Strategic Planning, Budgeting and Performance Management. CFO Roundtable

Transcription

1 Strategic Planning, Budgeting and Performance Management CFO Roundtable

2 CFO Roundtable Discussion hosted by PwC Consulting, Singapore on Strategic Visioning, Budgeting and Performance Management for CFOs PwC Consulting, in collaboration with the Singapore CFO Institute SCFOI, hosted a CFO roundtable on 16 September The two-hour roundtable discussion involved eight CFOs from various industries, who came together to raise concerns, learn and share perspectives on a range of topics concerning Strategy, Budgeting, and Performance Management. The issues discussed and their solutions were robust and applicable across many industries, reflective of the industrial-diversity of the participants present. The roundtable was moderated by Mr Kwek Buck Chye, former CFO of Starhub Ltd & Advisory Council Member of the SCFOI. Three senior finance consultants represented PwC and shared their professional insights and industry best practices. The representatives were: R Raghunathan As the Finance Consulting Practice leader for PwC across South East Asia, Raghu specialises in Finance Transformation, process improvement, internal controls and risk management. Charles Loh Charles leads the Enterprise Resource Planning (ERP) Application and Enterprise Performance Management (ERM) practice in Singapore. He has professional experience in finance advisory, ERP, EPM and technology consulting William Choong William leads the Finance and Performance Management practice. Prior to joining PwC, William headed the finance organisation of two multi-billion international corporations with investment, funding, operation and profit and loss responsibilities. 2 PwC

3 Contents CFO Roundtable 2 The roundtable participants 3 Preliminary interests prior to discussion 4 Linking Strategic Planning, Budgeting and Performance Management Together 5 Discussions 6 Key Takeaways 10 The roundtable participants Ms Katheleen Yee, CFO, Yeoman Capital Management Pte Ltd Sector: Fund Management Ms Lam Sok Kuan, Head, Strategic Finance Transformation, Ministry of Finance Sector: Government Mr Houl Lee, CFO & Head of Private Equity, Wah Hin & Co Pte Ltd Sector: Private Equity Mr David Leow, MD, Thaler Group Sector: Business and Management Consultancy Services SVP, Corporate Finance of a regional LMG company Sector: Energy Mr Luke J Falvey, MD, Insight Strategy Sector: Research and Strategy Consulting Mr Joseph Kwok, CFO, Transcorp Holdings Sector: Retail (Golf and Accessories) Mr Richard Lai, Group CFO, Tee International Ltd Sector: Mechanical and Electrical Engineering, Property Investment Strategic Planning, Budgeting and Performance Management 3

4 Front: Mr Kwek Buck Chye Former CFO of Starhub Ltd & Advisory Council Member of the SCFOI Mr Richard Lai Group CFO, Tee International Ltd Mr David Leow MD, Thaler Group Mr Houl Lee CFO & Head of Private Equity, Wah Hin & Co Pte Ltd Mr Luke J Falvey MD, Insight Strategy Mr William Choong Director, PwC Consulting Back: Mr Joseph Kwok CFO, Transcorp Holdings Mr R. Raghunathan Partner, PwC Consulting Ms Katheleen Yee CFO, Yeoman Capital Management Pte Ltd Ms Lam Sok Kuan Head, Strategic Finance Transformation, Ministry of Finance SVP Corporate Finance Mr Charles Loh Partner, PwC Consulting Some of the preliminary interests of the CFOs prior to the discussion were: Mr Houl Lee: I have been hearing concerns around the topic of budgeting and I m interested to find out how people overcome them. Ms Katheleen Yee: I want to know more about strategizing and how budgeting tools can take us where we want to go. Ms Lam Sok Kuan: I want to learn about how the private sector does budgeting and how they link performance to strategy. Mr David Leow: Budgeting is the art of translating a soft strategic plan into a hard execution plan. A budget that does not align with corporate strategy wastes resources and degrades corporate performance. I am seeking practical input from senior finance professionals at this roundtable. SVP, Corporate Finance: I want to set up a finance function and learn how people look at strategy, budgeting and performance management. Mr Luke J Falvey: I am interested in validating company strategy, getting strategy to leave the table; putting strategy into action and plans into execution via resources, funding and capabilities management. Mr Joseph Kwok: I want to learn from people how CFOs should be presenting plans and budgets to the board. Many people just pluck a number and hope to hit the target. I want to know how to get the right budget and present a realistic picture. Mr Richard Lai: I want to share and learn from CFOs about how to incorporate strategies into budgets, especially if the business is growing in an inorganic fashion. 4 PwC

5 Linking Strategic Planning, Budgeting and Performance Management Together The CFO s Role Planning and Developing Execution Review and Governance Participating in developing strategic vision for the company Leading key initiatives in finance that supports the strategic goals Providing insights and financial analysis to support the CEO Cascading action plans down to the various departments Controlling and adjusting funding to the strategic plans using the budget Monitoring the budgeting and performance management processes Strategic Planning and Budgeting Performance Management Incentive Schemes Strategic Vision and Mission Strategic Plan Budget Customer Business Processes Internal Financial Performance Balanced Scorecard People and Learning Quantitative Market Financials Customer Internal Processes Skills/ Infrastructure Qualitative Strategic Planning, Budgeting and Performance Management 5

6 Discussions 1. How do we get buy-in for our strategy? Strategic planning requires more deliberation and resources due to the complexity of today s business environment; however the consistent inherent challenge is to move the strategy from the table and into execution. Insufficient communication can result in sound and substantiated strategies being refused by the board or other key stakeholders. CFOs have to address the viability of their strategy and also deal with the reluctance of stakeholders. Resistance to change at the point of implementation of strategies are generally more apparent in founderled organisations. Between multi-national corporations and founder-led organisations, different strategies and angles have to be examined in order to create buy-in, given the varying characteristics of the two types of organisations. Key Recommendations from the Roundtable 1. Understand the organisation, get partners to plan and manage the strategy together, consider using a consultant to get buy-in, and follow-up. 2. Conduct in-depth studies on the environment and build strategies based on opportunities. Subsequently, highlight the opportunities to the relevant stakeholders and provide details on how the strategy was built. This method however works better for MNCs. The pitfall is over-analysing and not moving forward with implementing the strategy. 3. Founder-led organisations are not as organised when it comes to strategy. Many of them require a progressive strategy where the long-term strategy is broken down into a series of smaller strategies. It is interesting to note that founder-driven organisations do not look at new areas of business often, which could be a tougher sell as a strategy. 4. In reality for certain founder-led organisations, it is better to wait for things to go wrong at times, then run a strategy exercise as a corrective action. 5. Form a long term target based on an agreement on the resources the founder is willing to commit. CFOs should then break the strategy down into 1-year, 3-year and 5-year milestones. The tracking of progress shown to founders should include a comparison of the resources required versus what the organisation has actually committed at each milestone period. 6 PwC

7 2. How do we ensure the success of long-term strategies? Given high global market volatility and shortening business cycles, it has become increasingly challenging for businesses to develop and implement long-term strategies. Market volatility has led to higher variances for resources needed and greater difficulties to anticipate the market beyond the fiscal year. A strategy planned today becomes harder to manage and exponentially riskier the longer the duration of the plan. Key Recommendations from the Roundtable 1. To ensure that the strategy stays on track, in the earlier part of the year, run the budgeting process simultaneously with the strategy development, so as to better manage the resources. 2. Revisit the long and short-term goals of the strategy periodically. There could be changes to the short-term plans according to the environment, but generally the long-term target should stay the same. 3. Check for risks when creating a strategy. Ensure that the business grows steadily without over-exposure to risks. Conduct a sensitivity analysis on risks, create controls for the strategic plan and decide on when the CFO should intervene to tighten control on the resources for the plan. Add milestones in the strategic plan, and make it such that additional resources are progressively allocated upon the achievement of every milestone. 3. How are we able to project revenues and expenses in new markets? New markets present untapped opportunities but on the other hand, there is significant uncertainty regarding the performance of the business. The level of commitment of a business in the new market is often a balancing act between opportunities and risks. Sometimes, the risks may exceed the opportunities due to the inability of organisations to accurately project the cost of entering the new markets as well as the time taken to realise the potential upside. The fluctuations in economic performance, particularly in developing countries, amplify the risks and widen the deviations in revenue and expense projections for any business venturing into new markets. Key Recommendations from the Roundtable 1. There is too much uncertainty in projecting accurate numbers for revenue and expenses. In new markets especially, businesses should consider hiring external consultants who are close to the market, for their insights. 2. Translate the strategic intent in new markets to capital expenditure numbers and generate a wishlist for the amount of resources needed for the strategic plan. Evaluate the wish-list of resources against the current available resources to determine the viability of entering the new market and the potential resource tie-ups required for the project. 3. Send accountants in to the new markets to get a clearer understanding of the resources needed in those markets, which can then be used to create a more accurate projection of the numbers needed for the project. Strategic Planning, Budgeting and Performance Management 7

8 4. When we don t meet the budget, how would we know whether to continue with the strategy or pull the plug? CFOs may find themselves in a dilemma of pulling out or continuing to invest in agreed strategies when the project has exceeded its budget or otherwise not shown results. Increasing the funding of the project so as to ride out the trough of the business cycle implies greater opportunity costs for the business as there may be other projects which may be in a position to utilise the funds more effectively. The objectivity of key stakeholders may be further affected when they have a large stake in the development of the plan, or may get concerned with sunk costs. Key Recommendations from the Roundtable 1. Mid-year reviews are important to see if the budget makes sense. It is important to do a sensitivity analysis at mid-point to look at past performance-to-date as well as future plans. 2. Put key divisional managers and general managers in a room to see how each party has performed against their budgets to better appreciate the progress of the whole organisation against the plan and identify ways to improve the achievement of budgets through inter-division collaboration. If the project is now deemed not feasible, it is important to communicate this to everyone and halt the implementation of the strategy. 3. Businesses need a functional and suitable Management Information System (MIS) in place for quicker decision-making when the actual numbers deviate sharply from the budget. The technology team should also constantly update systems and spreadsheets. If spreadsheets are used for budgeting, ensure that the line items are clearly defined, otherwise, processing the budget would be delayed and the business will lose critical time. A good budgeting and planning tool can provide more information to aid in the decision to continue the strategy or to pull out. 8 PwC

9 5. How do you prevent people from padding the budget? Padding the budget is a persistent problem within many organisations where managers overstate the budget so as to project better divisional performance. This problem is especially apparent when managers bonuses or performance evaluations are tied to their ability to meet the budget. Budgetary slack from padding the budget is an opportunity cost to organisations, where wasted resources could have been used to fund other projects and generate better return on assets. Key Recommendations from the Roundtable 1. To prevent padding of the budget, managers must develop a separate forecast based on a predetermined amount of resources allocated to each particular function. Managers must also ensure that if any function requires more than the pre-determined resource allocated to them, they must then justify the need for the increase in resources and commit to that amount of resources every year. 2. Change the performance metrics for the managers and reward them based on their ability to accurately meet their budget. Strategic Planning, Budgeting and Performance Management 9

10 Key Takeaways Constant reviews are necessary to ensure the clarity and usefulness of the budget. Ms Katheleen Yee, CFO, Yeoman Capital Management Pte Ltd Buy-in is critical people have different perspectives and hence alignment among all key stakeholders is important to ensure the success of the strategic plan. Mr Houl Lee, CFO & Head of Private Equity, Wah Hin & Co Pte Ltd Finance functions have to be closer to the business units so as to understand the business and as a result be more effective in projecting and allocating the resources to meet the needs of the company. Ms Lam Sok Kuan, Head, Strategic Finance Transformation, Ministry of Finance Senior managers should be brought in early and to the same table to build buy-in and ensure alignment across functions and divisions. A good budgeting process will be heavily focused on transparency and clarity in the numbers. A great budgeting process will go beyond the numbers alone. Mr David Leow, MD, Thaler Group 10 PwC

11 Every organisation is unique but all organisations require a balancing act of doing things right and doing the right things. SVP, Corporate Finance Strategy requires ownership; commitment is needed at every level, with clear leadership and execution. Revalidating checkpoints, monitoring milestones and assessing risks are crucial. All these should be done to ensure the strategy is well-executed. Mr Luke J Falvey, MD, Insight Strategy Founder-led and institutionalised organisations are different. Some of the discussed strategies can be implemented in a founderdriven organisation. However, founder-driven organisations require more structure in the planning and budgeting process. Mr Joseph Kwok, CFO, Transcorp Holdings A CFO has a big role in facilitating how numbers are brought together. Numbers can be used to paint the state of the organisation in the future, but ownership of all these numbers is extremely crucial and will remain a challenge to many organisations. Mr Richard Lai, Group CFO, Tee International Ltd Strategic Planning, Budgeting and Performance Management 11

12 Contacts Get in touch with our Finance specialists R Raghunathan Partner [email protected] Charles Loh Partner [email protected] William Choong Director [email protected] About PwC Singapore About Singapore CFO Institute PwC helps organisations and individuals create the 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and out more by visiting us at About Singapore CFO Institute The Singapore CFO Institute (SCFOI) aims to be a globallyrecognised body of CFOs and CFO aspirants and is dedicated to advancing the role of CFOs as strategic partners in business and the community, by driving thought leadership, promoting best practices and enabling their professional development. The Singapore CFO Institute. For practitioners, by practitioners PricewaterhouseCoopers Consulting (Singapore) Pte Ltd. All rights reserved. PricewaterhouseCoopers or PwC refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm.