Orange County Convention Center

Orlando, Florida | June 3-5, 2014

Increase Efficiencies in your CAPEX Budgeting &

OPEX Planning
Sundeep Gupta - PwC
 Agenda
Section Topic Page No

Why is Planning & Budgeting Important

Finance Assessment Framework 4

Management Accounting Current State 5

Challenges
Management & Cost Accounting Today 6

Finance Effectiveness Benchmark Survey 7 - 10

Learnings
Process & Technology Challenges 12

Finance Reporting Target Architecture 13

Planning

Typical Planning Cycle 14

Key Planning Concepts in SAP 15

SAP Approach to Planning 16

 Agenda
Section Topic Page No

Budgeting

Typical Budgeting Cycle 18

Key Budgeting Concepts in SAP 19 – 20

SAP Approach to Budgeting 21

Key Benefits & QA 23 - 24

Finance Assessment Framework
Management Accounting Current State Challenges

 Scorecards and dashboards used by executive management may not be able to explain
what is happening today or provide insight into tomorrow
 Applying cost cutting programs do not effectively reduce costs across their value chain or
attain targeted sustainable cost reduction targets
 Companies that apply overheads through apportionments or allocations are effectively
spreading indirect costs like peanut butter which may not accurately match actual cost
behaviors
 Companies continue to have difficulty in modeling realistic assumptions or can explain the
relationships and behaviors of their complex cost structures
 Spreadsheet modeling may lead to multiple versions of the truth or may be difficult to
reconcile against layered assumptions
 Transactional systems are effective analysis tools for evaluating historical data, however,
may lack accurate predictive capabilities or manage assumption based planning
 Management and Cost Accounting Today
Companies need to operate with agility responding to
changing KPIs
• Scorecards and Dashboards report key performance
measures
• Reviewing performance against historical results,
budgets enable management to target results
• Indicators alert management to what is happening
Consolidated Financial Results
• Provides organizations with the speed, processing power,
agility and breadth of analysis needed to complete
financial consolidation.
• Gain full process control and data transparency, allowing
to simulate unlimited what if scenarios.
• Helps to close book without sacrificing data quality,
saving time & money.
Management and Cost Accounting
• Enables explanation of events that lead to actual
results
• Data modeling supports predictive cost
management
• Contribution margin analysis enables predictive
implementation of pricing strategies to attain
profitability goals
Annual Operating Plan & Forecasting
• Ability to develop timely and accurate plans and
budgets that are aligned with strategic goals.
• It ensures a fully documented audit trail and
compliance with strict guidelines in accordance with
regulatory IFRS
• The application is finance owned and maintained.
• Helps reduce external audit costs, instilling confidence
and reducing business risk
A recent survey done collaboratively by PwC and CFO
Magazine revealed several key findings
Process Improvements are Needed to Combat the
Perceived Value Gap
Limited Perceived Value of Financial Planning
• Historical weaknesses in the budgeting & planning process
persist, limiting the perceived value of the financial
planning process within the organization
• The process continues to be time consuming, iterative and
inaccurate
• The call to fundamentally improve the financial planning
process is taking priority over other competing finance and
business initiatives
Getting the Level of
Detail Right
Limited Perceived Value of Financial Planning
• The optimal level of detail for financial budgeting &
forecasting has surfaced as a passionate topic of debate for
many organizations
• Extensive detail in account planning often extends cycle
times, making info dated by time outputs are finalized
Close Partnerships Required
for Transformations
Limited Perceived Value of Financial Planning
• Successful financial planning transformations require a
close partnership between the corporate office, functional
areas and business units
• Simplifying processes, iterations and level of detail require
a strong leader/change agent to drive the desired
outcomes
Rolling Forecasts Have Become Established
Leading Practice
Limited Perceived Value of Financial Planning
• Rolling forecasts are no longer an emerging trend, but
rather they are becoming an established leading practice
• But there does not appear to be a trend toward completely
eliminating the annual budget process once rolling
forecasts are adopted, due to their use for overall
management control and linkage to incentive
compensation
Let’s take a few minutes to ask some interactive questions.

 How long does it take for your company to do

budgeting ?
 2 months
 2 – 4 months
 4 – 6 months
 More than 6 months

 How long does it take for your company to generate a

Forecast ?
 Less than 2 business days
 2 – 5 business days
 6 – 10 business days
 More than 10 business days
The top finding from the survey - weaknesses in the FP&A
process, limits the perceived value of the financial planning

Approximately how much time does it Approximately how long does it

currently take your company to prepare take your company to generate a
its budget? forecast?

Fewer than 2 business

Less than 2 months 18% 9%
days

2 to 4 months 54% 2 to 5 business days 31%

4 to 6 months 20% 6 to 10 business days 29%

More than 10 business

More than 6 months 9% 32%
days

0% 20% 40% 60% 0% 10% 20% 30% 40%

The budgeting processes costs on average over $12 million annually for
organizations with $10 billion or more in revenue
Let’s look at what sets apart the leaders
Let’s take a few minutes to ask some interactive questions.

 What are the challenges you face in budgeting &

forecasting ?

 What technology you use in your budgeting &

forecasting processes ?
 Complexity is often barriers to getting answers to questions
of what happened, is happing, and/or will happen?
Process Challenges - Overly complex planning models and interactions between finance& other functions
lengthen planning cycles
 Separate assumptions and classifications lead to disconnected plans and huge challenges for corporate
FP&A to consolidate
 Group planning efforts are not able to clearly show risks and opportunities in the business.
 Planning process is not agile, lacking scenario analysis without lengthy cycle iterations
 Large corporate teams dedicated to Excel work; Spending 90% of their time interpreting business
planner submissions and consolidating; Limited time remaining to perform analysis

Technology Challenges - Today’s organizations have highly complex information environments, & often BI,
EPM and Analytics initiatives overlap which leads to further confusion
 Hundreds of source systems
 Different functions use separate DWs to support planning
 Multiple financial reporting environments
 Bolt-on patchwork of point solutions
 Multiple ‘Enterprise’ initiatives for EPM, BI, and data management
 Some integration but lots of spreadsheets and manual data transfers
 Data expanding by terabytes
 Much data yet little confidence in finding the ‘one source of truth’
Target Architecture for Finance Reporting

Leading Practices in Leading Practices in Forecasting

Performance Management
• Link financial planning, consolidation, reporting and
analytics into a common framework.
• Align data models across the organization.
• Standardize budgeting, planning, consolidation and
reporting tools across the enterprise- reduce
spreadsheets.
• Edit don’t build the forecast.
• Focus the forecast on key line items at a higher level than the annual budget.
• Consider a rolling monthly or quarterly forecast – typically covering 18
months.
• Measure forecast accuracy
• Use driver-based forecasting models
A Typical Planning Cycle
 Key Planning Concepts in SAP
Planning Overview
• In SAP Planning can be carried out at combinations of cost objects (Cost
Center/ Profit Center etc ) and cost elements.
SAP allows planning in multiple versions for the same period/fiscal year Cost center and
• Version 1
• Planning values can be copied from previous periods Cost element

Planning Versions Cost center and

2013 Version 2
• Versions is a collection of year dependent indicators (Different plan, Cost element
Exchange rate type) in controlling to store plan and actual data.
• SAP supports planning in multiple versions, this helps business to manage
the changes to planning values in different versions Cost center and
Planning Version 3
• SAP provides a standard planning version of ‘000’ which can be used for cost element
initial planning and supports 999 additional planning versions to store
• Once the planned values are approved, the final version can be locked for
further changes or same plan version can be allowed for changes. Cost center and
2014 Version 1
• Same planning objects (profiles) can be used in multiple planning versions. cost element
• Versions are year dependent and needs to be activated for additional year.
• Access to versions can be restricted.
• Planning can be done in multiple currencies like controlling area currency,
group currency and object currency.
• Plan can be uploaded month on month basis or yearly.
• Plan data can be uploaded easily into SAP.
• SAP can read a standard excel file from local system; if the excel file has a
prefixed format recorded in SAP.

Planner Profile Planning Layout

• Planning layout defines how planning to be executed based on the characteristics and
• Planner profiles contains the planning areas (cost center planning, profit key figures of a totals table
center planning, internal order planning) for which planning needs to be • Planning layout designs the screen layout for executing planning
carried out
• Planner profiles in SAP is used to group different planning layout
• Planner profiles acts as a medium to restrict the planning areas to the users
SAP Approach to Planning
 Budgeting

 SAP has multiple budgeting tools like internal order, project system & funds management
 Budgets are approved planned values for a given period and for a particular organizational unit.
Approved budget values should be released/distributed, only the released budget can be utilized.
 System will give notifications to user at various levels when the budget is being consumed and can
stop further postings after reaching the level.
 SAP allows to provide additional/supplementary budget to cost objects in addition to original
budget.
 Release of budgeting can be carried out periodically or annually.
 Unutilized budgeted values can be carried forward to the next period or fiscal year
 Internal orders can only be budgeted individually.
 Budget can be carried out at the top level or at the individual level.
A Typical Budgeting Cycle
 Key Budgeting concepts in SAP
Investment Management
• It is a budgeting module in SAP
• The investment program is linked to the investment measures (orders or
projects) by their integrated planning and budgeting functions.
• Assigned funds resulting from purchase orders, invoices, in-house activity,
and so forth are collected on the investment measures. Reports can be run
on these values from the investment program.
• Actual values from these assigned funds are settled periodically to
receivers in management accounting. Or, if the actuals require
capitalization, they are settled to assets under construction. When the
asset under construction is complete, it is settled to final fixed assets.

Investment Program
• The structure of the investment program usually reflects the structure of
the enterprise. It therefore corresponds to a hierarchy of areas of
responsibility, represented by cost centers or profit centers.
• The investment program is a hierarchy of program positions, which can be
graphically maintained, within a framework defined by the program
definition. Investment measures can be assigned to the lowest-level
program positions in the hierarchy.
• The following are maintained in the program definition: the person
responsible, the fiscal year variant and the investment program currency.
You can also specify that you want budget categories or budget
distribution, also for annual values.

Appropriation Requests Investment Measure

• An appropriation request is an idea or wish for carrying out a measure (such
as an investment or research and development) that has to be individually
assessed and approved by one or more organizational units within an
enterprise, primarily because of the high costs involved.
• Measures are not strictly limited to capital spending. They can also
represent projects that involve primarily expenses.
• Usually there is a relatively long time period between the initial
application and fleshing out of the appropriation request and its
final approval or rejection.
• Investment measures are used primarily for planning and monitoring capital
investments that are not capitalized directly.
• Investment measures are represented in the system as
• Internal orders
• WBS elements of a project
• They have extra functions, in addition to the master data and values that are important
for management accounting on the order or project. These functions include:
• They have the data of an asset under construction for showing the capitalized
portions of the measure in the balance sheet.
• The have depreciation terms for special depreciation and investment support
calculations during the under-construction phase.
 Budgeting Integration, Availability Control &
Currencies
Investment Management - Integration Availability Control – decisions to be made
• Investment Management is deeply integrated with standard ECC • When Budget is exceeded - Hard Stop or Soft warning message ?
components like MM/PS/PM/AA etc. • E-Mail Integration with Warning / Error messages ?
• Integration with Asset Accounting which allows for easy capitalization of
costs from Internal Orders/ WBS.
• Integration with Purchasing & FI makes sure that the Capex budgets are not
exceeded

Currencies in Budgeting
• Each budget line item is saved in the currency in which you entered it (budgeting currency). The system also saves the amount in the controlling area and object currencies if
they differ from the budgeting currency.
• Controlling Area Currency - This is the currency used in the controlling area. If you are using the controlling area currency for budgeting, you can use this currency only for
entering budgeting items.
• Object Currency - This is the currency used for the object (such as, WBS element), and is specified in the master data for the object (such as, WBS element). If you specify the
object currency for budgeting, you can only enter the budget items using their respective object currencies.
• (Freely Definable) Transaction Currency - On the initial screen of each budgeting function, you can specify the currency in which budgeting items are to be entered. You can use
as many currencies as required for budgeting. If you do not specify a currency on the initial screen, the system uses either the object currency or controlling area currency as
default, depending on whether or not you set the Object Currency as Default indicator in the budget profile.
SAP Approach to Budgeting
Key Benefits

 Shift in approach from people oriented to system and process oriented

 Accelerates the planning & budgeting by making dependencies and bottle-necks in the
processes transparent.
 Improves control over the process by providing a tool in which all parties involved can
monitor progress.
 Extended access and ad hoc reporting capabilities with appropriate security and controls
to broader user groups ranging from executive management to regional line of business
users
 Reduced dependency on IT/Consolidation team for reporting requirements
Questions
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THANK YOU

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