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

Management Accounting Current State

Challenges

Management & Cost Accounting Today

Finance Effectiveness Benchmark Survey

Learnings

7 - 10

Process & Technology Challenges

12

Finance Reporting Target Architecture

13

Typical Planning Cycle

14

Key Planning Concepts in SAP

15

SAP Approach to Planning

16

Planning

Agenda
Section

Topic

Page No

Budgeting
Typical Budgeting Cycle
Key Budgeting Concepts in SAP
SAP Approach to Budgeting
Key Benefits & QA

18
19 20
21
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

Close Partnerships Required

for Transformations

Limited Perceived Value of Financial Planning

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

Successful financial planning transformations require a

close partnership between the corporate office, functional
areas and business units

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

Simplifying processes, iterations and level of detail require

a strong leader/change agent to drive the desired
outcomes

Getting the Level of

Detail Right

Rolling Forecasts Have Become Established

Leading Practice

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

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

Lets 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
currently take your company to prepare
its budget?

Less than 2 months

Fewer than 2 business

days

18%

2 to 4 months

54%

4 to 6 months

More than 10 business

days

9%
0%

20%

2 to 5 business days

6 to 10 business days

20%

More than 6 months

Approximately how long does it

take your company to generate a
forecast?

40%

60%

9%

31%

29%

32%
0% 10% 20% 30% 40%

The budgeting processes costs on average over $12 million annually for
organizations with $10 billion or more in revenue

Lets look at what sets apart the leaders

Lets 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 - Todays 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
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.

Leading Practices in Forecasting

Edit dont 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
Planning values can be copied from previous periods

Planning Versions

Versions is a collection of year dependent indicators (Different plan,

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
SAP provides a standard planning version of 000 which can be used for
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.
Same planning objects (profiles) can be used in multiple planning versions.
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

Planner profiles contains the planning areas (cost center planning, profit
center planning, internal order planning) for which planning needs to be
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

2013

Planning

2014

Version 1

Cost center and

Cost element

Version 2

Cost center and

Cost element

Version 3

Cost center and

cost element

Version 1

Cost center and

cost element

Planning Layout
Planning layout defines how planning to be executed based on the characteristics and
key figures of a totals table
Planning layout designs the screen layout for executing planning

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

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 Measure
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

Investment Management is deeply integrated with standard ECC

components like MM/PS/PM/AA etc.
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

Availability Control decisions to be made

When Budget is exceeded - Hard Stop or Soft warning message ?

E-Mail Integration with Warning / Error messages ?

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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