Top 20 Mistakes Corporate Accountants
Content
Technical Requirements
•Access Webcast using Internet Explorer (please disable pop-up blocker) •Program audio available through your computer OR •To listen to audio via your phone: Step 1: Dial the conference access number: 866-551-1530 or 212-401-6700 Step 2: Enter PIN code: 734764# Step 3: You will be placed on hold until the event begins. Press 0* at any time to speak to an operator.
The Top 20 Mistakes Made by Corporate Accountants
David Parmenter CEO, waymark solutions limited
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
The Top 20 Mistakes Made by Corporate Accountants
David Parmenter CEO, waymark solutions limited
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
David Parmenter waymark solutions limited
Website: www.waymark.co.nz Blog: www.davidparmenter.com Email: [email protected]
These books came out in 07
Go to www.davidparmenter.com for the link to Amazon
Corporate accountants better practices on www.bettermanagement.com
1. 2. 3. 4. Decision based reporting Quick month-ends – day 3 or less Quarterly rolling planning A two week annual planning process the building block for quarterly rolling planning 5. 50+ ways to improve your accounts payable function 6. Winning KPIs (8 audio casts)
#1 Having over 80 account codes for the P/L
Separate account only if they represent at least 1% or greater of total expenses (max 40 to 60 account codes) Separate codes only if revenues represent over 3% or greater of total revenue (max 15 to 20 account codes) To a stupid question –
• ask what are they going to do with info • answer „42‟ or • skilled management accountant investigate 6 weeks of expenditure and then annualize the number
Appoint a hard-nosed keeper of the „chart of accounts‟
#2 Monthly re-forecasting of the year-end position
Flawed on four counts: Why should one bad month, one good month translate into a change of year-end position? The forecast is a top-top forecast with little input and no buy-in from the budget holders Two months before year-end management appear to ignore the oncoming year Management and the Board know what ever number you have told them is wrong!
‘Fast light touch’ quarterly rolling forecast
J u n Ju l A u g X S e p O c t N o v D e c Ja n F e b M ar A p r M ay Ju n J u l A u g S ep O c t N o v D e c Ja n F eb M ar A p r M ay J u n Ju l A u g S e p O ct N o v D ec 18 m o n th s X 1 8 m o n th s X 1 8 m o n th s X 18 m o n th s X
X
Q u a rte rly u p d a te o f ro llin g fo re c a s t (d u rin g 2 nd w e e k ) F o re c a s t m o n th ly in d e ta il (5 0 % o f fo re c a s t tim e s p e n t g e ttin g it rig h t) F o re c a s t m o n th ly F o re c a s t in q u a rte rly s p lits , a lth o u g h s o m e b ud g e t h o ld e rs m a y w a n t to d o it m o n th ly
The “x” marks the month the forecast is done (2nd or 3rd week in month) Important that the purple numbers are quick cuts as they are fine tuned later on Red numbers create the new benchmarks for reporting and funding
#3 Investing in a complex G/L and upgrading unnecessarily
Task of the G/L is very simple, recording the expenditure and revenue – SAP?
The midwives of these monsters are „freshly minted‟ MBAs no sign of accountants with grey hair
Often core services of complex G/L could be delivered by a dedicated system outside G/L for a fraction of the cost
A CFO of a 500 FTE company uses MYOB, a $500 package Too frequent upgrades - I too would be issuing upgrades every time I wanted to improve my bottom-line Changing the G/L writes-off some of your experienced staff for three to five months – and you do not get thanked
Investing in a complex G/L and upgrading unnecessarily – cont.
You really only need to acquire a new G/L if your existing G/L does not support 21st century accounts payable options Stick with your existing system and maximize its use, especially all the accounts payable features
• storing scanned images of purchase invoices on G/L • electronic ordering • electronic receipting of goods & services
#4 Letting Excel dominate the finance system
Excel never was intended to be a core financial system Need a moratorium banning any new Excel models KPMG have said that for every 150 rows of a spreadsheet there is a 90% chance of a logic error
Excel is great for doing a diagram, a one-off costing, being a table of numbers
Excel has no place in reporting, forecasting, budgeting
Nor is it a tool for a NASA space program
We need to embrace the new tools
A drill-down tool so budget holders never need to look at the G/L A planning tool for forecasting and recording the annual plan A reporting tool to replace the procedure of dumping the monthly numbers to the G/L Balanced scorecard tools for displaying performance measures
#5 Doing another annual plan – just like the last one
The nightmare of three to four months arguing over resource allocation when nobody knows the answer The endless cut-back rounds, the game playing, the spend-it or lose-it-mentality is not befitting the 21st century Worked for Julius Caesar but certainly not for us When was the last time you were thanked for the annual planning process?
The annual planning process is not adding value, instead it is:
Undermining an efficient allocation of resources Encouraging dysfunctional budget holder behavior Negating the value of monthly variance reporting Consuming huge amounts of time - Board, SMT, budget holders, assistants, finance team.
Annual plan – way forward
Cost out the time spent on the last annual plan –use Excel! Research alternatives
• read Jeremy Hope‟s work „Reinventing the CFO‟, Harvard Business School Press • www.bettermanagement.com has a „quarterly rolling planning‟ in a web seminar and article • acquire my white papers on „quarterly rolling planning‟ from www.davidparmenter.com
Prepare a sales pitch using emotional drivers
#6 Avoid monthly phasing
The two major mistakes of an AP process:
• monthly analysis to estimate an annual figure • monthly AP estimates used as a reporting yardstick
Monthly phasing has undermined the value of month-end reports Quarterly phasing of data adequate Fine tune the monthly targets just before the relevant quarter starts
#7 Giving budget holders an annual entitlement
Giving budget holders an „annual entitlement‟ to funding is the worst form of management we have ever presided over Portioning out cake at a nine-year-old‟s birthday party
Jun Ju l A ug S ep O ct N ov D ec J an F e b M a r A pr M ay Ju n J ul A ug S ep O c t N o v D ec Jan F eb M a r A p r M ay Ju n Jul A ug S ep O c t N ov D ec X 1 8 m o n th s X 18 m o nths X 18 m o n th s X 18 m o nth s X X
Q u a rte rly u p d a te o f ro llin g fo re c a s t (d u rin g 2 n d w e e k ) F o re c a s t m o n th ly in d e ta il (5 0 % o f fo re c a s t tim e s p e n t g e ttin g it rig h t) F o re c a s t m o n th ly F o re c a s t in q u a rte rly s p lits , a lth o u g h s o m e b u dg e t h o ld e rs m a y w a n t to d o it m o n th ly
Only funding the next quarter helps in many ways:
„Spend it or lose it‟ can no longer work Budget holders find it nearly impossible to hide their reserves in the next three month period BHs are encouraged to seek funding for new initiatives BHs will be weaned off from asking for annual entitlements they do not need
#8 Budgeting at account code level
Never needed to set targets at acct code level
Limit the categories that budget holders need to forecast to no more than 12
Allow the budget holders to have some flexibility in the categories to best reflect their operation Planning tool can easily cope with mapping of general ledger (G/L) codes to categories
Budgeting at category level
Old detailed approach Stationery Uniforms Cleaning Miscellaneous Consumables Tea & coffee kitchen utensils 4,556 3,325 1,245 7,654 2,367 2,134 145 21,426 Forecasting by categories
Consumables
21,400
Salaries and wages Taxes Temporary staff Contract workers Students
25,567,678 2,488,888 2,456,532 2,342,345 234,567 33,090,010
Salaries and wages Taxes Other employment costs
27,400,000 2,900,000 4,200,000
Employment costs
34,500,000
#9 Producing numbing monthly financial reports
Huge cost of M/E reporting – 300 pages + Locks the accounting team into being a processing centre Month-end reporting does not create much value (the horse has bolted) Part of the trifecta of lost opportunities CEOs‟ want more advisory time In the briefcase for three days
Business unit P/L (3 break-out slides)
Operating Statement for the period ending 31 January 20XX
Act
Month $000s Bud Var Revenue 1,380 1,380 215 1,165 50 50 -52 -2
Year-To-Date $000s Act Bud Var
Full Year $000s Budget Forecast
1,430 1,430 267 1,164
Revenue 1 Total Revenue Less Commissions Gross Profit Expenses
5,720 5,720 1,066 4,654
5,520 5,520 860 4,660
200 200 -206 -6
17,200 17,200 3,200 14,000
16,600 16,600 2,600 14,000
278 218 188 158 128 51 1,020 144
262 212 182 152 122 60 990 175
-16 -6 -6 -6 -6 9 -30 -32
Expense 1 Expense 2 Expense 3 Expense 4 Expense 5 Expense 6
1,240 672 752 632 512 673 4,080 574
1,046 848 728 608 488 642 3,960 700
-194 176 -24 -24 -24 -32 -120 -126
Total Expenses Surplus/(Deficit)
3,300 2,600 2,300 1,900 1,500 1,000 12,200 1,800
3,100 2,500 2,200 1,800 1,500 1,200 11,900 2,100
Major Costs $000s 1000 800 600 400 200 0 100 80 60 40 20 0 300 240 180 120 60 0
May-06
Nov-05
Nov-06
Aug-06
Sep-06
Feb-06
Mar-06
Apr-06
Jan-06
Jun-06
Jul-06
Dec-05
Dec-06
Jan-07
Oct-06
May-06
Nov-05
Nov-06
Aug-06
Sep-06
Feb-06
Mar-06
Apr-06
Jan-06
Jun-06
Jul-06
Dec-05
Visitor numbers Commissions Expense 1 Expense 2 Expense 3
Operational wages
highlights: 1. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 2. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 3. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 4. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Dec-06
Jan-07
Oct-06
Month $000s Act Bud Var Revenue 1,430 1,430 267 1,164 1,380 1,380 215 1,165 50 50 -52 -2
Year-To-Date $000s Act Bud Var
Full Year $000s Budget Forecast
Revenue 1 Total Revenue Less Commissions Gross Profit Expenses
5,720 5,720 1,066 4,654
5,520 5,520 860 4,660
200 200 -206 -6
17,200 17,200 3,200 14,000
16,600 16,600 2,600 14,000
278 218 188 158 128 51 1,020 144
262 212 182 152 122 60 990 175
-16 -6 -6 -6 -6 9 -30 -32
Expense 1 Expense 2 Expense 3 Expense 4 Expense 5 Expense 6
1,240 672 752 632 512 673 4,080 574
1,046 848 728 608 488 642 3,960 700
-194 176 -24 -24 -24 -32 -120 -126
Total Expenses Surplus/(Deficit)
3,300 2,600 2,300 1,900 1,500 1,000 12,200 1,800
3,100 2,500 2,200 1,800 1,500 1,200 11,900 2,100
$000s 1000
200
400
600
800
0
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07
Commissions Expense 1 Expense 2 Expense 3
Major Costs
100
20
40
60
80
0
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07
0 60 120 180 240 300
Visitor numbers Operational wages
#10 Reporting on the wrong measures
Short-circuited the process Lack of understanding of what we are looking for Lack of SMT involvement Never established a project team Never looked for critical success factors
4 types of performance measures
KRIs
peel the skin to find the PIs
PIs&RIs
peel to the core to find the KPIs
KPIs
The characteristics of KPIs
Non-financial - not in Pds, $s etc Measured frequently e.g. daily or 24 by 7 Acted upon by CEO and senior mgmt. team All staff understand the measure and what corrective action is required Responsibility can be tied down to the individual or team Significant impact e.g. it impacts the CSFs and more than one BSC perspective Has a positive impact e.g. affects all other performance measures in a positive way
Where to start
See www.bettermanagement.com for a series of web seminars and articles -they are all free. Purchase my white paper - www.davidparmenter.com which includes electronic version of templates, checklists, workshop agendas etc. Obtain my KPI book „Key performance indicators – developing implementing and using winning KPIs‟ Read Kaplan & Norton‟s book „Translating strategy into action the balanced scorecard‟
# 11 Selling change by logic
Car sales person analogy Emotional drivers differ:
• SMT - looking a fool in front of the Board, impact on their bonus, short term focus • management - not invented by me, will behave based on their perception, skeptical • staff – job security, impact on existing workload, perception of what management will do
Selling the change
Collect data on impact of current performance measures (*) Read papers on www.bettermanagement.com Prepare the sales pitch for change (*) Pre-sell the sales pitch to the influencers Make the sales pitch Plan and execute a focus group workshop with oracles from around the organization (*) Seek a green light for the way forward (*) * David Parmenter web casts on bettermanagement.com
#12 Allowing month-end reporting to go past three working days
When I was a corporate accountant each month-end was a disaster waiting to happen Quick month-end reporting has been around since the early 90s Now day one and virtual reporting are the benchmarks Part of the trifecta of lost opportunities Look at www.bettermanagement.com For my white paper “quick month-end reporting by day three or less” go to www.davidparmenter.com
#13 Spending months on the annual accounts
Annual reporting, an important legal requirement, does not create any value within your organization Seldom a task where you receive any thanks 90% of the time the „first cut‟ of year-end for month 12 reporting should be the last cut for the accounts Request an auditor sign-off with 15 working days from year-end – stupid to hang the dirty washing any longer! Purchasing my white paper on the topic
#14 Using Julius Caesar’s calendar as a reporting tool
Creates 12 dramas a year Why not close-off on the last or nearest Friday/Saturday of every month? The benefits of this include:
• • • • precise four or five-week months comparisons more meaningful systems are rolled over at the weekend budget holders know what to do without instructions!
At year-end movement will be taken up in the auditor‟s „overs and unders‟ schedule!
#15 Letting emails dominate our day
Why do accountants need to see emails 24/7, at the weekend, at a friend‟s party, etc.
Nobody dies because we have not looked at our emails – unlike a paramedic, a surgeon, an anesthetist
Looking at emails first thing in the day is the most destructive habit you can have! Eight week challenge - Look at emails two or three times during the working day and never before 10:30am! Eliminate weekend business emails – the world will still go around! Read my „Pareto 80/20 rule for Corporate Accountants‟ for more tips- www.davidparmenter.com
#16 Not producing enough daily/weekly decision-based reports
KPIs should be reported 24/7, daily , weekly yesterday‟s sales reported by 9am the following day transactions with key customers reported on a weekly basis reporting some weekly information of key direct costs weekly non-financial performance indicators in a balanced scorecard weekly reporting on „late projects‟ and „late reports‟
#17 Not investing enough in Accounts Payable
Use the electronic ordering system in AP Scanning of invoices – electronic approval Organize all major suppliers to supply electronic invoices with GL codes! Load remittances onto your website for suppliers to download – password protected Acquire a web based expense claim system Introduce the purchase card for BHs
#18 Not adopting the purchase card – a free AP system!
Numbers of Suppliers' Invoices Invoices over $2,000 20% to 30% Total Invoice Numbers Handled by accounts payable systems Total Value Spent Invoices over $2,000 Invoices under $2,000 70% to 80% 70% to 80% Value of Suppliers' Invoices
Handled by purchase card system
Invoices under $2,000 20% to 30%
#19 Not celebrating enough
An accounting team who were too busy to even organize their Xmas celebration A celebration is a great communication tool Schedule your next celebration and make it happen:
• celebrate every project completion • hold a staff meeting in a café once a month and shout the whole team coffees and muffins • set up a regime where birthdays are honored and celebrated • shout the team to a lunch-time visit to the cinema • for Xmas give your staff options – cinema x5 instead of function • during team meetings ensure that at least three team members are thanked
# 20 Getting sucked into activity based costing/ activity based management
Jeremy Hope of Beyond budgeting fame has pointed out the fallacy of activity based costing
• These systems cost a lot to put in and to maintain • provide information of dubious quality • run 24/7 when you only need such information infrequently
If you feel ABC is necessary make sure you have sorted out all the other areas I have mentioned first Read Jeremy Hope‟s work on www.BBRT.com and his book “Reinventing the CFO” ISBN 1-59139-945-9.
These books came out in 07
Go to www.davidparmenter.com for the link to Amazon
Thank you for participating in this audio seminar
Please keep in touch about your progress
See www.davidparmenter.com for my speaking engagements, white papers, etc.
Question & Answer Session
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
David Parmenter waymark solutions limited
Website: www.waymark.co.nz Blog: www.davidparmenter.com Email: [email protected]
FEEDBACK Want to learn more about this topic? Interested in other presentations from David Parmenter? E-mail us at [email protected]
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
•Access Webcast using Internet Explorer (please disable pop-up blocker) •Program audio available through your computer OR •To listen to audio via your phone: Step 1: Dial the conference access number: 866-551-1530 or 212-401-6700 Step 2: Enter PIN code: 734764# Step 3: You will be placed on hold until the event begins. Press 0* at any time to speak to an operator.
The Top 20 Mistakes Made by Corporate Accountants
David Parmenter CEO, waymark solutions limited
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
The Top 20 Mistakes Made by Corporate Accountants
David Parmenter CEO, waymark solutions limited
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
David Parmenter waymark solutions limited
Website: www.waymark.co.nz Blog: www.davidparmenter.com Email: [email protected]
These books came out in 07
Go to www.davidparmenter.com for the link to Amazon
Corporate accountants better practices on www.bettermanagement.com
1. 2. 3. 4. Decision based reporting Quick month-ends – day 3 or less Quarterly rolling planning A two week annual planning process the building block for quarterly rolling planning 5. 50+ ways to improve your accounts payable function 6. Winning KPIs (8 audio casts)
#1 Having over 80 account codes for the P/L
Separate account only if they represent at least 1% or greater of total expenses (max 40 to 60 account codes) Separate codes only if revenues represent over 3% or greater of total revenue (max 15 to 20 account codes) To a stupid question –
• ask what are they going to do with info • answer „42‟ or • skilled management accountant investigate 6 weeks of expenditure and then annualize the number
Appoint a hard-nosed keeper of the „chart of accounts‟
#2 Monthly re-forecasting of the year-end position
Flawed on four counts: Why should one bad month, one good month translate into a change of year-end position? The forecast is a top-top forecast with little input and no buy-in from the budget holders Two months before year-end management appear to ignore the oncoming year Management and the Board know what ever number you have told them is wrong!
‘Fast light touch’ quarterly rolling forecast
J u n Ju l A u g X S e p O c t N o v D e c Ja n F e b M ar A p r M ay Ju n J u l A u g S ep O c t N o v D e c Ja n F eb M ar A p r M ay J u n Ju l A u g S e p O ct N o v D ec 18 m o n th s X 1 8 m o n th s X 1 8 m o n th s X 18 m o n th s X
X
Q u a rte rly u p d a te o f ro llin g fo re c a s t (d u rin g 2 nd w e e k ) F o re c a s t m o n th ly in d e ta il (5 0 % o f fo re c a s t tim e s p e n t g e ttin g it rig h t) F o re c a s t m o n th ly F o re c a s t in q u a rte rly s p lits , a lth o u g h s o m e b ud g e t h o ld e rs m a y w a n t to d o it m o n th ly
The “x” marks the month the forecast is done (2nd or 3rd week in month) Important that the purple numbers are quick cuts as they are fine tuned later on Red numbers create the new benchmarks for reporting and funding
#3 Investing in a complex G/L and upgrading unnecessarily
Task of the G/L is very simple, recording the expenditure and revenue – SAP?
The midwives of these monsters are „freshly minted‟ MBAs no sign of accountants with grey hair
Often core services of complex G/L could be delivered by a dedicated system outside G/L for a fraction of the cost
A CFO of a 500 FTE company uses MYOB, a $500 package Too frequent upgrades - I too would be issuing upgrades every time I wanted to improve my bottom-line Changing the G/L writes-off some of your experienced staff for three to five months – and you do not get thanked
Investing in a complex G/L and upgrading unnecessarily – cont.
You really only need to acquire a new G/L if your existing G/L does not support 21st century accounts payable options Stick with your existing system and maximize its use, especially all the accounts payable features
• storing scanned images of purchase invoices on G/L • electronic ordering • electronic receipting of goods & services
#4 Letting Excel dominate the finance system
Excel never was intended to be a core financial system Need a moratorium banning any new Excel models KPMG have said that for every 150 rows of a spreadsheet there is a 90% chance of a logic error
Excel is great for doing a diagram, a one-off costing, being a table of numbers
Excel has no place in reporting, forecasting, budgeting
Nor is it a tool for a NASA space program
We need to embrace the new tools
A drill-down tool so budget holders never need to look at the G/L A planning tool for forecasting and recording the annual plan A reporting tool to replace the procedure of dumping the monthly numbers to the G/L Balanced scorecard tools for displaying performance measures
#5 Doing another annual plan – just like the last one
The nightmare of three to four months arguing over resource allocation when nobody knows the answer The endless cut-back rounds, the game playing, the spend-it or lose-it-mentality is not befitting the 21st century Worked for Julius Caesar but certainly not for us When was the last time you were thanked for the annual planning process?
The annual planning process is not adding value, instead it is:
Undermining an efficient allocation of resources Encouraging dysfunctional budget holder behavior Negating the value of monthly variance reporting Consuming huge amounts of time - Board, SMT, budget holders, assistants, finance team.
Annual plan – way forward
Cost out the time spent on the last annual plan –use Excel! Research alternatives
• read Jeremy Hope‟s work „Reinventing the CFO‟, Harvard Business School Press • www.bettermanagement.com has a „quarterly rolling planning‟ in a web seminar and article • acquire my white papers on „quarterly rolling planning‟ from www.davidparmenter.com
Prepare a sales pitch using emotional drivers
#6 Avoid monthly phasing
The two major mistakes of an AP process:
• monthly analysis to estimate an annual figure • monthly AP estimates used as a reporting yardstick
Monthly phasing has undermined the value of month-end reports Quarterly phasing of data adequate Fine tune the monthly targets just before the relevant quarter starts
#7 Giving budget holders an annual entitlement
Giving budget holders an „annual entitlement‟ to funding is the worst form of management we have ever presided over Portioning out cake at a nine-year-old‟s birthday party
Jun Ju l A ug S ep O ct N ov D ec J an F e b M a r A pr M ay Ju n J ul A ug S ep O c t N o v D ec Jan F eb M a r A p r M ay Ju n Jul A ug S ep O c t N ov D ec X 1 8 m o n th s X 18 m o nths X 18 m o n th s X 18 m o nth s X X
Q u a rte rly u p d a te o f ro llin g fo re c a s t (d u rin g 2 n d w e e k ) F o re c a s t m o n th ly in d e ta il (5 0 % o f fo re c a s t tim e s p e n t g e ttin g it rig h t) F o re c a s t m o n th ly F o re c a s t in q u a rte rly s p lits , a lth o u g h s o m e b u dg e t h o ld e rs m a y w a n t to d o it m o n th ly
Only funding the next quarter helps in many ways:
„Spend it or lose it‟ can no longer work Budget holders find it nearly impossible to hide their reserves in the next three month period BHs are encouraged to seek funding for new initiatives BHs will be weaned off from asking for annual entitlements they do not need
#8 Budgeting at account code level
Never needed to set targets at acct code level
Limit the categories that budget holders need to forecast to no more than 12
Allow the budget holders to have some flexibility in the categories to best reflect their operation Planning tool can easily cope with mapping of general ledger (G/L) codes to categories
Budgeting at category level
Old detailed approach Stationery Uniforms Cleaning Miscellaneous Consumables Tea & coffee kitchen utensils 4,556 3,325 1,245 7,654 2,367 2,134 145 21,426 Forecasting by categories
Consumables
21,400
Salaries and wages Taxes Temporary staff Contract workers Students
25,567,678 2,488,888 2,456,532 2,342,345 234,567 33,090,010
Salaries and wages Taxes Other employment costs
27,400,000 2,900,000 4,200,000
Employment costs
34,500,000
#9 Producing numbing monthly financial reports
Huge cost of M/E reporting – 300 pages + Locks the accounting team into being a processing centre Month-end reporting does not create much value (the horse has bolted) Part of the trifecta of lost opportunities CEOs‟ want more advisory time In the briefcase for three days
Business unit P/L (3 break-out slides)
Operating Statement for the period ending 31 January 20XX
Act
Month $000s Bud Var Revenue 1,380 1,380 215 1,165 50 50 -52 -2
Year-To-Date $000s Act Bud Var
Full Year $000s Budget Forecast
1,430 1,430 267 1,164
Revenue 1 Total Revenue Less Commissions Gross Profit Expenses
5,720 5,720 1,066 4,654
5,520 5,520 860 4,660
200 200 -206 -6
17,200 17,200 3,200 14,000
16,600 16,600 2,600 14,000
278 218 188 158 128 51 1,020 144
262 212 182 152 122 60 990 175
-16 -6 -6 -6 -6 9 -30 -32
Expense 1 Expense 2 Expense 3 Expense 4 Expense 5 Expense 6
1,240 672 752 632 512 673 4,080 574
1,046 848 728 608 488 642 3,960 700
-194 176 -24 -24 -24 -32 -120 -126
Total Expenses Surplus/(Deficit)
3,300 2,600 2,300 1,900 1,500 1,000 12,200 1,800
3,100 2,500 2,200 1,800 1,500 1,200 11,900 2,100
Major Costs $000s 1000 800 600 400 200 0 100 80 60 40 20 0 300 240 180 120 60 0
May-06
Nov-05
Nov-06
Aug-06
Sep-06
Feb-06
Mar-06
Apr-06
Jan-06
Jun-06
Jul-06
Dec-05
Dec-06
Jan-07
Oct-06
May-06
Nov-05
Nov-06
Aug-06
Sep-06
Feb-06
Mar-06
Apr-06
Jan-06
Jun-06
Jul-06
Dec-05
Visitor numbers Commissions Expense 1 Expense 2 Expense 3
Operational wages
highlights: 1. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 2. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 3. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 4. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Dec-06
Jan-07
Oct-06
Month $000s Act Bud Var Revenue 1,430 1,430 267 1,164 1,380 1,380 215 1,165 50 50 -52 -2
Year-To-Date $000s Act Bud Var
Full Year $000s Budget Forecast
Revenue 1 Total Revenue Less Commissions Gross Profit Expenses
5,720 5,720 1,066 4,654
5,520 5,520 860 4,660
200 200 -206 -6
17,200 17,200 3,200 14,000
16,600 16,600 2,600 14,000
278 218 188 158 128 51 1,020 144
262 212 182 152 122 60 990 175
-16 -6 -6 -6 -6 9 -30 -32
Expense 1 Expense 2 Expense 3 Expense 4 Expense 5 Expense 6
1,240 672 752 632 512 673 4,080 574
1,046 848 728 608 488 642 3,960 700
-194 176 -24 -24 -24 -32 -120 -126
Total Expenses Surplus/(Deficit)
3,300 2,600 2,300 1,900 1,500 1,000 12,200 1,800
3,100 2,500 2,200 1,800 1,500 1,200 11,900 2,100
$000s 1000
200
400
600
800
0
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07
Commissions Expense 1 Expense 2 Expense 3
Major Costs
100
20
40
60
80
0
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07
0 60 120 180 240 300
Visitor numbers Operational wages
#10 Reporting on the wrong measures
Short-circuited the process Lack of understanding of what we are looking for Lack of SMT involvement Never established a project team Never looked for critical success factors
4 types of performance measures
KRIs
peel the skin to find the PIs
PIs&RIs
peel to the core to find the KPIs
KPIs
The characteristics of KPIs
Non-financial - not in Pds, $s etc Measured frequently e.g. daily or 24 by 7 Acted upon by CEO and senior mgmt. team All staff understand the measure and what corrective action is required Responsibility can be tied down to the individual or team Significant impact e.g. it impacts the CSFs and more than one BSC perspective Has a positive impact e.g. affects all other performance measures in a positive way
Where to start
See www.bettermanagement.com for a series of web seminars and articles -they are all free. Purchase my white paper - www.davidparmenter.com which includes electronic version of templates, checklists, workshop agendas etc. Obtain my KPI book „Key performance indicators – developing implementing and using winning KPIs‟ Read Kaplan & Norton‟s book „Translating strategy into action the balanced scorecard‟
# 11 Selling change by logic
Car sales person analogy Emotional drivers differ:
• SMT - looking a fool in front of the Board, impact on their bonus, short term focus • management - not invented by me, will behave based on their perception, skeptical • staff – job security, impact on existing workload, perception of what management will do
Selling the change
Collect data on impact of current performance measures (*) Read papers on www.bettermanagement.com Prepare the sales pitch for change (*) Pre-sell the sales pitch to the influencers Make the sales pitch Plan and execute a focus group workshop with oracles from around the organization (*) Seek a green light for the way forward (*) * David Parmenter web casts on bettermanagement.com
#12 Allowing month-end reporting to go past three working days
When I was a corporate accountant each month-end was a disaster waiting to happen Quick month-end reporting has been around since the early 90s Now day one and virtual reporting are the benchmarks Part of the trifecta of lost opportunities Look at www.bettermanagement.com For my white paper “quick month-end reporting by day three or less” go to www.davidparmenter.com
#13 Spending months on the annual accounts
Annual reporting, an important legal requirement, does not create any value within your organization Seldom a task where you receive any thanks 90% of the time the „first cut‟ of year-end for month 12 reporting should be the last cut for the accounts Request an auditor sign-off with 15 working days from year-end – stupid to hang the dirty washing any longer! Purchasing my white paper on the topic
#14 Using Julius Caesar’s calendar as a reporting tool
Creates 12 dramas a year Why not close-off on the last or nearest Friday/Saturday of every month? The benefits of this include:
• • • • precise four or five-week months comparisons more meaningful systems are rolled over at the weekend budget holders know what to do without instructions!
At year-end movement will be taken up in the auditor‟s „overs and unders‟ schedule!
#15 Letting emails dominate our day
Why do accountants need to see emails 24/7, at the weekend, at a friend‟s party, etc.
Nobody dies because we have not looked at our emails – unlike a paramedic, a surgeon, an anesthetist
Looking at emails first thing in the day is the most destructive habit you can have! Eight week challenge - Look at emails two or three times during the working day and never before 10:30am! Eliminate weekend business emails – the world will still go around! Read my „Pareto 80/20 rule for Corporate Accountants‟ for more tips- www.davidparmenter.com
#16 Not producing enough daily/weekly decision-based reports
KPIs should be reported 24/7, daily , weekly yesterday‟s sales reported by 9am the following day transactions with key customers reported on a weekly basis reporting some weekly information of key direct costs weekly non-financial performance indicators in a balanced scorecard weekly reporting on „late projects‟ and „late reports‟
#17 Not investing enough in Accounts Payable
Use the electronic ordering system in AP Scanning of invoices – electronic approval Organize all major suppliers to supply electronic invoices with GL codes! Load remittances onto your website for suppliers to download – password protected Acquire a web based expense claim system Introduce the purchase card for BHs
#18 Not adopting the purchase card – a free AP system!
Numbers of Suppliers' Invoices Invoices over $2,000 20% to 30% Total Invoice Numbers Handled by accounts payable systems Total Value Spent Invoices over $2,000 Invoices under $2,000 70% to 80% 70% to 80% Value of Suppliers' Invoices
Handled by purchase card system
Invoices under $2,000 20% to 30%
#19 Not celebrating enough
An accounting team who were too busy to even organize their Xmas celebration A celebration is a great communication tool Schedule your next celebration and make it happen:
• celebrate every project completion • hold a staff meeting in a café once a month and shout the whole team coffees and muffins • set up a regime where birthdays are honored and celebrated • shout the team to a lunch-time visit to the cinema • for Xmas give your staff options – cinema x5 instead of function • during team meetings ensure that at least three team members are thanked
# 20 Getting sucked into activity based costing/ activity based management
Jeremy Hope of Beyond budgeting fame has pointed out the fallacy of activity based costing
• These systems cost a lot to put in and to maintain • provide information of dubious quality • run 24/7 when you only need such information infrequently
If you feel ABC is necessary make sure you have sorted out all the other areas I have mentioned first Read Jeremy Hope‟s work on www.BBRT.com and his book “Reinventing the CFO” ISBN 1-59139-945-9.
These books came out in 07
Go to www.davidparmenter.com for the link to Amazon
Thank you for participating in this audio seminar
Please keep in touch about your progress
See www.davidparmenter.com for my speaking engagements, white papers, etc.
Question & Answer Session
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
David Parmenter waymark solutions limited
Website: www.waymark.co.nz Blog: www.davidparmenter.com Email: [email protected]
FEEDBACK Want to learn more about this topic? Interested in other presentations from David Parmenter? E-mail us at [email protected]
Visionary perspectives for management insights
Copyright © 2009 BetterManagement.com
