Planning and Budgeting in Vietnam: Top challenges and solutions

Planning and budgeting in Vietnam

Top Challenges and Solutions

http://www.trginternational.com/

PwC and TRG International

Agenda

• What• Why• Challenges• Overall concepts

Setting the scene

• Best practices• Approaches

Best practices

Examples of how technology helps• Question’s you asked

• … and some answers

Your

Q&A’s

Question forms

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3PwC and TRG International

Setting the scene

Bart Ziemerink

Associate Director Consulting, PwC Vietnam

Bart leads the Enterprise Performance Management (EPM) team in Vietnam. He was involved in the development of the global PwC EPM framework and approach. Prior to joining PwC in Vietnam in 2011, Bart worked for PwC in the Netherlands and Malaysia. He has advised clients in various industries, published articles and spoken at different events on performance management topics.


What is Planning, Budgeting and Forecasting?

• Top down development of 3 to 5 year plans to deliver long term value creation

• Considers a balanced set of financial and non financial measures• Provides the basis for targets cascaded to the BU and OU level• Enabled through modelling technology to evaluate consolidated

business as usual and project scenarios

Planning

• Annual budgets are the financial representation of the organisations activity based business and project plans expressed as a profit & loss, balance sheet and cash flow statement

• Focused on the activities required to deliver against strategic targets

Budgeting

• Forecasting focuses on actions to bridge performance gaps• It is largely driven out of the typical month end management

reporting process• In addition, it should encompass new knowledge regarding the

external environment and additional factors that may impact performance

Forecasting

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Attributes of Planning, Budgeting and Forecasting

Planning, Budgeting and Forecasting

Activities

Cycles

Process

Business

Operational

Strategic

Fixed Horizon

Rolling Horizon

Top-down

Bottom-up

Financial

Beyond Budgeting

Zero-based

Flexible

Blended

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Why do we all Plan, Budget and Forecast?

To set targets for bonuses?

Number of man days spend on creating the budget

An median company with $1 bio.

Best in class company

25,000

700

(Numbers from Hackett group)

In most cases > 50% of Enterprise Value is ‘Future

Value’(= value that can not be explained based on future

cash flows from current activities)

To spend money?

To adjust direction?

To keep everybody busy?

To beat the competition?

To influence behaviour?

To create value more effectively and efficiently?

To drive action?

Planning & Budgeting for most organisations is the single most expensive of all Finance processes, with a lot of hidden costs, too much detail and poor

system support.However it doesn't need to be so expensive.

On the other hand Planning & Budgeting should lead to the value creation that is expected by the

organisations owners.It is the most important of all Finance

processes.

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What are the Top challenges you shared with us?

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Weak or no alignment

between strategy,

planning and

budgeting. They are all

done in isolationLagging behind: a call

for more rolling

techniques

Limited technology: the

search for an effective

planning & budgeting

system


It starts with your Strategy

Strategic objectives

Value drivers

Vision

Mission

Translate mission, vision & strategy & values into strategy maps showing what to focus on to manage your business performance

Strategy Map

Translate value drivers into driver based plans & related budgets to focus your business planning on strategy

Translate value drivers into KPI’s at several levels in your organization to focus your business reporting on strategy

Planning & Budgeting

Target setting, planning & budgeting

Forecasting

Periodic Management and Operational Reports

KPI’sDashboard (e.g.

Balanced Scorecard)

Analyse & evaluate

results versus planning and

forecast

Adjust planning & forecasting

Organisation Processes People Data Technology

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Key Value Drivers enable you to focus the entire organisation on executing the strategy by consistently asking one single question...

Strategy Map

Use for appraisal and rewarding of

employees

Use as guide for prioritising investment proposals

Use as table of content

for business plan

Use as an agenda for

(yearly) planning

Communicate strategy to

all

Use as starting point for reporting

Use as guide for determining

information need

Check projects on their value

add to the strategy

What did you do to improve

performance on one or more of the drivers delivering

your strategy?

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By translating value drivers to KPI’s, setting targets on those KPI’s and defining actions and related budgets to reach those targets, your budget will be entirely focused on strategy execution

• A good strategy map “tells the story” of your strategy by showing the cause-and-effect relationships between your value drivers and your strategic objectives. It is the cornerstone of your Performance Leadership potential.

• Joint development of your strategy map will enable your management to immediately use the created insight in what drives your strategy to manage the organisation.

Value driversMeasurable factors that

impact strategy execution and create value

What do we really have to excel at to

reach our strategic

objectives?

KPI’s Measurementof success in realising the

strategy

How do we know if we are actually

excelling at this?

Targets Level of desired

success or indication

improvement potential

How good do we need / want to be

at this?

Initiatives Main initiatives

to realize objectives

What initiatives are needed to

reach our target?

Budget Financial mandate

needed/given to execute these

initiatives

What do we need / want to invest to reach

our target?

1 2 3 4

Strategy Map

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Mapping plans against value drivers enables you to check on balance and strategy focus

Match the planned actions / projects with the value drivers to find out:

1. (strategic) relevance

2. completeness

3. balance / ROI

Value driver A Value driver B Value driver C Value driver D Etc.

Plan / project 1 X

Plan / project 2 X

Plan / project 3 X X


Plan / project 5 X

Plan / project 6 X


Plan / project 8




Etc. X

Gap 3) There are (too) many actions / projects

that relate to value driver ‘C’

(no balance in investments)

Gap 2) There are no actions / projects

that relate to value driver ‘B’

Gap 1) Plan / project 8 is not strategically

relevant as it does not relate to any of the

value drivers11


Planning, budgeting … and (rolling) forecasting → theory

Rolling Forecasting

BudgetingPlanning

In theory superior yet efficiently gained insight stems from combining…

… information on actual performance …

… with budget related forecasts …

… as well as forecasts rolling into the (near) future

Analyses & Reporting

Financial consequenc

es

Business activities

Forecasting

Capturing history

&

&

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Why automate the process?

• Data collection• Consolidation• Version tracking / control

Automate labour-

intensive tasks

• Multiple ledgers / systems

• Spreadsheets

• Multiple people / locations

Integrate data from

• Submit / retrieve data from anywhere at any time• Support rolling planning / budgets / forecasts & reporting• Real time monitoring / visbility of submissions & approvals• Real time “what-if” scenarios

Bells & whistles


Best practices

Rick Yvanovich FCMA, CGMA, FCPA (Aust.)

Founder & CEO, TRG International

Rick is a Chartered Management Accountant with 30 years of diverse experiences including Oil & Gas, Hospitality, Retail, Telecommunications, Financial Services, Property development, Defence Manufacturing, Manufacturing, Breweries, FMCG, High Technology, and the Accounting profession. He has been living in Vietnam since May 1990. A consultant and serial entrepreneur he has been directly involved in hundreds of client engagements in 39 countries and founded several companies including TRG International. Rick is a Board Member of the South East Asia Regional Board for CIMA and is also Chairman of the AMCHAM HCMC ICT group


Leading practice organizations integrate all aspects of planning

Leading practice capabilities:

Move from yearly planning process to continuous/rolling forecasting

Top down/bottom up target setting and budgeting Link planning and execution at all levels

Flexibility modelling of scenarios based on differing business assumptions

Align incentives and rewards to strategic objectives

Decentralisation of planning activities and ownership to enable continuous planning and drive accountability

Integrated planning technology based on a common data model, hierarchies and chart of accounts accessible to BI, analytics and ERP

Shift focus to value drivers and strategic objectives utilising balanced scorecards

Top down / bottom up

target setting

and planning

Continuous

Planning / rolling

forecasting

Integrated Planning

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Planning Cycles

Fixed Time Horizion

Changes in environment and premisses can be integrated into planning contemporarily. Budgets are modified to the respective level of information (More flexible responses possible).

Planning as a permanent process

Low need and effort for estimates

Small likelihood of target/performanace deviations

Planning period not focused on reporting period, indirect deduction of FY planning

Rolling Time Horizion

Less planning effort during the financial year

No revision of exisitng plan

High need and effort for estimates

High effort for deviation analyses

Target/performance deviations more likely

\\\Planned Values FY 2

Q1/2 Q2/2 Q4/2Q3/2Q1/1 Q2/1 Q4/1Q3/1

Planned Values FY 1

Q1/3Q1/2 Q2/2 Q4/2Q3/2Q1/1 Q2/1 Q4/1Q3/1

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The Two Basic Concepts of Forecasting (1/2)

Year-end Forecast

Fixed reference point: end of FY

Management estimate concerning the achievement of planned objectives of the FY

Active controlling within the operative business scope via measures

Tie between „Actual“ and Plan

Rolling Forecast

Fixed reporting period (4-6 quarters), comprehensive (across FYs)

Management estimate concerning the implementation of the strategic alignment

Active controlling via measures

Tie between „Actual“ and Strategy

Financial Year 1

Forecast

Financial Year 2 Financial Year 1

Forecast

Financial Year 2

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The Two Basic Concepts of Forecasting (2/2)

Year-end Forecast

Lower preparation effort, since budget "only" has to be revised

Taking into account the meaning of the end of the FY

Rolling Forecast

Prompter integration of changes in the environment into planning

Improved strategy orientation and implementation

Continuous look into the future, not just once a year

Early recognition of future opportunities and threats

The rolling forecast can replace the tasks or the statements of the Year-end Forecast,

but the Year-end Forecast cannot provide a comprehensive (across FYs), strategic orientation !

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A typical budget cycle … not just in Vietnam

• Management reviews the budget and…

• Finance creates the forms

• Managers input their data by accounting period

• Finance aggregates the budget

“Repeat this cycle until either the management team is happy with the budget or budget managers lose their will to live”

Gartner


The Typical Budgeting Process

Strategically disconnected60% of large companies report either “no link” or a “weak link” between the strategy and budget processes … whereas more than half of the respondents (52 percent) reported that creating closer links between strategy and operations was one of their top two priorities.

SlowCompleting an annual budget takes an average of 110 days.

ExpensiveFinance departments alone spend $63,000 per 100M in corporate revenue on budget creation each year … yet only 44 percent of the budget and forecasting process is spent on analysis, strategy development and target setting.

UnreliableManagement and investors are routinely surprised by the variances between communicated expectations and results … no wonder if you know that 70 percent of respondents reported dependency on spreadsheets.

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Planning and Budgeting in Vietnam: Top challenges and solutions

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