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Financial Planning and Analysis Presentation
- 2. • Introduction • What is Financial Planning & Analysis and Why Should You Care? • Approaches for Planning • Common Problems to avoid • Stories from my Career • Worked Example • Wrap-up and Q&A Contents
- 3. About Me
- 4. What do you understand by “Financial Planning and Analysis”?
- 5. Core responsibilities of the Corporate FP&A Function: 1. Reporting results, often consolidated across multiple areas of the business. 2. Producing Board presentations. 3. Forecasting and Budgeting. 4. Ad hoc analysis – financial implications of any kind of decision. 5. Often help in preparation of statutory accounts. 6. Input into Tax, Treasury and other ‘operational finance’ areas.
- 6. What is Financial Planning & Analysis and Why Should You Care? “Financial” - virtually everything in business has a financial component or outcome. “Planning” - working with management to put together budgets and forecasts. “Analysis” - helping management understand HOW and WHY reality is different from the forecasts.
- 7. What is Financial Planning & Analysis and Why Should You Care? Benefits: Develop Tactical and Operational plans to fulfil Strategic Goals. Foresee problems and put contingency plans in place. Be able to take advantage of future opportunities. Evaluate options and make good decisions. Hold managers accountable for their teams’ performance.
- 8. What is Financial Planning & Analysis and Why Should You Care? Definition: Financial planning is a continuous process of directing and allocating financial resources to meet strategic goals and objectives.
- 9. What is Financial Planning & Analysis and Why Should You Care? Informs ongoing Tactical decisions. Leads to changes in Operational Management. Primary output: Annual Budget or Plan, Quarterly / monthly Forecasts Secondary output: analysis comparing Actual results to the Budget, Forecast and (usually) Prior Year Actuals – frequently referred to as the “Management Accounts”
- 10. Approaches Two main approaches: 1.Top Down 2.Bottom Up
- 11. Top Down Approach Pros: + Quickest, easiest way to produce a forecast. + Strategic in focus, takes into account Macro-environment. Cons: - Least granular. - Least useful for future analysis. - Can fail to account for changes in context. - Reliant on judgement of senior managers. - Prone to manipulation.
- 12. Top Down Approach Process: 1. Gather data from previous years. 2. Calculate KPIs 3. Establish trends and roll them forward. 4. Build in assumptions about Macro-environment. 5. Set goals, e.g. “increase Revenue by 10%” or “maintain 15% EBITDA” 6. Evaluate investment required to meet goals. 7. Communicate plan.
- 13. Bottom Up Approach Pros: + Granular, useful for variance analysis + Tells you HOW Strategic goals will be achieved. + Basis for Financial modelling. + Ownership. Cons: - Time consuming. - Quality dependent on skills, quality of data and sophistication of technology - “Spurious accuracy” - Unambitious targets.
- 14. Bottom Up Approach Process: 1. Model business based on relevant drivers at required level of granularity. 2. Gather data from previous years and use to calibrate/test model. 3. Enter assumptions from Top-Down plan 4. Run Forecast
- 15. Bottom Up Approach Process Continued: 5. Compare Bottom-Up Forecast to Top-Down Forecast. 6. If there is a gap, evaluate measures required to bridge gap. 7. Revise as required until goals are reached. 8. Run sensitivity analysis. 9. Create Tactical and Operational Plans 10.Monitor progress.
- 16. First rule of forecasts: Forecasts are always WRONG, but good ones are USEFUL. Second rule of forecasts: A Forecast is only as good as its underlying assumptions.
- 17. Problems to avoid with Forecasts Not revising them frequently enough Compensating managers based on meeting or beating Budget Becoming an end in themselves Bad comparators
- 18. War Stories Not revising them frequently enough Compensating managers based on meeting or beating Budget Becoming an end in themselves Bad comparators
- 19. Worked Example
Notes de l'éditeur
- Introduction – 10 mins About me. What do you understand by “Financial Planning and Analysis”? Core responsibilities of the Corporate FP&A Function What is Financial Planning & Analysis and Why Should You Care? Benefits Definitions Approaches – 15 mins Top Down Bottom Up Problems to avoid with Forecasts – 5 mins Not revising them frequently enough Compensating managers based on meeting or beating Budget Becoming an end in themselves Bad comparators War Stories – 10 mins CTC REL Worked Example – 45 mins See printed handouts Solution Wrap-up and Q&A – up to 30 mins
- Worked in Finance for the last 16 years History degree from UCL in 2001 MBA from WBS in 2014 Ford Finance Graduate Scheme straight after University - 2001 Ford Motor Company – multiple roles Jaguar Financial Reporting Transport Operations Controllers Office European Treasury Cash Management European General Auditors Office Lehman Brothers – 1 year before the bankruptcy – plenty of stories, ask me later! - 2007-8 Lehman Brothers – administration post-bankruptcy with PWC Aramark – core FP&A role Contracting: John Lewis Dun & Bradstreet IAG (British Airways) Serco L3 Technologies Advantage Smollan Consulting: Business Financial Planning for Start-ups Financial Modeling using Excel
- Class Discussion
- Reporting results, often consolidated across multiple areas of the business. Annual Quarterly Monthly Weekly! 2. Producing Board presentations. Usually big decks of slides, produced in Powerpoint and printed, then hand-annotated. Reviewed in staggering detail. 3. Forecasting and Budgeting. Different companies have different approaches, varying in detail, flexibility, administrative burden 5 year Plan Annual Budget Reforecast on a Quarterly or Monthly basis 4. Ad hoc analysis – financial implications of any kind of decision. Dreaded walk-ups. Magic spreadsheets 5. Often help in preparation of statutory accounts FP&A see the top-level numbers and are gatekeepers for the people who know the detail. 6. Input into Tax, Treasury and other ‘operational finance’ areas. Planning affects everyone Is a subsidiary finally going to start making a profit? Tax need to know to understand implications and options. How much cash will the business generate o burn next year? When? Treasury need to know to arrange funding/investments
- What is Financial Planning & Analysis and Why Should You Care? – 5 mins
- Approaches – 15 mins Two Main Approaches to Budgeting/Forecasting Top Down Bottom Up These work best in conjunction with each other!
- Problems to avoid with Forecasts – 5 mins
- Not revising them frequently enough - Things change, slavish adherence to past assumptions is damaging - Annual Compensating managers based on meeting or beating Budget - Unambitious targets - Haggling - Counter-productive decision making Becoming an end in themselves - Wastes time - Leads to inflexibility Bad comparators - Previous targets - Different situations - Changing policies
- War Stories – 10 mins CTC “Client A” Having to verify YTD P&L New P&L Model Change to Revenue Recognition Policy REL “Client B” Proxy numbers Incomplete records Inconsistent accounting policies and processes Estimates
- See printed handouts 30 minutes Solution 15 Minutes