CFO Budgeting Survey - PwC accuracy remains an area of improvement ... sWU sWULEXWo wh h aa industry...

CFO Budgeting Survey

A unique overview of the priorities of the budgeting and forecasting process in Luxembourg for 2015.

www.pwc.lu/ffe

2 | CFO Budgeting Survey

Table of Contents

Executive Summary ...................................................................................... 4

About the survey .............................................................................................. 5

Financial management priorities ....................................................... 6

Key challenges and trends in financial planning .................... 8Although less time is required overall, budget preparation is still time-consuming ............................................................................................................................................ 8

A perceived need for more detail .............................................................................................. 10

Encourage appropriate risk taking .......................................................................................... 12

Forecasting accuracy remains an area of improvement ....................................... 14

Moving toward an activity-based approach .................................................................... 16

Technology, processes and organisational improvement ................................... 18

KPIs remain important indicators ............................................................................................ 20

The limitations of the rolling forecast approach ......................................................... 22

Your contacts ................................................................................................. 24

PwC Luxembourg | 1

PwC Luxembourg | 3

Foreword

Dr. Florian KühnleIndustries & Services Leader, PwC Luxembourg

We created the CFO series in 2011 to provide an overview of the various changes, challenges and trends relating to the finance function in the Luxembourg marketplace. Each recurring survey is conducted every three years.

Now in 2015, we are pleased to highlight the key issues related to budgeting and forecasting activities compared with three years ago. Most notably, we focus on the organisational priorities, current budgeting and forecasting processes, key challenges and trends, and the current approaches adapted to today’s volatile marketplace.

In doing so, we hope to provide Luxembourg’s financial professionals with the knowledge and understanding of how other companies and industries are handling and managing the challenges in today’s financial planning process.

We would like to thank the participating companies for their support and encourage other Luxembourg companies to contribute to the next study.

Philippe FörsterIFRS & Treasury, PwC Luxembourg


Executive Summary

Today’s Budgeting Challenges

The ongoing uncertainty and instability in the past years have put continuous pressure on CFOs to work owa s o h a a

activities for both internal and external stakeholders. Looking to our survey, respondents in Luxembourg mirror this trend as CFOs note continuous improvement activities similarly to three years ago.

We are pleased to present the s o o C

Budgeting Survey. The survey o s a o w o h a a

priorities and approaches used by Luxembourg companies to overcome the challenges and grasp the opportunities in the current economic climate.

The survey focuses on the trends and challenges faced by the four predominant industries in Luxembourg: Banks, Investment Funds, Insurance Providers and Operational Companies. In doing so, we aim to highlight the various approaches to the budgeting process on an industry-by-industry basis.

Key conclusionsManagement priorities

External business events are of considerable concern to a vast majority of CFOs; although management remains more focused internally and efforts made in the past on improving business analysis, cash and cost management a a o as o a a a s s s a ss priority compared with 2012.

Time decreased, but still significant

ss s o s budgeting activities across almost every category, but with limitations. A majority of respondents continue to require s a o ss o o consolidate and reconcile data, among other activities.

More detail and accuracy needed

The level of detail and accuracy of forecasts continues to be relevant in 2015, even after decent improvements compared to three years ago. Finance executives feel they have yet to come to grasps with the uncertain business

o a o o o o as a a

Process design is the baseline for an effective budget

The overall approach adopted by the company, combined with a number of key factors, has a significant influence on the effectiveness of the budgeting process. Those factors include the departments involved, the use (or lack thereof) of a rolling forecast and the leverage of technology.

PwC Luxembourg | 5

About the survey

Company Industry

18% Manager

Participant Role / Position

Type of Company Company turnover

The beginning of 2015 sparks the h s a o o C

survey series, focusing on the trends and challenges of today’s ever evolving

a o h s was o o a o ss o a s o various companies and industries in Luxembourg, from November 2014 to February 2015.

Complementing the 2014 CFO Reporting and Closing Survey, this year’s Budgeting Survey emphasises o a s a a a o s

challenges, trends and approaches compared with our survey in 2012.

Over 110 C-level executives (CEOs, C s a a a a a s a heads of departments of both local and international companies based in

o o a s o o our survey on the activities and challenges related to the budgeting processes. Our evenly distributed participant positions give our survey a unique, encompassing

w o o h a a a process.

Moreover, the survey population also strongly resembles Luxembourg’s own

s s o w h h a a industry being the overwhelming majority, (broken down into banks: 17%, insurance

companies: 14% and investment funds: 33%) while including a strong operational industry (36% of respondents work for operational companies).

Compared to our 2012 Budgeting Survey, and in response to various suggestions by past respondents, we have introduced a major change by splitting the responses into the four key industries below: Banks, Insurance, Investment Funds, and Operational Companies. In doing so, we are able to highlight the variety o a oa h s o h a a a process between the industries.

14% Insurance Companies

17% Banks

33% Investment Funds

36% Operational

Companies15% Financial Controller

17% CEO or BoD

35% CFO

40% Subsidiary

60% Holding/

Parent Company

15% Director, Head of Department

20%10M to 50M EUR

18% 250M EUR and above

19% 100M to 250M EUR

12% 50M to 100M EUR

31% 0 to 10M EUR


Financial management priorities

Improving the financial activities has become less of a priority

Needs Improvement

Adequate

Good

Excellent0%

20%

40%

60%

80%

100%

Transaction processing

Decision support/business analysis

Working capital

management/cash

management

Cost management

Internal management

reporting

External a a

reporting

Planning, budgeting,

& forecasting

Risk management

Regulatorycompliance

Rate the quality of the following financial activities within your budgeting process

14%

37%

45%4%

12%

26%

56%

6%

8%

33%

50%

9%

9%

28%

54%

9%

11%

28%

48%

13%

5%

24%

54%

17%

13%

24%

51%

12%

8%

34%

51%

7%

3%

27%

58%

12%

Key Takeaways• Top financial management priorities are “Cost Management”, “Decision Support” and “Internal

Management”, which are the same as they were in 2012, albeit with a slight change of order.

• CFOs are very demanding of themselves, as the top 3 priorities from 2015 are listed among the top 5 best rated in terms of quality.

As economic conditions ease, companies are working to map their

a h o ow h a a a a effectiveness, regardless of industry.

In this climate of increasing economic a a a a a s who

are required to do more with less, have been facing the challenge of balancing needs from both internal

and external stakeholders, combined with the continuous pressure of improving h a a a o ss s

Companies need to accomplish more with less resources and as a result there is less room for error, which explains why they’ve been looking forward to having better processes and technology systems

3rd 1st 2nd

oo a a a s as a whole, when we asked respondents how they deal with their budgeting processes in comparison to 2012, h a h a a s

better than three years ago. Indeed, o s o s ha a

h a a a s as satisfactory (Excellent & Good combined).

o a a a os s h ability to forecast and plan for the future is a critical dimension of companies’ efforts to meet demand and serve customers, while maintaining hard-won o a s

*The computed value is the weighted average of the

categories. Value is not shown in the corresponding

graph.

PwC Luxembourg | 7

PwC Luxembourg’s viewFinancial activities improved somewhat over the past few

a s ss o o a s s a o o s o s ha a h a a a s as

being “satisfactory”).

s s o ha a executives are turning their attention to these and other performance-management activities. When we as a s o o s their improvement priorities in

a o h wo a s s respondents most often predicted that “Cost Management” (60%) and “Decision support/Business analysis” (60%) would become higher priorities for improvement (combining “much higher” and “higher priority”). These performance-management activities managed to edge out “Internal Management Reporting” (53%) and “Planning, Budgeting & Forecasting” (52%). However, the 2015 survey also shows that most CFOs do not intend to improve their Financial Activities as such, as this used to be part of their priorities in the past.

In comparison to 2012, we also noted that improvement will become a higher priority and improvement will become a much higher priority have decreased by 21%.

Improvement will become a much lower priority

Improvement will become a higher priority

No change expected

Improvement will become a much higher priority

Rank the priority of improving the following financial activities in the coming 2 years

Ranking2015 2012

0% 20% 40% 60% 80% 100%

2012

2015

2012

2015

2012

2015

2012

2015

2012

2015

2012

2015

2012

2015

2012

2015

2012

2015

Transaction processing

Regulatory compliance

Working capital /Cash management

Risk management

Planning, budgeting & forecasting

Decision support/business analysis

Cost management

a a a reporting

Internal management reporting

6% 29%53% 12%

2% 69% 23% 6%

9% 35% 32% 24%

4% 55% 39% 2%

29% 51% 20%

2% 52% 43% 3%

3% 26% 31% 40%

3% 51% 35% 11%

26% 38% 36%

1% 51% 43% 5%

3% 19% 49% 29%

2% 45% 43% 10%

24% 41% 35%

40% 43% 17%

9

8

7

5

4

3

2

1

6

9

8

7

4

2

5

1

3

6

3% 15% 41% 41%

40% 51% 9%

29% 54% 17%

3% 45% 41% 11%


0%

20%

40%

60%

80%

100%

2012 2015 2012 2015 2012 2015 2012 2015Insurance Companies

per industry

2012 2015

Total Operational Companies

Banks Investment Funds

Key Takeaways• Overall, the time required to prepare budgets has decreased compared to 2012, except for insurance

providers who have actually seen an increase in the time required.

• Although the majority of respondents complete their budgets in less than 2 months, the amount of time required is still perceived by respondents to be significant.

ho h a a a a s between companies and from one industry to the next, today’s

a s o o sha common challenges and follow underlying trends present within

the marketplace. Their role – which has evolved to that of involved business partners – coupled with today’s volatile economic environment has put a severe s a o h a a a o ss so s w h o fl a s

How much time is required to prepare your budget?

40%

20%

46%

31%

15%

40%

8%

47%

47%

6%

15%

47%

32%

6%

40%

30%

20%

10%

33%

27%

40%

40%

40%

20%

20%

32%

48%

Key challenges and trends in financial planning

Although less time is required overall, budget preparation is still time-consuming

Compared to 2012, the market has made a strong shift for the better regarding the overall time required to prepare budgets and forecasts in 2015.

Three of the four industries represented have made strong time improvements regarding their budgeting process. An overwhelming majority (73%) prepares their budgets

ss ha wo o hs a s a increase over the 54% reported in 2012. Moreover, half (37%) of the above-mentioned respondents prepare their budgets within a month, a staggering (23%) increase compared to 2012.

s s a ha a executives from operational companies reported the greatest improvement, with an increased number of participants (26%) now also preparing budgets within 2 months. Participants from the insurance sector, on the other hand, indicated an overall increase in the time required, showing a 14% increase in participants requiring over 3 months.

The following sections focus on the main ha s a a s a

on the steps they have taken, with regard o h a a a o ss o a

these challenges head-on.

More than 4 months 3 to 4 months 1 to 2 months Less than 1 month

14% 37%

40%

36%

43%

24%

3%3%

PwC Luxembourg | 9

0%

20%

40%

60%

80%

100%


Operational Companies


PwC Luxembourg’s viewThe shift towards faster budgets may be explained by the volatile business environment rendering many budgets obsolete before they are even approved by o a a o a

professionals have made the conscious decision to generate budgets faster to remain relevant in the short term.

In general, how much time and effort does your company currently spend on the following activities when preparing its budget?

0%

20%

40%

60%

80%

100%

2012 2015 2012 2015 2012 2015 2012 2015 2012 2015 2012 2015Reviewing the

budget &securing approvals

Collecting, consolidating, & reconciling

data & info

Developing targets

and identifyingbusiness drivers

Analysinginformation (including variance analysis)

Gaining consensus

a o aand operating

managers

Preparing reports

for use in budget approval

process

Excessive time and effort s a a o a o

Some time and effortLittle or no time and effort

35%

56%

9%

11%

42%

42%

5%

3% 4% 13%6% 11% 6% 16% 6% 10%26%

59%

12% 11%

46% 56%

39% 38%

37%

45%

5%

36%

55%

9%

38%

45%

6%

59%

29%

6%

44%

35%

5%

38%

56%

47%

35%

8%

a s ha also become less time-consuming, but with limitations. Globally, compared to 2012, the time required per budgeting activity has decreased, with almost every activity seeing a slight decrease in the time needed.

However, a closer look reveals that large percentages (41%)* of respondents continue to require a s a a o o activity involved in preparing the budget. Meanwhile, a small number of respondents (7%)* report that they require an excessive amount of time and effort.

As was the case in 2012, the most time-consuming activity is collecting, consolidating, and reconciling data/info with almost two out of three (57%) respondents requiring at least a s a a o o a effort.

Although three out of the four industries have increased their

o a s o s from the insurance sector report a s a as w h a s a amount of time and effort and 8% needing an excessive amount of time and effort.

Collecting, consolidating & reconciling data/info

Excessive time and effort

s a a o a o

Some time and effort

Little or no time and effort

60%

20%

7%

35%

47%3%

15%

80%

14%

53%

50%

25%

48%

35%

10%

13%

20% 33% 25%

7%

62%

30%

8%

40%

60%

*The computed value is the weighted average of the categories. Value is not shown in the corresponding graph.


Increasing forecast detail would yield more insight during the decision making

Neither - we already forecast at the right level of detail

Decreasing forecast detail would simplify decision making

Not applicable

What would your company most benefit from: increasing/decreasing the detail of its forecasts in each of the following areas?

0%

20%

40%

60%

80%

100%

Projects/business

initiatives

Revenue Cash flow Working Capital

Workforce costs/

requirements

Direct costs Capital costs/reqd.

2012 2015 2012 2015 2012 2015 2012 2015 2012 2015 2012 2015 2012 2015

50%

5%

5%

55%

35%

2% 12%76%

24%22%

73%

53%

3%

35%

50% 13%

4%

22%

61%

11%

3%62%

24%

11%

3%73%

13%

3%3%63%

31%

2% 3% 1%15% 18%

8% 3% 10%

66%

23%27%

58%2%

20%

60%

60%

30%

67%

27%

Key Takeaways• One out of four respondents believes more forecasting detail would yield more insight, while the

majority believe they have found the right level of detail.

• “Projects/business initiatives” and “workforce costs” were the two activities most commonly noted among respondents as requiring more detail.

PwC Luxembourg’s views h a so s o s o o s w h o o a a o s

o a s o s ha o o a a a deliverables should be insightful with simple, easy to follow assumptions, allowing management to easily trace and monitor key business drivers and the cause of potential variances.

In 2012, we mentioned the need to strike a balance between too much and not

o h a a h a a planning process – especially with regard to actuals. A challenge faced by many

a a o ss o a s s h right amount of detail that will provide management with enough insight, while avoiding complexity that may cloud the key drivers of the business.

Over the last three years it seems the majority of respondents have continued to take steps toward forecasting at the right level of detail, with almost two out of three (64%)* believing that they forecast at the right level of detail, compared to 61% in 2012.

Nevertheless, almost a quarter (24%)* of respondents still believe that additional o as a wo s a

insight during the decision-making process, potentially demonstrating the need for more insight resulting from h a a a o ss h

other hand, a small percentage (5%)* of respondents noted the opposite, believing that a decrease in forecasting detail would actually simplify decision making. It is h s s h o s o s o

an overdose of detail, which may signal that the push for more detail over the last 3 years may begin to cloud some respondents’ forecasts.

Taking a closer look at the individual improvement items, forecasting granularity of revenues seems to have changed the least over the last three years, with 22% of respondents still believing more detail would yield greater insight, compared to 24% in 2012. This may be due to many respondents forecasting with common pro-forma statements which traditionally rely very heavily on the accuracy of revenue forecasting.

A perceived need for more detail


PwC Luxembourg | 11

More dramatic shifts were noted within the Projects/business initiatives item.

An average of 35% of respondents across the four industries noted that they would like to increase the forecasting detail of their Projects/business initiatives, ranking it the highest priority of the seven items.

h o o as potential revenues, costs, or expenses resulting from projects/business initiatives, it comes as no surprise that this category continues to be one of o o a a o ss o a s

Cash flow management and forecasting continues to be a major topic after the economic recession in 2008, with almost a quarter of respondents (22%) reporting more detail would yield greater insight.

Insurance and operational companies (more than banks and investment

s ha a ha ash flow forecasting continues to be a major improvement category, with 31% and 34%, respectively, noting additional detail would yield greater insight to management.

Projects/business initiatives

0%

20%

40%

60%

80%

100%




60%

40%

16%

38%

46%

46%

54%

40%

60%

6%6%

58%

30%

75%

25%

33%

60%

7%7%

53%

40%




Not applicable

Cash flow

0%

20%

40%

60%

80%

100%




20%

40%

7%

8%

54%

53%

47%

30%

50%

16%

3%47%

75%

25%

10%

4%

10%20%

67%

13%




Not applicable

40%

31%34%

20%

76%


0%

20%

40%

60%

80%

100%

2012 2015 2012 2015 2012 2015 2012 2015 2012 2015 2012 2015Motivating managers

to take appropriate

risks to grow business

Allocating resources

a o aoperating activities

into closeralignment with

o a

Providing a valuable check on

business unit/business line

decision making

Providing a coherent set of

o o understood

operational anda a

performance targets

Setting out a clearframework for

h a a s s oactual results

The following items are commonly cited benefits of budgeting. In your opinion, what do your company’s budgets do well? Where could they improve?

28%

59%

13%

38%3% 5% 6% 5% 13% 4% 3% 7% 19% 11%

34%

25%

38%

53%

9%

49%

37%

9%

45%

39%

10%

46%

41%

8%

45%

32%

10%

51%

37%

8%

47%

50%

58%

32%

3% 4%

19%

58%

59%

24%

6%

Encourage appropriate risk taking

a a a o o o s a s a

upper management with insight into the future but also with a target roadmap, showing where the

o a s a a o a currently stands and where it needs to go. Coupled with intuitive analysis and proactive management, s ss a a a a the difference between achieving high set goals and simply reaching for the low hanging fruit.

As a whole, over half (56%)* of respondents reported a strong or excellent performance across the six

s a o compared to 50% reported in 2012. Like three years ago, the

s was o as setting out a clear framework for the analysis of actual results, with almost three out of four (70%)* respondents stating that this was either strong or excellent. The greatest improvement compared to 2012 was noted as allocating

so s w h a increase in strong and excellent performance, to a total of 54%*.

PwC Luxembourg’s view s ss a a s a o o s o s o o h a o o ass o s h a a

a o ss a s sho o ha h a o o a o a s o o s should set high but realistic targets that push and motivate stakeholders to strive and be in line with long-term company strategy and goals. Setting targets that are either unrealistic or out of reach may instead give way to lack of motivation or a a wh a o s o sha ow o a o a a wa o a s

Low Average Strong Excellent

Key Takeaways• One out of four respondents reported their budgets had a poor performance regarding “motivating

managers to take appropriate risks”, an evident shift compared to three years ago accross the categories.

• Other budgeting benefits were cited as having a strong performance, with the majority of respondents noting either strong or excellent performance.


PwC Luxembourg | 13

When we asked our survey participants where they could improve, however, a a o a s reported that their budgets were poor or ineffective at motivating managers to take appropriate risks to grow the business.

Looking at the four industries represented, it is clear that all of our respondents are currently struggling in motivating their managers, with the majority (59%) of respondents reporting average or low performance. Operational companies, the leading culprit, however, have seen a drastic increase in respondents reporting low performance (from 8% in 2012 to 32% in 2015).

Unfortunately, motivating managers was already cited as performing below expectations in 2012 and has apparently worsened over the course of the three years. An additional 13% of respondents said that their current budgeting process did not effectively motivate managers to take appropriate risks.

Motivating managers to take appropriate risks to grow business

0%

20%

40%

60%

80%

100%




60%

40%

23%

54%

23%

38%

54%

20%

70%

35%

32%

32%

50%

50%28%

41%3%7%

53%

33%

Low Average Strong Excellent

8% 10%7%

28%

1%


Financial planning is of course most effective when the forecasted

a a s s os o o only slightly deviate from the actual

o a o h h h ever changing business environment and overall precarious state of the European economy over the past few years, it has become more important than ever to use adequate forecasting techniques.

Finance executives have made decent strides in forecasting accuracy compared to three years ago, with roughly half (52%) the respondents reporting actuals within +/- 5 % of forecasts, compared to 43% in 2012.Although respondents have slightly improved their forecasting accuracy over the last three years, it s s a s o o favour generating conservative over optimistic forecasts. More concretely, o h wo o o

respondents reported conservative forecasts, while only 15% reported optimistic ones. A closer look within industries reveals that operational companies seem to vary the most between optimistic and conservative forecasts, with 24% and 29% respectively.

In general, approximately how close to actual performance have your forecasts proven to be over the past three years?

0%

20%

40%

60%

80%

100%


2012 2015Operational Companies


per industry

Total

60%

40%

31%

38%

15%

16%

54%

8%

38%

7%

6%27%

45%

15%

23%

33%

44%

13%

27%

40%

20%

50%

50%

3%7%

41%

38%

11%

+/- 11% to 20% of forecast >+/- 20% of forecast

+/- 2% or less of forecast +/- 6% to 10% of forecast+/- 3% to 5% of forecast

Are your forecasts conservative or optimistic?

0%

20%

40%

60%

80%

100%




per industry

Total

60%

40%

46%

31%

23%

38%

38%

24%

29%

47%

24%

33%

44%

23%

40%

60%

50%

50%

40%

50%

10%

Neither of these (our forecasts tend to be evently distributed between conservatism and optimism)

Conservative ( underestimating actual performance)

Oprimistic (overestimating actual performance)

Forecasting accuracy remains an area for improvement

Key Takeaways

• One out of two respondents prepares forecasts within 5% of actuals, a decent improvement compared to three years ago.

• “Uncertainty in the external business environment” was cited as the factor most likely to lead to variance between forecast and actual.

35%

42%

23%

4%11%

33%

38%

14%

42%

42%

16%

37%

48%

15%

PwC Luxembourg | 15

Which of the following factors are most likely to lead to variances between forecasts and actual performance at your company?

0%

20%

40%

60%

80%

100%




Total

per industry8% 6% 4% 10%

7%

7%

21%

7%

14%

7%

29%

3%7%

3%

7%

33%

17%

17%

7%

6%

3%9%

30%

3%12%

24%

9%

11%

5%

33%

4%11%

21%

15%

5%

6%

24%

18%

29%

18%

3%10%

3%42%

6%

13%

13%

16%

67%

17%

8%

3%3%

43%

3%10%

23%

7%

Forecasting over long time horizons (i.e. 6 months or more)

a ss a o o a a o a o a o o o indicators, industry reports...)when forecasting

Confusion between forecasts and targets/pressure to match forecasts to targets

a o a a a aUncertainly in the external business environment

OtherForecasting in too much detail

ass ss s o o as sa a a a a

When asking respondents about which factors most likely lead to variance between actuals and forecasts, uncertainty in the external business environment was reported most frequently, by 38% of respondents – a percentage similar to the one from three years ago (35%). Forecasting over long time horizons (i.e. 6 months or more) was reported as the second most likely factor by 18% of respondents across industries, most notably by investment funds.

Evidently, all industries are grappling with these two factors when it comes to accurate forecasting. For roughly 15% of respondents at operational

o a s a ss a incorporating external information (e.g. macro-economic indicators, industry reports…) when forecasting seems to be a third likely cause for variance.

s s a s ha a decent strides in improving their forecasting accuracy while continuing to struggle with an uncertain business environment and over-conservative

a a a

PwC Luxembourg’s viewAccurate forecasting is a skill that takes time and experience and therefore cannot be developed overnight. However, involving stakeholders from various relevant departments will ensure that solid assumptions drive the

a a a o ss

2%8%

5%3%

38%

2%11%

20%

11%

3%7%

4%3%

4%

14%

21%

13%

31%


Which statement best describes the current budgeting process at your company?

Moving toward an activity-based approach

When we asked our respondents whether they used top-down, bottom-up, or activity-based budgeting, they replied that each approach came with its own advantages and disadvantages. On the one hand, a top-down approach may help mitigate conservatism, while on the other hand, decisive business trends usually come from the operational staff, deeming a bottom-up approach more viable.

In fact, it now seems that activity-based budgeting – a more balanced approach incorporating both bottom-up and top-down approach inputs – customised to relevant activities may be the most optimal solution.

Compared to 2012, we noted an increased use (+20%) of the activity-based approach, led by operational companies (+31%). This approach focuses on identifying the costs of activities that take place in every area of a business and determining how those activities relate to one another. By understanding the relationship between all of the organisation’s activities, it is easier to create realistic budgets for each department.

Nevertheless, we observe that all three approaches are well represented in 2015, as top-down, bottom-up, and activity-based represent 25%, 37% and 38%, respectively.

2012 2015

37%Bottom up

38% Activity

based

25%Top down

18% Activity

based

32% Top down

50% Bottom up

0%

20%

40%

60%

80%

100%




33%

33%

38%

31%

31%

38%

54%

8%

22%

39%

39%

63%

12%

25%

20%

40%

25%

25%

18%

34%

48%

34%

40%

50%

Key Takeaways• There is a strong increase in the use of the activity-based approach compared to three years ago, leaving

almost all three budgeting processes equally distributed across respondents.

• The vast majority of respondents include finance, top management and operational management in their budgeting process, with only an absolute minority using only finance professionals.

Top down Bottom up Activity based

PwC Luxembourg | 17

Moreover, we observed that, over the years, respondents have tended to involve more departments in the budgeting process. Companies that do not involve the operating management in the budgeting process represent only 29% of the interviewees in 2015 (-10% compared to 2012).

We also observed an increase in the number of companies that involved all departments in the budgeting process (+10% compared to 2012, mainly driven by the banking industry).

Based on the results of this survey, we did not notice a direct link between the budgeting methodology (top-down, bottom-up, activity-based) and the time required to create a budget.

Which departments are involved in your budgeting process?

0%

20%

40%

60%

80%

100%




56%

44%

80%

20%

62%

23%

15%

74%

21%

5%

56%

44%

80%

20%

50%

50%

67%

33%

PwC Luxembourg’s viewOur experience with clients suggests that there is no unique budgeting approach. Various factors including the size of the company or its internal

o s ha a s a fl o h

process, resulting in company-s o ss s

Finance only (1 dept)

Finance + Top Management (2 depts)

Finance + Top Management + Operational Management (3 depts)

2012 2015

61% (3 depts)

7% (1 dept)

32% (2 depts)

71% (3 depts)

2% (1 dept)

27% (2 depts)


Somewhat likely to pursue improvements

Tools and system already in place

Very likely to pursue improvements

Not likely to pursue improvements

A substantial number of respondents – 40% or more – reported that their companies are “very likely” to pursue improvements in technology, processes and organisational

o a a h a a planning. Almost three out of four respondents (70%)* said their companies are at least “somewhat likely” or “very likely” to pursue improvements in each of these areas. Compared to 2012, we note a little less willingness to pursue improvements, mainly explained

h a ha so a executives have already achieved key improvements in these areas over the past three years.

Financial planning improvements are already in place for more or less 20 % of the companies, regardless of the business sector. We also observed that only one out of three (33%) insurance companies is very likely to implement plans over the next two years in contrast to the other sectors where half (50%) the respondents are very likely to pursue improvements.

Technology, processes, and organisational improvement

In your opinion, how likely is your company to pursue improvement over the next two years, as it works to improve its financial planning?

Technology Systems

FinancialPlanning

Organisational& Governance

0%

20%

40%

60%

80%

100%

2012 20152015 2012 20152015 2012 20152015

14%

10%

29%

22%

9%

13%

11%

53%

20%5%

48%

10% 21%

48%

22%

9%

33%

23%

7%

43% 40%

23% 27%

60%

0%

20%

40%

60%

80%

100%

2012 2015 2012 2015 2012 2015 2012 2015BanksInsurance

CompaniesOperational Companies

Investment Funds

8% 4% 8%20%

80%

17%

50%

33%

17%

8%

67%

19%

29%

48%

25%

25%

50%

21%

21%

50%

Key Takeaways• In 2015, two out of five respondents are “very likely” to pursue improvements in technology systems,

financial planning, or organisational & governance processes.

• Although IT systems can offer real solutions to help improve the budgeting process, more than three out of five respondents continue to use spreadsheets and manual processes in their budgeting approach.

11%

11%

56%

22%

14%

20%

13%

53%

Per industry

Per area

*The computed value is the weighted average of the

categories. Value is not shown in the corresponding

graph.

PwC Luxembourg | 19

Which statements best describes your company’s IT system for financial planning (including budgeting and forecasting)?

2012

8% Custom-built application

10% Dedicated application

72% Spreadsheets

10% Financial application

2015

6% Custom-built application

69% Spreadsheets

12% Financial application

In a fluctuating business environment, the implementation of technology within the budgeting process can be valuable for companies regardless of the business sector. IT tools help finance executives model different scenarios depending on external or internal factors in a limited timeframe and make the monitoring of business performance easier.

However, we observed that most of the respondents to our survey (69% in 2015) continue to use spreadsheets in their budgeting process. This percentage is similar to the one from our 2012 survey. We only note a slight increase in the use of financial applications (+2%) or dedicated applications for financial planning (+3%), but it remains marginal.

IT systems are most commonly used for forecasting purposes in the banking industry, where only 53% of respondents utilise manual spreadsheets, compared to 72% average across the other three industries.

0%

20%

40%

60%

80%

100%




17%

100% 75% 64% 71% 67% 53% 100% 75%

8%

18%

18%

4%6%

19%

22%

11%

14%

13%

20%17%

8%

a a a o o a a a

Custom-built application

Financial application module

Spreadsheets and manual processes

13% Dedicated application


Finance executives use key performance indicators (KPIs) to monitor and align operations to strategy, to measure the company’s performance and to reduce the number of decisions based on instinct. The KPI selection process is essential to the organisation’s success. It is critical to limit them to factors that are essential to the organisation’s goals while keeping the number of KPIs small enough to focus on key business drivers or risks.

Most of the survey’s respondents compare their actuals to budgeted

s o a o h as s 68%; Work Force: 64%; Direct Costs: 75%). It is also worth noting that, in most KPIs (except Capital Costs), companies tend to reduce their comparison frequency in order to allocate time and resources to more productive activities. Across all listed KPIs, we noted an increase in the quarterly frequency at the expense of the weekly or monthly one.

Looking at the less frequently viewed KPIs, our respondents noted that the following are either compared on demand or never: (Cash Flow: 22%; Working Capital: 23%; Capital Costs: 28%; Projects / business initiatives 31%).

How often do you compare actual vs budget figures for following KPIs?

KPIs remain important indicators

Yearly

Quarterly

Monthly

Weekly

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2015 2012 20152012 2015 2012 20152012 20152012 2015 2012 2015Projects/business

initiatives

Revenue Cash flow Working Capital

Workforce costs/

requirements

Direct costs Capital costs/reqd.

27%

47%

23%

3%

27%

35%

28%

3%

1%

6%

10%

73%

17%

1%

14%

68%

14%2%1%

3%

13%

37%

27%

10%

10%

15%

49%

16%

6%

14%

7%

23%

47%

7%

9%

7%

3%

28%

45%

12%

11%

1%

17%

63%

3%

13%

4%

2%

19%

64%

10%

3%

2%

10%

80%

3%

3%

4%

2%

14%

75%

5%

2%

2%

31%

34%

3%

17%

15%

5%

29%

37%

14%

14%

1%

On demand

Never

Key Takeaways• The majority of respondents compare KPIs on a monthly basis in 2015, which is in line with the trend

three years ago.

• The use of KPIs is essential within the budgeting process to provide underlying assumptions and reduce the number of decisions based on instinct.

PwC Luxembourg | 21

The current economic environment (characterised by strong pressure on liquidity and capital requirements) has encouraged us to focus our attention on the Cash Flow indicator.

In most of our respondents’ industries, a monthly comparison is achieved by at least 50% of the sample (Insurance: 58%; Operational Companies/Services: 61%; Investment Funds: 50%). In the banking industry, however, most of the respondents promote a weekly comparison.

We can also stress that, on average, actual and budget figures are still compared on a quarterly basis by almost a quarter (20%) of respondents, regardless of the business sector, except for the operational companies & services industry where this is only done by 3% of the respondents.

Cash Flow indicators

Quartely MonthlyYearly Weekly NeverOn demand

0%

20%

40%

60%

80%

100%




20%

40%

40%

8%

17%

58%

17%

9%

33%

42%

8%

8%

16%

7%

13%

61%

3%

22%

22%

22%

34%

20%

14%

33%

13%

20%

25%

25%

25%

25%

11%

50%

11%

3%

25%

PwC Luxembourg’s viewOver the past few years, companies have been facing economic uncertainty and turmoil. In these circumstances, both top management and executives need to have relevant and reliable information at their disposal to drive their business.

h ha o a s ow s o wh h s o implemented and to whom and how often they need to be reported.


Has your company adopted rolling forecasting?

No, and we’re unlikely to do so for the foreseeable future

Yes

No, but we plan to do so

The limitations of the Rolling forecast approach

0%

20%

40%

60%

80%

100%




40%

60%

46%

54%

23%

23%

54%

47%

15%

38%

33%

11%

56%

53%

47%

33%

11%

56%

53%

47%

In 2015, only half (46%) of the respondents say that they have continued to use rolling forecasts (-12% comparing to 2012). More notably, another 8% of respondents say they plan to adopt rolling forecasts in the coming years (-5% compared to 2012).

The downward trend in the use of rolling forecasts is common across all industries. Indeed, we note a

17% increase in respondents saying they have not adopted rolling forecasts and are unlikely to do so in the foreseeable future (+6% for insurance companies, +24% for operational companies and services companies, +23% for the banking industry and +16% for the investment fund industry).

Some finance executives have indicated that the rolling forecast process has been pushed to its limits

in their companies. Moving to more frequent forecasts is time-consuming for a company and could create a bias because the people involved in the budgeting process confuse targets (hope) with forecasts (reality). Nevertheless, there are real solutions to these new challenges, for instance by partially automating forecasts or reducing the level of detail contained in the forecasts.

2012

13% No, but...

58% Yes

29% No, and...

20158% No, but...

46% No, and...

46% Yes

PwC Luxembourg’s viewA rolling forecast is a process in which key business drivers are forecast on a continual basis. It may sound a little bit complicated but based on our experience there are real solutions o a h o ss s h as

appropriate automated tools or smart spreadsheets.

Key Takeaways• Compared to three years ago, fewer respondents are planning to use rolling forecasts, mainly due to the

significant amount of time and resources it requires.

PwC Luxembourg | 23


Jean-Baptiste VertFinance Function Effectiveness+352 49 48 48 [email protected]

Dr. Florian KühnleIndustries & Services Leader+352 49 48 48 2031 flo a h w o

Marcelo FerrazFinance Function Effectiveness+352 49 48 48 2856 [email protected]

Julien JacquéFinance Function Effectiveness+352 49 48 48 [email protected]

Your contacts

Philippe FörsterIFRS & Treasury+352 49 48 48 2065 [email protected]

PwC Luxembourg | 25

Notes


© 2015 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document, “PwC Luxembourg” refers to PricewaterhouseCoopers, o oo a o wh h s a o wa ho s Coo s a o a wC a h o wh h

s a s a a a a wC a o h a a wa o h a s o o ss o s o s s

This publication is exclusively designed for the general information of readers only and does not constitute professional advice. This publication s o o a ss h s s a s o a a a a o a o ssa o h s o

accurate. PwC Luxembourg does not guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. The reader must be aware that the information to which he/she has access is provided “as is” without any express or implied guarantee by PwC Luxembourg. PwC Luxembourg cannot be held liable for mistakes, omissions, or for the possible effects, results or outcome obtained further to the use of this publication or for any loss which may arise from reliance on materials contained in it, which is issued for informative purposes only. No reader should act on or refrain from acting on the basis of any matter contained in this publication without considering and, if necessary, taking appropriate advice in respect of his/her own particular circumstances.

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from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. It helps its clients create the value they are looking for by giving comfort to the capital markets and providing advice through an industry focused approach.

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