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Financial Planning and Analysis (FP&A)
- 1. www.virtusmind.com FP&A May 2018 – Giorgio Lacagnina
- 2. www.virtusmind.com www.virtusmind.com 2 1 Key principles and main stakeholders. Build and maintain relationships is keystone for FP&A. BUILD RELATIONSHIPS 2 A continuous survey process and the virtuous cycle promote the continuous organization improvements . METHODOLOGY 3 Budget is key to price and get a competitive advantage BUDGETING & PRICING AGENDA 4 Areas for analysis and some KPI’s Analysis
- 3. www.virtusmind.com www.virtusmind.com 3 • Key Principles • Main Stakeholders Buckets CONTENTS BUILD RELATIONSHIPS
- 4. www.virtusmind.com www.virtusmind.com Company Culture As in an organization the work is interconnected, respect deadlines and keep commitment is very important. Keep your commitments Taking/scheduling time to learn what motivate and drive the stakeholders to achieve their goals. Listen Actively!. Understanding Not only accept diverse people and opinions but also welcome them. Diversity Is Vital For Innovation! Welcoming Diversity Treat One Another As Equals- also in relationships in which individuals have different level of seniority, colleagues should treat each other equally. Respect Arrange face to face meeting when possible to establish and improve rapports. Visual cues help commitment Face To Face Meetings Working together develops solutions based on collective insight, wisdom and creativity Mentor - The growth of individual employees benefits the whole Being open and collaborative KEY PRINCIPLES 4
- 6. www.virtusmind.com www.virtusmind.com 6 • Continuous Survey Process • Virtuous Cycle CONTENTS METHODOLOGY
- 7. www.virtusmind.com www.virtusmind.com Understand Analysis Assess Deliver Data-based decision-making, an essential element of continuous quality improvement, helps individuals and teams to assess the efficiency and effectiveness of current processes. CONTINUOUS SURVEY PROCESS 7
- 8. www.virtusmind.com www.virtusmind.com 8 CONTINUOUS SURVEY PROCESS • Understand: Goal is to accelerate the learning process to make effective contribution faster. • Step 1: Perform an audit of the team, key processes and the performance of core initiatives. • Step 2: Interview/meet the regional management team to learn the business and understand their needs. • Step 3: Interview/meet the Functions managers to learn company’s process and procedures for each function and understand needs. • Analysis and Assess: Goal is to identify opportunities for short term and long term improvement. • Step 1: make a gap analysis between current process and procedures and stakeholders/business expectations. • Step 2: Assess the gaps with solutions agreed with the stakeholders to help the business in achieving its strategic aims. • Step 3: Set up KPIs with the stakeholders according to the company strategy and objectives. • Delivers: Goal is to deliver first class FP&A support that will have the biggest impact on performance. • Budget • Maintain cost and pricing models • Monthly rolling forecast • Biweekly / Monthly meeting with the operations and function management • Variance analysis • KPI analysis • Deliver reports to support the ad-hoc
- 9. www.virtusmind.com www.virtusmind.com Business Goals, Strategies, Risks Analysis Stakeholders Engagement Delivering Plan, Budget, Forecast, Actual and Variance Analysis to the Business Continuous Improvements Understand and keep focused on what the business goals, strategies and risk are. Business Goals, Strategies and Risk Make all the necessary analysis to help the business in taking operational, financial, and strategic informed decisions in different aspects of the business. Analysis Build-up and maintain relationship with the stakeholders , understanding their needs and establish long term collaboration with them Set-up regular meeting (biweekly– monthly) to discuss Actual, Forecast, Budget. Drive a culture of cost consciousness (On Budget, On Time, To Specifications). Stakeholders Engagement Lessons learned and incremental improvements in order to improve efficiency and quality to this process and ultimately to the business . Continuous Improvements Provide the business with most realistic Budget and forecast, challenge the status quo, help the business to achieve strategic goals. Deliver Plan, Budget, Forecast, etc. VIRTUOUS CYCLE 9
- 10. www.virtusmind.com www.virtusmind.com 10 • Budgeting Cycle • Product Line Master Budget (Helicopter View) • Product Line Master Budget • Pricing For Product Line • Direct / Indirect Labor Rate • Two Ways Interaction • Consolidated Budget CONTENTS BUDGETING & PRICING
- 11. www.virtusmind.com www.virtusmind.com Sales Forecast Resources Required Sales MarketingG&A Challenge Sales forecasting can play a major role in company’s success. From Budgeted Sales the business may derivate all the main cost drivers and resources utilization which are fundamental for Pricing. 1. Sales Forecast Identify all the “Direct” and “Indirect” resources required to meet the “Sales Forecast”. This imply also utilization of internal resources such as labor. 2. Resources Required Understand and evaluate all Sales and Marketing costs for each product line and evaluate how those costs are leveraging the product line sales. 3. Sales & Marketing Costs Associated Challenge Costs by pushing to increase Production and Administrative Efficiencies. By Improving Efficiency are we more Competitive and therefore can we increase our sales? 5. Challenge Improve Resources Utilization Efficiency Understand and evaluate all generic and administrative costs related to each product line and evaluate how the contribute to the product value chain. 4. G&A Costs Associated BUDGETING CYCLE 11
- 12. www.virtusmind.com www.virtusmind.com PRODUCT LINE MASTER BUDGET /PRICING (Helicopter View) Volume of Sales Resources Employed Master Budget Pricing Product Line
- 13. www.virtusmind.com www.virtusmind.com Budgeted Income Statement Budgeted Balance Sheet Budgeted Statements of Cash Flow Sales of Services or Goods (Revenues Budget) Ending Inventory Budget WIP and Finished Goods Production Budget Direct Material Budget Direct Labor Budget G&A / Overhead Budget Marketing and Sale Costs Budget Cash Budget Ending Inventory Budget Direct Material PRODUCT LINE MASTER BUDGET
- 14. www.virtusmind.com www.virtusmind.com Sales of Services or Goods (Expected Quantity – Cost Drivers ) PRICING FOR PRODUCT LINE Direct Material Cost Per Unit Direct Labor Costs Per Unit Budget Direct Cost Per Unit () Associated G&A / Overhead Budget Associated Marketing and Sale Costs Budget Associated Financial Costs Budget Number Of Units Indirect Cost Per Unit () += Breakeven Price Per Unit ++Mark-Up*= Final Price Per Unit *Strategic Choice
- 15. www.virtusmind.com www.virtusmind.com DIRECT / INDIRECT LABOR RATE * Number of days(hours) an employee is expected to work in a Year. Usually is calculated by starting from the number of days in a year (365) less weekends, less contractual annual leaves, less bank holidays / public holidays. ** Average sick leave, average maternity / paternity leave, other leave in the organization. *** Contract Days (Hours) less expected inefficiency due to period of inactivity, average sick leave, average maternity / paternity leave, other leave in the organization. Full Utilization Indirect Labor Rates Direct Labor Rates Expected Utilization (Expected Inefficiency build In)
- 16. www.virtusmind.com www.virtusmind.com TWO WAYS INTERACTION Final Master Budget Pricing Initial Master Budget
- 17. www.virtusmind.com www.virtusmind.com CONSOLIDATED BUDGET Consolidated Budget Product Line 1 Master Budget Product Line 2 Master Budget Product Line 3 Master Budget Product Line n Master Budget
- 18. www.virtusmind.com www.virtusmind.com 18 • Main Areas of Analysis • Some KPI’s CONTENTS ANALYSIS & KPI’s
- 19. www.virtusmind.com www.virtusmind.com Budget Vs Actual – Budget vs Forecast – Forecast vs Actual – Forecast vs Prior Forecast • Sales • COS • Base Margin • Mark-Up • Standard Costs • Operating Profit • Net Profit Margin • Selling & Marketing Expenses • Financial Costs • General and Administrative • Break Even • Accruals Budget Vs Actual – Budget vs Forecast – Forecast vs Actual – Forecast vs Prior Forecast • Inventory Turnover • Inventory days • Quick Ratios • Receivable Collection Period • Receivable Aging • Payable payment Period • Payable Aging • Current Ratio • Accruals MAIN AREAS FOR ANALYSIS Income Statement Statement Of Financial Position
- 20. www.virtusmind.com www.virtusmind.com • Target Base Margin • Target Mark-Up • Target Operating Profit • Target Net Profit Margin • Target Cost Savings • Target Inventory Turnover • Target Inventory days • Target Receivable Collection Period • Target Receivable Aging • Target Payable payment Period • Target Payable Aging • Target Current Ratio • Target Quick Ratio • Target ROACE • Target ROE • Target ROI Efficiency Effectiveness Output / Input (Do Things Well) Results / Objectives (Do Things Right) • Labor Utilization • Machinery & Equipment Utilization • Financial Resource Utilization • Actual Sales / Target Sales • Actual Costs / Target Costs • Sales & Marketing Expenses / Actual Sales SOME KPI’s From Financial Statements Examples of Efficiency and Effectiveness
- 21. www.virtusmind.com THANK YOU GET IN TOUCH WITH US!