Host Analytics Future of Finance Tour: Steve Player

1. Future Ready:
How to Master
Business
Forecasting
Steve Player,
North America Director,
Beyond Budgeting Round Table
Host Analytics
The Future of Finance Tour

2. About the Speaker
• Steve Player serves as the North America Program Director for the
Beyond Budgeting Round Table (BBRT) and works with BBRT member
companies to implement continuous planning processes.
• He has over 30 years experience with improving performance
management and implementing strategic planning processes. He is also
the Managing Director of Beyond EPS Advisors, a Business consulting
firm, and founder of ABM SMART.
• He is the co-author of Future Ready: How to Master Business Forecasting
and Beyond Performance Management as well as five other books. He
interviews CFOs for the “CFOThoughtLeaders.com website featuring
CFO interviews from leading organizations on innovative finance and
planning processes.
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Steve Player
Director, BBRT North America
Managing Director, The Player Group

3. Are you trying to improve your planning
process?
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4. 12 Beyond Budgeting principles
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Change in leadership
Governance & transparency
1. Values – Bind people to a common cause, not to a central plan
2. Governance – Govern through shared values and sound
judgement, not detailed rules and regulations
3. Transparency - Make information open and transparent, don’t
restrict and control it
Accountable teams
4. Teams - Organize around a seamless network of accountable
teams, not around centralized functions
5. Trust – Trust teams to regulate and improve their performance;
don’t micro-manage them
6. Accountability – Base accountability on holistic criteria and peer
reviews; not on hierarchical relationships
Change in processes
Goals & rewards
7. Goals – Set ambitious medium-term goals; not short-term fixed
targets
8. Rewards – Base rewards on relative performance; not on meeting
fixed targets
Planning & Controls
9. Planning - Make planning a continuous and inclusive process, not
a top-down annual event
10. Coordination - Coordinate interactions dynamically, not through
annual budgets and planning cycles
11. Resources - Make resources available as needed, not through
annual budget allocations
12. Controls - Base controls on fast, frequent feedback;, not on
budget variances

5. Agenda
• Case for Change
• Problems with Traditional Budgeting
– Why “better budgeting efforts” end in frustration
• Journey to Master Business Forecasting
– Five Attributes of Diamond Level Forecasting
• Becoming Future Ready
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6. ©BBRT NA 2015 6
The formula for successful change:
D x V x F > R
Where:
D = Dissatisfaction
V = Vision for change
F = Known first steps
R = Resistance to change

7. Agenda
• Case for Change
• Problems with Traditional Budgeting
– Why “better budgeting efforts” end in frustration
• Journey to Master Business Forecasting
– Five Attributes of Diamond Level Forecasting
• Becoming Future Ready
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8. Seven Key Problems with Traditional
Budgeting
1. Budgets take too long to prepare (often
making them out of date when published)
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2. Budgets cost too much
4. Budgeting causes gaming
that erodes the ethical
foundation of the company
3. Budgeting is based on assumptions that are nearly always
wrong
8

9. 5. Budgeting triggers
unnecessary spending
6. Budgeting gives the illusion of
control by robbing potential
7. In the words of Jack Welch,
“It [Budgeting] brings out the
most unproductive behaviors
in an organization…”
(Jack Welch, “Winning,” p. 189)
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10. How good are you at predicting the
future?
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Budgeting is Based on Assumptions that are
Nearly Always Wrong

11. Agenda
• Case for Change
• Problems with Traditional Budgeting
– Why “better budgeting efforts” end in frustration
• Journey to Master Business Forecasting
– Five Attributes of Diamond Level Forecasting
• Becoming Future Ready
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12. Changing your business to manage in
a volatile world
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Clean sheet?
or
Cumulative Cost
Structure Profile?

13. What ship do
we need?
What projects and initiatives are
needed to transform?
How do we continue performing
while we change?
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14. TARGET
QUARTER
QUARTER
…the world often turns out different to
the way you expected so….
FORECAST
…you first need to
work out where
you are heading
(FORECAST)….
..and then what you have to
do differently to get back on
track (TARGET)
Forecasting is about decision making, because…
..while it is
necessary to have
a plan….
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15. Key concepts and definitions
A target is what we would like to happen
which we achieve by producing
A forecast - what we think will happen
based on:
A set of plans: what we intend to do,
which we change to achieve our target
Specification for a forecast
T = timely
A = actionable
R = reliable
A = aligned
C = cost effective
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TARAC CARAT
Diamond Level
Forecasting

16. Our need to be
able to forecast -
to see into the
future - is driven
by how quickly
we can react to
what lies ahead…
New actions
Major new initiatives
Adjust existing plans
Q1 Q2 Q3 Q4 Q5 Q6
Forecast horizon
imely
(Minimum)
decision making
lead time
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17. Mathematical
Judgmental
Statistical
Three Types of
Model
Every forecast is based on a
model – and different
approaches have different
strengths and weaknesses
ctionable
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18. bias
(slice)
bias
(hook)
variation
eliable Forecasts are reliable if they are unbiased
and have an acceptable level of variation
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19. ligned
The should be only one set of forecast
numbers- but the unpredictable
nature of the world needs to be taken
into account
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20. 1. Do things in the right
order, at the right
speed, often, and in
the same way.
2. Eliminate
unnecessary
movements
particularly if they
cause bias (hook or
slice)
3. Observe the results,
make adjustments,
improve the process
ost Effective An effective forecast process is
also an efficient forecast process
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21. TIMELY
…in good time to take
action
ACTIONABLE …good forecasts have
information about things
we can change…
Impact of activities
business as usual
RELIABLE forecast
negative errors
…unbiased (+ errors = - errors )..
..with an acceptable (known) level of variation…
positive errors
ALIGNED
…pointing in the same
direction…
not
risk
COST EFFECTIVE …right first time - no rework or waste
Diamond Level Forecasting
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22. Agenda
• Case for Change
• Problems with Traditional Budgeting
– Why “better budgeting efforts” end in frustration
• Journey to Master Business Forecasting
– Five Attributes of Diamond Level Forecasting
• Becoming Future Ready
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23. Branch to
branches
(Cost/Income etc.)
1. Branch C 28%
2. Branch H 32%
3. Branch A 37%
4. Branch D 39%
5. Branch F 41%
6. Branch E 45%
7. Branch J 54%
8. Branch B 65%
9. Branch I 72%
10. Branch G 87%
From Fixed Targets
Region to
regions
(RoE)
1. Region D 38%
2. Region J 27%
3. Region I 20%
4. Region B 17%
5. Region E 15%
6. Region F 12%
7. Region C 10%
8. Region H 7%
9. Region G 6%
10. Region A 5%
Source: Handelsbanken
Management System
Bank to banks
(RoE)
1. Bank A 31%
2. Bank D 24%
3. Bank H 20%
4. Bank C 18%
5. Bank E 15%
6. Bank F 13%
7. Bank B 12%
8. Bank I 10%
9. Bank G 8%
10. Bank J 2%
Comparison To
• Peers
• Competitors
• World Class
Benchmarks
To Relative Targets
Handelsbanken’s League Tables
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24. Develop predictive logic diagrams to focus on key drivers
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Media
exposures
Potential
Customer
Universe
Response
rate
Total
Leads
Phone call
unproductive
Appointment
ratio
Total Leads
issued to branch
- Salesmen reschedule appointment
- Branch not issued leads
- Customer reschedules appointment
- No results completion ration
Total sales
calls
Unproductive sales
appointments
Close ratio
Gross
sales
Finance Unsuccessful
sale
Released to
production Installation
Average selling price Net revenue

25. Southwest Airlines
Adjust
Targets
Revise
Forecasts
Analyze
Actual
Results
Identify
Business
Trends
and
Changes
• Align Planning resources around the business
• Establish a “rhythm” to the process
• Allow flexibility to adjust plans
• Push for action plans to drive toward
targets
• Ensure technology facilitates the process
• Planning systems enable the process, not
the other way around
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26. Separate Forecast vs. Target
Helps to identify your initiatives to correct the trend…
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Target 10%
Improvement
Projection
your
plan?
Actual Trend – 4%
growth
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4
is
What

27. Scenario Plan: Gulf War (Jan 2003)
$MM
EPS Impacts of Gulf War EPS Impacts of Mg Actions
Business Unit:__________
Pretax
Income $ Q2 Q3 Q4 l
Risks
•Lower Business Travel
•Weakness in Equity Mkts
•Competitor New Prod Launch
•Additional Technology Development
Opportunities:
•Early end to SARS epidemic
•Further economic recovery
•Improved credit quality
•Additional marketing opportunities
Risk an d Opportunity Assessment
Frequent scenario planning allows …and to create management
finance to forecast the potential “playbooks” to mitigate risks
impact of a range of uncontrollable and take advantage of emerging
events to the annual plan… opportunities
Scenario Planning – American Express
Engage in Scenario Planning
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28. Guidelines for Scenario Planning
GOOD
BAD
1. 4 to 7 planning scenarios
$
2. So good you can
barely spend all the
money you are making
3. So bad that
it threatens
bankruptcy
Bankruptcy
4. Issues/Opportunities
What causes these to
occur?
5. What are your leading indicators?
6. Build your game plans
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29. BBRT Principle #9 - Planning
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Make planning a continuous and inclusive process,
not a top-down annual event

30. Can you change nature?
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Hurricane Ernesto- projected path

31. ©BBRT NA 2015 31
Hurricane Ernesto- actual path

32. Questions?
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And To Learn More….
• Join the Beyond Budgeting Round Table
- Members May Attend the Fall BBRT Member Meeting
in Tampa, Florida on Nov. 16 -17, 2015
• Read Future Ready: How to Master Business Forecasting (Wiley)
For additional follow-up:
Steve Player
214.239.0155
steve@theplayergroup.com
www.bbrtna.org
www.theplayergroup.com