Budgeting, Forecasting & Planning Process

Introduction:

A good plan should begin with a good forecast, which in turn, may lead to a good budget. A strategy is a long-term plan of what the company is going to do to achieve its policy. The budget is the short-term plan of how strategies may be achieved. It is a quantification of the activities the company must develop to achieve its short-term plans.

Targeted Groups:

Financial Accounting Team Members
Cost and Management Accounting Staff
Finance Professionals
Planning Managers
Commercial Managers
Capital Investment and Project Team Members

Course Objectives:

At the end of this course the participants will be able to:

Develop strategic thinking, and use the strategic management process to develop missions and objectives and carry out strategic analysis and decision-making
Understand the relationship between financial planning, forecasting, and budgeting and integration of the strategic management process with the budgeting cycle
Understand cost behavior, the use of alternative costing systems, and cost/volume/profit (CVP) analysis
Develop and prepare an operating budget and how it may be funded using the alternative sources of finance
Use various Excel models to forecast sales pricing, optimal product mix, long- and short-term sales levels
Build financial growth planning models and traditional and activity-based budget models, and improve budget accuracy
Use the techniques of budgetary control: development of product standards, flexed budgets, and variance analysis and use of the results of variance analysis to improve operational performance
Determine a company’s cost of capital and use the technique of discounted cash flow (DCF) for capital budgeting and evaluation of capital project investment, and risk analysis using the techniques of sensitivity, simulation, and scenario analysis.
Use of Excel tools to develop strategic financial models, forecasts, and budgets.
Understand the relationship between the strategy, the forecast, and the budget.
Improved budgeting decisions will increase their effectiveness within the organization.

Targeted Competencies:

Planning and budgeting process
Forecasting cash flow
Calculating the cost of capital
Practicing financial modeling
Budgeting
Understanding scenario analysis
Data analyzing
Using advanced Excel
Balanced scorecard

Course Content:

Unit 1: Planning for Success:

What are planning strategies?
Work with the planning cycle
Mission
Strategic analysis
Strategic choice
Strategic implementation
Corporate objectives
Corporate value and shareholder value
The agency problem and corporate governance
Planning requirements and working capital
Plan outline
Financial planning for growth
Financial modeling
Development of the key performance indicators (KPIs)
The balanced scorecard

Unit 2: The Forecasting Process:

Determine the purpose and objective of the forecast
Analyzing data
Statistical analytical tools
Quantitative analysis and forecasting
Forecasting techniques
Univariate analysis models: time series; moving averages; exponential smoothing; trend progression
Causal analysis models – regression analysis

Unit 3: Projecting Revenues – The Sales Budget:

Projecting sales
Long-term trend sales forecast
Short-term trend sales forecast
The basis of revenue assumptions
Sales pricing
Full cost pricing
Marginal cost pricing
Using Excel to project the optimum product mix

Unit 4: The Nature and Behaviour of Costs:

Cost behavior
What is the cost?
What is the activity?
Cost classification
Fixed costs and stepped fixed costs
Variable costs and semi-variable costs
Notional costs
Cost allocation
Product costs and period costs
Product costing for inventory valuations and profit ascertainment
Absorption costing
Cost / volume /profit (CVP) and ‘what-if’ analysis

Unit 5: The Budgeting Process:

Why do we budget? - the purposes of budgeting
Planning and control
Budgeting for sales and costs
Stages in the budget process
Budget preparation process
Accounting for headcount and labor costs in the budget model
Accounting for depreciation in the budget model
Putting the budget together

Unit 6: Budgetary Control:

Standard Costing
The purposes of standard costing
Flexed budgets
Variance analysis
The reasons for variances
Planning and operating variances

Unit 7: Projecting Expenses – Activity-Based Costing (ABC) And Activity Based Budgeting (ABB) :

The activities that cause costs
Processes and activities
Under- and over-costing – product cost cross-subsidization
Activity-based costing (ABC)
Refinement of the costing system
ABC and cost management
Design of ABC systems
The cost hierarchy and cost drivers
Advantages and disadvantages of ABC systems
From traditional budgeting to activity-based budgeting (ABB)
The ABB process
Motivation and the behavioral aspect of budgeting

Unit 8: The Time Value of Money:

The impact time has on the value of money
Future values and compound interest
Present values
Discounted cash flow (DCF)

Unit 9: Evaluating Capital Project Proposals:

Various types of capital projects
Capital project evaluation
Capital investment project appraisal
Accounting rate of return (ARR)
Payback method
Net present value (NPV)
Internal rate of return (IRR)
Discounted payback method
Choosing the right investment appraisal method
Equivalent annual cost (EAC) method
Modified internal rate of return (MIRR)
Capital budgeting methods
Capital rationing
Profitability index (PI)

Unit 10: Putting the Pieces Together - The Budget:

Long- and short-term funding
Sources of finance
Capital cost models
Cost of equity
Cost of debt
Weighted average cost of capital (WACC)
Risk and the cost of capital
Capital asset pricing model (CAPM) and the beta factor
Optimal capital structure
Capital structure models

Unit 11: Budget Re-Projection – Evaluating Risk And Uncertainty:

Risk and uncertainty decision rules
Worst and best-case scenarios
The value of perfect information (VOPI)
Analyzing risk: expected values; standard deviation
Sensitivity analysis
Simulation model
Scenario analysis
NPV break-even