
  • Why annual budgets don’t work
  • Overview of a rolling forecast system
  • How to change to rolling forecasts
Designing the rolling forecast system
  • Timescales, what to forecast and level of detail
  • Selecting a software package
Identifying business drivers
  • Cost drivers
  • Regression analysis techniques
Scorecards and dashboards
  • Performance measurement
  • The Kaplan approach
  • Operating dashboards
Designing management reports
  • Communicating information to management
  • Report layouts
  • Tailoring management information
  • Linking financial and non financial information
Financial analysis and variance reporting
  • Basic tools of financial analysis
  • Advanced financial analysis techniques
Cost management
  • Assigning responsibility for costs
  • Budgeting in a downturn
  • Cost reduction projects

Will your planning this year involve the right people? Most important, will your planning answer the questions of growth?

Case Study

A medium sized South African Municipality last year undertook a detailed study of their budget process. They calculated that more than 50,000 person-hours were spent on preparing submissions, subsequent negotiations with supervisors and budget committees, rebudgeting, and final approval. This time excluded the hundreds of hours spent each month investigating and explaining variances.

John Stretch