cash forecasting and budgeting - alfred artis
TRANSCRIPT
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C-FAB!Cash Forecasting and Budgeting
Presented toNACM Western Region Credit Conference
October 6, 2011
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AgendaBudgeting versus Forecasting versus Planning
Defining the Planning Cycle
The Role of Data Management
Methods and Methodologies
Two Case Studies
Managing Variances
Forecast Killers
Planning Checklist
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Budgeting, Forecasting, and Planning
Budgeting What they assume/want to happen
Forecasting What you expect to happen
Planning How you respond to each
Key Questions:
Which comes first (ordinal)?
Which is the most critical (make-or-break)?
Which do you perform in your organization?
Hint: These are trick questions
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The Textbook Planning Cycle
Strategy
Plan
Budget
Forecast
Assessment
WITHIN THE CONTEXT OF A MISSION & OBJECTIVE:
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The Reality Planning Cycle
New News
ReactionResults
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Impact on Credit/CollectionsPriority has been placed on reacting over planningVery little time to react or plan (especially plan)Good reactions may not yield good long-term resultsIt’s unfortunate, but reality planning may be permanentThesis of this presentation:
Cash Planning is irrelevantSuperior Cash Planning = discipline and flexibility
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Elements of Successful Planning
ALIGNMENT
DATA
REFINEMENT
ANALYSIS
No Surprises
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Database ManagementThe cornerstone of successful planningLowest cost piece of information out there—YOU
ALREADY HAVE ITFact-basedCan help you manage your own expectationsFirst level of managing expectationsShould include all details of the cash process:
Dates of every step: invoice, receipt, application
Invoice InfoPayment Type
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Methods and MethodologiesDSODays to RemittanceDays to ReceiptBilling TypeCustomer TypeCustomer LocationProductSales ProgramRisk ProfileCustomer-by-customer
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Which Approach is Right For You?
Start with applying all methods to
historical data
Determine correlations--This is your
methodology
Share your results and obtain alignment
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Case Study 1—ManufacturerSells to distributors and directly to customersMultinational1,600 customersNew models every yearNo seasonalityCountercyclical ProductQuestions:
What more information do you need?How would you plan for the upcoming year?
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Case Study 1—PlanningReceipts Database :
Yr Mo. Day
Cust
Day of Wk.
Cust Type
Prod
Prod Yr
Loc Sales Prog
Risk
Inv Amt
Pmt Amt
Inv. Date
% Pd
Planning Reports :DTP by Product TypeDTP by Prod YrDTP by Sales ProgDTP by Risk (assumes risk correlates to economic
cycle)DTP by customer type/Loc./Prod. Yr./Sales Prog
1. Define correlations2. Calibrate to the sales forecast
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Case Study 2—Service ProviderSells directly to business customers3,000 customers2-year contracts—upfront and monthly
chargesRapid GrowthHighly Competitive BusinessQuestions:
What more information do you need?How would you plan for the upcoming year?
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Case Study 2—PlanningDatabase :
Yr Mo. Day
Cust
Item Billed
Sales Prog
Risk
Inv Amt
Pmt Amt
Inv Date
% Pd
Cust. Since
Planning Reports :DTP by Item Billed (upfront versus service)DTP by Cust. Since% Pd by Item Billed% Pd by Cust. SinceDTP by Risk (assumes risk based on payment
history)
1. Define Correlations2. Calibrate to Sales based on Customer Profile
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Managing VariancesKey Point: You are planning and not predicting
Requires separate database of accuracy/variances
Variances should be calculated in as much detail as forecast
Historical variance levels should be used to set a RANGE of expectations e.g., % of receipts/forecast
Other Key Point: TELL SOMEBODY!
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Forecast KillersRelying on a single methodology
Absence of data granularity
Not analyzing your own data
No visibility into customer-affecting changes
Not asking for information that you need
Telling people what they want to hear/Accepting their assumptions
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Concluding PointsThe objective is to manage expectations as well as manage
to expectations
Successful planning=consistency with expectations
This requires a LOT of data accumulation and analysis
This requires constant review, revision, and communication—over time, should yield a tight range
Doing this brings you into the realm of a reliable, professional planner
Maintain discipline through a checklist
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Planning ChecklistDo I have a usable database?Do I have reasonable data conclusions?Is Management aware of the data conclusions?Do my expectations agree with the data conclusions?Does Management agree with the data conclusions?Do I have a range of expectations?Does my range contain Management expectations?Do I have a reporting/assessment plan?Have I identified all possible variance influences?Do I have a plan to report/respond to variance?