Planning & Budgeting: VDDW Corporate Performance Management Initiatives for Results

RESULTS: Initiatives > Planning & Budgeting



	Initiatives: Overview Pricing Supply Chain Routing Planning & Budgeting Return On Advertising NOP–driven Negotiating NOP–driven Commission & Incentives Sku Rationalization Customer Profitability Market Segmentation Partner and Product Benchmarking Improved Category Management Staffing efficiencies Process Costing

Planning & Budgeting is an iterative, give-and-take process between management and organizational silos to determine how much to spend, where and why, and how best to deploy the company’s various resources. The goal of the process, ideally, is to figure out the best fit between expected volume and capacity constraints, with consideration of the tactical and strategic options at the company’s disposal, so as to achieve maximum profitability.
The VDDW approach leverages ABC output as one of its core components, which enables the VDDW to function as the information foundation for Activity-Based Budgeting (ABB), which is a superior approach to the planning & budgeting process.
An ABB approach basically entails performing the following general steps in iterative fashion until reaching the optimum combination of tactical & strategic action points, volume forecasts, resource commitments, and planned expenditures:
1. Understand performance hotspots and troublespots. The first step is understanding where the company is making and losing money, at a Net Operating level – by customer, by product, by supplier, by channel, by combinations of the above, and even for isolated transactions that help expose why certain interactions are unprofitable (e.g. – perhaps small orders take more handling and attention than they’re worth…)
2. Isolate the underlying causes. The next step is understanding why. What is it about the product or segment that makes them profitable or unprofitable? Is it handling efficiency? Are too many resources involved? Are those resources operating at full capacity or is there excess? Is the price too low, or too high? Comparative analysis between partners and products can help isolate issues, as can hunting for extreme outliers that exhibit very high or low performance in one way or another, and comparing to those. Once the underlying causes of performance are discovered, a menu of potential actions presents itself: Change or renegotiate price, eliminate or redeploy excess capacity, institute policy changes, invest in the right productivity tools, tweak processes, etc.
3. Factor in volume forecasts. Consider how much you expect to buy or sell over the planning horizon, as well as how that forecast changes under different pricing scenarios.
4. Factor in tactical & strategic options. What can be done to address the underlying drivers of performance identified in #2? Price Changes? People Changes? Policy Changes? Process Changes? Productivity Tools? Purchase or Sell fixed assets? How much will Resource productivity improve leading to reduced cost? How much additional margin will these actions create?
5. Computing the bottom-line impact of various scenarios. Finally, assemble the above into a collection of scenarios based on different revenue-volume forecasts. Given a certain revenue-volume projection, and considering the tactical & strategic options that can be enacted to boost efficiency, what does the bottom-line look like? Formulaically, take the forecasted volume of a given slice of the business and multiply it by the rate at which that segment will consume the activity (accounting for new efficiencies from actions considered under #4). This will show how many units of capacity will be required (e.g., FTE hours or head count). Multiply the capacity requirement times the cost of that capacity to determine the total expense. Do this over and over for multiple slices of the business, with various forecasting assumptions. Pick the scenario that is most profitable, and deploy funds and resources accordingly in concert with whatever performance-enhancing actions you’ve decided to take.
The ABB process is an involved and iterative process, and numerous workflow & productivity tools are appearing on the scene to help companies manage the complexity of the process. But whatever the case, the process requires the right content, and the VDDW approach delivers that content.
The VDDW exposes NOP for every segment of the business, along with the drivers of that performance, and the resources consumed, and the cost and capacity of those resources, for every slice of the business, and all supporting business processes. Upon this information foundation, the ABB process rests.