Rolling planning is applicable to machinery. Transformation of financial planning in small and medium-sized companies. Budgets reward inefficiency
Since the main form of planning in our country is five-year plans, let us assume that = 5. Values. the moving trend calculated according to the above method (for fe = 5, n = 25) are presented in table. 57. The following equations were obtained for the individual phases of the moving trend movement
At first glance, the task did not seem very difficult, it seemed sufficient to organize the work in such a way that annually, simultaneously with drawing up the next annual plan, the horizon of the five-year plan for the next year would move. However, at the very first attempt to put into practice the idea of a sliding five-year plan, it became clear that it had come into irreconcilable contradiction with the target functions and the principle of directive planning, not to mention enormous difficulties of a purely technical nature. What, for example, the national economic tasks can be set for the next five-year period after the last year. Obviously, they are not greater than in the usual annual plan. A year later, a similar situation will happen again, with the only difference that it will become even more difficult to develop an annual plan for five years ahead. At the same time, it will inevitably have to be corrected, or rather, changed in either direction of the task,
Continuity implies a rolling nature of planning, primarily in terms of the systematic revision of plans, shifting the planning period (for example, after the end of the reporting month, quarter, year).
Due to the dynamism of the processes taking place in the activities of the enterprise and the country, it is necessary to carry out current planning. It results in short-term plans (usually for a year), taking into account the current trends in the development of supply and demand. In them, indicators are set for the year with a breakdown by quarters. These plans are rolling, i.e. for the first three months, the indicators are set rigid, unchanged, and in the next 9 months they are adjusted as they change
All of the above leads to the conclusion (at the level of a working hypothesis) about the high inertia of the basis of the optimal plan for the gas industry. But for systems of this kind, the adaptive properties of the original plan extend over a long period of time and dominate in importance at any stage of the plan's implementation. The variability of these properties due to possible changes in the basis of the plan can be taken into account in the rolling planning procedure or in some other way of organizing the continuous planning process.
B. Indicative rolling budget (1 year). This is a special kind of budget. It is adopted at the beginning of the year and is completely similar to the development budget (that is, only two budgets are adopted at the beginning of the year - the development budget for 1 year and the short-term budget for the first quarter). After the expiration of the first quarter, one more quarter is added to the rolling budget (the first quarter of the next year), after the expiration of the second quarter - the second quarter of the next year, etc. This ensures continuous 12-month planning. This circumstance is very important for the effectiveness of management planning at the enterprise. Adjustment of the development budget and the adoption of the next quarterly budget during the year occur simultaneously and on the basis of the development of the next rolling annual budget. So, subjecting the audit volumes of investments in the III quarter of the development budget, managers should know the situation not only by the end of the year, but also for a year ahead (counting from the beginning of this quarter
The budgeting process is continuous or rolling. Based on the planned indicators established for the year in the course of the current investment planning, a system of quarterly budgets (for the coming quarter) is developed in advance (before the onset of the planning period), and within the framework of quarterly budgets, a system of monthly budgets (for each forthcoming month). The process of such sliding budgeting guarantees the continuity of the operation of the operational planning system for the investment activities of the enterprise, lays a solid foundation for the implementation of continuous monitoring of the results of this activity.
The production department carries out tactical and operational planning. Tactical planning involves the preparation of medium-term (usually five-year) plans, which concretize the strategic concept, methods and forms of its implementation. The tactical plan is subject to constant adjustment, so it is usually called a rolling plan, or self-regulating plan.
A rolling strategy is based on a fixed planning horizon that includes several time intervals. The plan is recalculated every time period, but at the same time the end period is postponed. It turns out that the planned horizon is constantly running away while increasing the results of work. For example, annual planning with a rolling strategy is performed at the beginning of each quarter, but with a total duration of four quarterly intervals.
In essence, the ZBB system is nothing more than a way to rationalize the processes of allocation of limited (and, as a rule, these are investment) resources and adequate continuous adjustment of previously drawn up budgets. The only differences are that the usual rolling financial planning system is based, on the one hand, on the invariability of budget estimates for the entire budget period, and on the other, on the results achieved, the levels of financing of current and investment costs. The ZBB provides for the possibility of refusing to finance a project or its individual articles in the event of a change in the ranking criteria. Consider the features of the organizational and methodological procedures of the ZBB.
Next, it is necessary to determine the procedure for developing budgets within the budget period. It is about setting the timing of adjustments and making any changes to previously drawn up and adopted budgets of various levels, i.e., about the timing of drawing up, agreeing and approving adjusted budgets that are developed after the submission of reports on the execution of budgets for a certain period. At the same time, if the period is long enough (for example, a quarter or half a year, which can range from V4 to Vr of the entire budget period), then in addition to adjustments to previously adopted budgets, it is also possible to draw up budget estimates that go beyond this budget period. This is actually the point of following the rolling planning principle (continuous budgeting). This is not only regular adjustments to budgets (after drawing up and submitting performance reports for a set period), but also drawing up a pro forma (forecast) for an appropriate period of time (month, quarter) of the next budget period (the so-called pro forma, which is the basis of the indicative budget).
The choice of a computer program is usually the final stage in setting budgeting, but often many managers start everything with it. But in vain. No, humanly it is all understandable - what kind of manual budgeting, without a good counting rhyme. Try to make some multivariate calculations here. This pleasure is not for the faint of heart. Especially when it comes to the so-called rolling financial planning, which provides for a monthly or even weekly adjustment of previously drawn up budgets for six months or a year, and in the long term and three years in advance with a monthly or even ten-day breakdown of the budget period. It's not just compilers that will get sick of this kind of budgeting. And the specifics of each business dictate its own financial structure, its own, unique budget formats, its own modes of consolidation of the budgets of structural units into the consolidated budgets of the company, its own budget regulations, etc. We have to deal with a long and painstaking revision of standardized software products. And it turns out that the automation of financial planning - headache leader, and only. Is it so
Due to the dynamism of the processes taking place in the economic and political life of the country, it is necessary to carry out current planning for a period of up to 1 year. It is based on short-term plans and current trends in the development of supply and demand. In it, indicators are set for the year with a breakdown by quarters. They are also sliding plans, i.e. for the first three months, the indicators are set rigid, unchanged, and in the next 9 months they are subject to adjustment. In comparison with short-term plans, they are more detailed, especially in the field of production movement and stocks of inventories, pricing, production costs, etc. In fact, they link the tasks of various enterprise services.
In fig. 1.2 shows the case of a six-month private planning in detail and in general view for five-year planning. With rolling planning, the newly obtained information is adequately included in multi-period planning. As a rule, rolling planning guarantees subject coordination and the feasibility of private plans. In practice, rolling planning is a technique for continuing flexible plans.
In economic practice, the methods of dynamic calculation of plans, due to their complexity, have limited application. However, in their structure, these techniques are suitable for solving various planning problems and ensure the coordination and implementation of private plans or planning systems. A link is possible between flexible planning and rolling planning technique.
In marketing, the principle of rolling planning is used, which provides for the current, sequential adjustment of planned indicators. In particular, if the plan is designed for one year, then every three months, changes are made to it caused by unforeseen changes in the development of the market situation, and it is generally revised; if the plan is designed for five years, then such a revision is carried out annually. Not only direct indicators directly related to the changes in the market are subject to amendment, but also all related indicators, since the plan is an integral, interrelated, interdependent and interdependent regulatory management of the firm's activities, where even small changes in external and internal conditions and development factors can disrupt the envisaged structures and balance and therefore require a complete revision of all components of the plan.
Developing a rolling budget consists of adding a budget for the coming period as soon as the previous period expires, thereby ensuring continuity in the planning process.
Types of estimate (budget) systems in management accounting. Current and operational budgets. Rolling (continuous) budget as a way to ensure the continuity of the planning process.
Flexibility of strategic plans, the ability to make adjustments to them when circumstances change. This is achieved, in particular, on the basis of rolling planning, when the plan of the first year is subjected to detailed study (detailed
Izhevsk State Technical University named after M. T. Kalashnikov
undergraduate
Scientific adviser: Zhuravleva Tatyana Pavlovna, Candidate of Economic Sciences, Associate Professor of the Department accounting and analysis economic activity Izhevsk State Technical University named after M. T. Kalashnikov
Annotation:
This article discusses the problems of planning and optimizing cash flows. Modern methods of solving these problems using computer programming methods, optimization models and simulation are considered. The author focuses on the current activity, which is the goal of creating organizations. The author proposes to develop a methodology for the operational management of cash flows using the example of a sliding flexible payment calendar, including the balance of the cash flow using the models modified by it. This article attempts to reveal the main reason why companies benefit from this technique. As a key proof of the rationality and reliability of the use of this technique, the methods of its application to achieve the set goal and testing are disclosed. In the conclusion, the conclusions are given.
This article discusses the problems of planning and optimizing cash flows. Modern methods for solving these problems are considered using computer programming techniques, optimization models and simulation modeling. The author focuses on the current activity, which is the goal of creating organizations. The author proposes to develop a cash flows operational management methodology on the example of a rolling flexible payment schedule, including the cash flow balance with the aid of models modified by him. This article attempts to reveal the main reason why companies benefit from this methodology. As a key proof of the rationality and reliability of the use of this methodology, the methods of its application to achieve the goal and approbation are disclosed. Finally, the conclusions are given.
Keywords:
rolling planning and budgeting; sliding flexible payment calendar; machine programming algorithms; modified Stone model; float; short-term profit maximization system; simulation modeling.
rolling planning and budgeting; rolling flexible payment schedule; computer programming algorithms; modified Stone model; float; short-term profit maximizing system; simulation modeling.
UDC 330.46
Introduction
Today, the problems of planning and optimizing the cash flows of the company's current activities do not cease to be in the spotlight. The way out of this situation is supposed to be using modern methods machine programming and a modified Stone model in this area.
Relevance of the topic
The article is devoted to the actual problems of today - planning and optimization of cash flows of the current activities of the company, the solution of which will provide the company rational use all types of its resources (involved in operating activities) for the implementation of the main goal of any commercial organization- increasing the market value of the company or increasing the welfare of the owners.
Research object this work is the management of the formation of the firm's cash flows.
Subject of study- methods of managing the formation of the company's cash flows.
The purpose of the work is the creation of a “sliding flexible payment calendar” for any company.
To achieve this goal, it is necessary to decide tasks :
Reveal and substantiate the feasibility (relevance) of using the GBM (Gradient Boosting over decisive trees of the type CART) and RF (Random Forest) algorithms in the system of planning and optimizing cash flows today;
- to develop and confirm a methodology for managing the formation of cash flows, taking into account the systems of planning and optimizing cash flows.
Scientific novelty
For the first time, it was proposed to use a modified Stone model, which takes as input the outputs of the machine programming algorithms GBM or RF to control the formation of cash flows using external and internal information, and taking into account the systems of planning and optimizing cash flows to achieve the main goal.
Main part
Cash flow planning
Cash flow planning is the core of the mechanism for managing their firm. This planning can be called a process for developing a system of plans and targets, in which different types of these flows will be formed for each type of firm's activities for the future period. In addition, such planning for the company is an indispensable part of its in-house financial planning and assumes the use of the following systems (Fig. 1).
Rice. 1 - Cash flow planning systems
The listed planning systems are characterized by a specific period and forms of implementation of their results, interact with each other and are carried out in stages. First of all, the most important target indicators of the development of cash flows in the system of the general financial strategy of the company are predicted in order to determine the tasks of their current planning. Further, the current planning will create the basis for the development and communication to specific executors of operational planning tasks on all the main issues of their formation in the company.
The article discusses planning the volume and structure of cash flows for current activities using an example with systems operational planning cash flows, namely the budget and payment calendar.
Operational cash flow planning system
This system takes the outputs of the implemented plan indicators of the plan of receipt and expenditure Money.
It is viewed as a process for creating a set of short-term planning tasks to fulfill the main vectors of development of cash flows. This is how the budget appears - in the form of a planned financial task.
The budget is the main planning document and the operational financial plan for the short term. As a rule, it is developed for a year, quarter or month. It should reflect the inflows and outflows of funds during the life of the company, detail the indicators of current financial plans and communicated to specific Responsibility Centers (ACs).
The process of creating a planned budget is called budgeting and is designed to solve the following tasks - Fig. 3.
Rice. 3 - Budgeting tasks
Traditional budgeting (Fig. 4) loses out to rolling planning due to the fact that once a budget is drawn up will have more and more inaccuracies as its forecasts move away from its compilation date due to the emergence of more relevant information. Rolling planning (Fig. 4) solves this problem by updating the incoming information.
Rolling budgeting involves the decomposition of the annual budget (plan for the receipt and expenditure of funds) by quarters, and those by months, taking into account the annual planned financial indicators, in order to ensure the operability of the system under consideration and control the results of such management (Fig. 4).
Therefore, modern planning should be continuous and detailed, having a solid core for conducting timely control over the results of such management through a combination of the considered techniques (Fig. 4).
Rice. 4 - Traditional budgeting, rolling planning, rolling budgeting and modern planning
Then cash flow management is an ordered set of the following stages (Fig. 5).
Rice. 5 - Stages of cash flow management
The high dynamics of cash flows and their dependence on short-term factors require the introduction of a planned financial document that ensures the daily management of the firm's cash inflow and outflow. This is how the payment calendar arose as an operational planning document, a plan of cash flows (inflows and outflows of funds) drawn up within a month at the level of the company or its central office.
The payment calendar assumes the terms and volumes of payments established within a month. It is believed that the payment calendar is a time-tested tool of the system under consideration and is designed to solve the following tasks - Fig. 6.
Rice. 6 - Tasks of the payment calendar
The payment calendar is developed in order to determine the specific timing of the company's cash flow and payments and communicate them to specific performers in the form of planned targets. In the process of operational planning of cash flows, the payment calendar is drawn up in 2 sections:
1) the schedule of upcoming payments;
2) the schedule of upcoming cash flows.
The payment calendar can consist of 1 section, when the planned type of cash flow is one-sided (only positive or only negative).
The time schedule of payments in the payment calendar can be differentiated in any period of time (by days, etc.), however, provided that this does not greatly affect the course of the company's monetary turnover or is caused by the uncertainty of the timing of payments.
The result of the development of types of payment calendars for operating activities for the company is a developed list of types of payment calendars in this activity, taking into account the requirements of the efficiency of money management and the established specific deadlines for inflows and outflows and their communication to specific performers in the form of planned targets.
The main types of the company's payment calendar by operating activity, differentiated at the company level, as well as in the context of the central office, are shown in Fig. 7.
Rice. 7 - Operational management in operating activities
The listed types of payment calendar (Fig. 7) as forms of the operational planning document can be supplemented taking into account the volume and specifics of the firm's activities. The firm establishes a specific list of types of payment calendar independently, taking into account the requirements of the efficiency of money management.
A number of indicators certain types payment calendar may not be fixed, but variable in nature (flexible payment calendar). This form of the calendar is usually brought to the CO.
Thus, a “sliding flexible payment calendar” is understood as an operational plan of cash flows (receipts and expenditures of funds) for a company or its central office, established within a month, terms and volumes of payments, as well as a plan that is not fixed. but the variable nature of indicators (revenue, etc.), and, in addition, a plan that implies a continuous revision of the timing and volumes of payments with a step of 1 day.
Optimizing cash flows
Optimizing the company's cash flows involves optimizing the average balance of cash assets and optimizing the payment turnover. The 1st optimization is carried out in order to minimize these assets, since they do not generate income for the firm.
The 1st optimization can be determined by both basic indicators and complex models, for example, the Baumol, Miller-Orr and Stone models.
The advantage of Stone's model is that the decision to buy (sell) or not buy (not sell) short-term assets and the forecasting period are determined not by specific formulas, but based on the firm's practical experience, taking into account its individual characteristics.
The main disadvantage of Stone's model is the inability to take into account alternative options for investing temporarily free funds.
As a result of the analysis of the methods at the enterprise, it is advisable to use the modified Stone model.
Optimization payment turnover
The second optimization is the most important regulator of the intensity of cash flows and the size of the average balance of the firm's monetary assets. The second optimization is based on ensuring the balance of the volumes of positive and negative cash flows over time (Fig. 8).
Rice. 8 - Balanced and unbalanced cash flow
In Chapter 18.2, the Form lists a number of techniques for optimizing these flows in the short and long term. Some of them will be included in the short-term profit maximization system.
The balance of the cash flow is a target parameter characterizing the level of liquidity of this flow, the absolute solvency of the company and is considered in the context of the necessary intervals of the considered period of time. An imbalance in cash flow means a low level of liquidity of this flow and the absolute solvency of the company. An increase in the period of imbalance increases the threat of bankruptcy.
It is important to remember that the object of optimization is predictable cash flows that can change over time. In the process of optimizing cash flows over time, two main methods are used - equalization and synchronization.
Equalization smoothes the volumes of cash flows in the context of individual intervals of the considered period of time and allows you to eliminate the seasonal component in the formation of cash flows (positive and negative), simultaneously optimizing the average cash balances and increasing the level of liquidity. Synchronization shows a linear relationship between positive and negative cash flows.
Float and short-term profit maximization system
Float is cash in transit. Of particular interest from the totality of floats is pure float.
Net float is the difference between cash on a company's books and its balance in bank accounts. Net float occurs due to the fact that there is a certain period of time between the issuance of a check (or sending a transfer in another way) and the collection of funds by the bank. For this reason, the cash balances in the company's books are less than the cash balances available in the bank.
So, net float can be used not only as a method of optimizing a short-term short-term cash flow deficit, as was the case with Blank, but also as a way to increase short-term profits.
The short-term profit maximization system includes the Leeds and Lags system, so it also includes its disadvantages to an even greater extent.
The system of maximizing short-term profit assumes that the firm seeks to accelerate the receipt of amounts on accounts of debtors in order to get money at its disposal as soon as possible. Conversely, it seeks to delay settlements with creditors, as far as the policy of maintaining credit confidence of suppliers allows, in order to get the most out of the funds that are on this moment are available.
For convenience, let's call such a time difference between inflow and outflow - the net margin of time.
In other words, both with the acceleration of collection of funds, and with the slowdown of cash outflows, the same goal is achieved - obtaining funds that are free for investment. The later the firm pays its bills, the longer its cash will be invested in income-generating assets. And the finance manager must take action to slow down payments, but only to the extent that penalties and other costs, as well as a deterioration in the firm's credit rating, do not outweigh the benefits of slowing payments.
Therefore, the firm must use sophisticated techniques to speed up the collection. sums of money and strict control over their payment in order to obtain additional short-term profit, maximizing the net time reserve and its part - the net float (Fig. 9).
Rice. 9 - System for maximizing short-term profit
Thus, poor management of net float and net overtime by a firm can lead to increased churn fluctuations at certain points in time and even to a liquidity gap if not properly controlled.
In addition, the control of the net float can be represented as transport task with a choice of optimal rented mailboxes and controlled expense accounts. Also, we must not forget that every financial instrument used to maximize short-term profits must be profitable.
Approbation of machine programming algorithms
Today, some of the powerful algorithms are Random Forest (RF) and Boosting (GBM). The first is used when there is little data available. The second - with a large one. These algorithms are used when objects are poorly predictable. The R program supports these algorithms.
Let us consider only the problem of classification of debtors. Note that the objects in this task will be counterparties, and the attributes - Balance Sheet, Profit and Loss Statement, Possible Payment Term, Indicators financial sustainability etc. measurements over objects. In a specific situation, the algorithms will give the probability of assigning an object to the classes (0, 1, 2, 3), after which, in the case of a positive classification (1, 2, 3), an agreement is drawn up with the object under different conditions, according to the credit policy of the enterprise. Usually there are several classes, since the credit policy of the company should be flexible (offer appropriate conditions to the counterparty, arguing this with such and such a level of its own risk).
Usually, all algorithms do a good job with a type 1 error (when a less attractive class is mistaken for more attractive - that is, money down the drain), but with a type 2 error (when a more attractive class is mistaken for a less attractive - i.e. lost profit ) some do better in specific situations.
The winning algorithm is selected based on a comparison of the above algorithms. Let's compare them with each other using model data and quality assessment on the test. But first, you need to convert the raw data (Fig. 10) into clean data (Fig. 11, 12) in order to further analyze the data.
Rice. 10 - Raw data
Rice. 11 - Process of sequential processing of raw data
It is immediately clear that the initial data requires normalization, and the renaming of the columns is optional, so we write the code (Fig. 12).
Rice. 12 - Clearing code and output of the obtained result
The data is now clean and ready for analysis. Therefore, we proceed directly to the launch of RF (Fig. 13).
Rice. 13 - RF Code in R (cross-validation and training)
RF training was successful and now it's worth looking at the results (Figure 14-16).
Rice. 14 - RF Training Outcome
The training results in metrics for a multiclass problem. Logistic error and AUC are of particular interest. The 1st metric shows how confidently the algorithm predicts and how much it will penalize for misclassification. The 2nd is interpreted as the ability of the algorithm to detect more true positive responses over true negative responses.
Rice. 15 - RF Training Outcome
The contingency matrix shows errors of the 1st and 2nd kind. The graph on the right shows optimal amount trees for building a composition in RF.
Rice. 16 - RF Training Outcome
The informativeness of variables shows their contribution to the recognition of a particular class. After studying the learning outcomes, they proceed to testing (Fig. 17-18).
Rice. 17 - RF test code and result
The result of fig. 17 is the contingency matrix, general statistics and statistics for each class.
Rice. 18- RF Test Code and Result
In fig. 18 shows the AUC for each class.
Now we start training GBM (Fig. 19)
Rice. 19 - Code GBM (training) in R
The GBM training was successful and now it's worth looking at the results (Fig. 20-23). It's worth noting that optimizing 5 hyperparameters is a very time consuming task, so they had to sacrifice.
Rice. 20 - Learning outcome GBM (choosing the best model for training)
The result of the training is the choice better option prediction models through enumeration of hyperparameters in the previously established list of gbmGrid (there are 4 of them) to maximize AUC. 5 hyperparameter (bag.fraction) is specified by a constant.
Rice. 21 - Learning Outcome GBM
In fig. 21 shows a graphical iteration of 4 hyperparameters from the gbmGrid list.
Rice. 22 - Learning Outcome GBM
In fig. 22 pictured short description the final model.
Rice. 23 - GBM Learning Outcome
In fig. 23 shows the informativeness of the variables of the final model. Now you need to study the results on the test (Fig. 24, 25).
Rice. 24 - Code and test result GBM
In fig. 24 presents: contingency matrix, general statistics and metrics for each class.
Rice. 25 - Code and test result GBM
In fig. 25 shows the AUC for each class.
Let's compare the results of RF and GBM (Fig. 26).
Rice. 26 - Comparison of RF and GBM
If you look at the median (stable), then GBM wins in almost all metrics, in the rest there is equality of algorithms. It is better to look at fig. 27, 28.
Rice. 27 - Comparison result of RF and GBM
Accuracy is a metric that shows how badly the algorithm is wrong. LogLoss wins GBM. AUC - RF. Thus, GBM wins because of the lower LogLoss.
Rice. 28 - Comparison of RF and GBM
The scatter of the AUC values was performed with a confidence level of 95%. The spread is greater for GBM. The AUC density is higher when using RF. Therefore, RF won in this situation.
Thus, if a researcher in a given problem is inclined to have his algorithm penalize less for confident classification, which is identical to the ability of the algorithm not to tune to noise, then his choice will be for GBM. If the researcher in this problem is inclined to have his algorithm better identify the class he needs, sacrificing noise, then his choice will be for RF. Problem 1 has been solved.
ModifiedStone's model
The main flaw in Stone's model is removed through the daily revision of alternative options for investing money. The transition to another investment project should cover all transaction costs associated with the considered and current projects, and also be more attractive (bring more income taking into account the factors of time, inflation, liquidity, risk or the mentality of the owners). When considering an option with several projects, the weighted average will come to the rescue.
This model assumes that the firm in question makes payments only after it learns its own inflow and conducts a timely analysis of creditors (in order to minimize losses, for example, from delays in deliveries and loss of customers to the loss of investors and equity capital) as in the case of debtors, using the outputs of the (winner) algorithm. This situation can be viewed as a kind of analogue of the Stackelberg model, when the company in question makes a move after another company. But in this case we are talking about a certain law of nature, when a company pays for its obligations on its own and attracts borrowed money does not affect this law (otherwise the path to bankruptcy). Therefore, the company will make its own payments, not payments (partial or full non-payment of its own obligations, provided that there is no seizure of the account, filing bankruptcy petitions and applications for delayed salary payments), replenishment of the account or investing only after it learns its own inflow by the end time main inflow operations (for example, after lunch, and if the company plays on stock market, then you need to know your own inflow before the start of the main trade) and the forecast of the balance of funds for several days in advance (the number of days is determined by the management). If a firm tries to make a move first (for investment), then for this it needs to accurately predict its own inflows, i.e. unmistakably classify both buyers and debtors and creditors, otherwise this model will stop working and the company may not be saved by the bank's credit line.
The modified Stone model receives the outputs of the winning algorithm as input. Outputs are classes that correspond to certain variations in cash flow from buyers, and in the case of debtors and creditors, also over time. After the classification, the regression task takes place, i.e. there is a direct forecast of the variation of the volumes of each type of inflow with the determination of the trend, seasonal and cyclical components, taking into account the stationarity of the objects.
Further, the forecast outputs are detailed, i.e. the process of modern budgeting is being carried out, gradually descending to the level of the payment calendar. At each stage of detailing, after the inflow and outflow are determined, the process of approving applications for payment of their own obligations through any software product that will support the cloud mode (store information on a remote server) begins, and all participants responsible for the approval of specific applications will be able to communicate online a conversation on a specific request (the participants in the conversation may vary). After that, the approved applications are added to the payment calendar.
So the probabilistic cash flow gets into the payment calendar and then simulation modeling is launched using the Monte Carlo method to obtain a risk assessment. At the end of each day, a plan-fact analysis takes place. As a result, the average balance of monetary assets will be optimized and the payment turnover will be optimized.
Monte Carlo Simulation of the Modified Stone Model
Based on the received classification of debtors, future payments are included in the calendar of collection of receivables. Objects are usually grouped into several classes, which have different variations in the timing of payments. Such information cannot be ignored when drawing up a calendar of collection of receivables (Fig. 29).
Rice. 29 - Modified calendar of collection of receivables
Thus, the inflow from debtors enters the payment calendar through the vector of payments and the vector of time (weights) - Fig. 30. The inflow from creditors is formed as well. And the revenue - through the vector of payments. After that, a general inflow (general payment calendar) is formed, consisting of inflows from revenue, receivables and creditors. Then, using the Monte Carlo method (via Oracle Crystal Ball), the risk of imbalance in the cash flow is assessed through synchronization and equalization.
At the current stage (Fig. 30), it is possible to manage receipts by changing only the period of variation of receipts for each class (otherwise, it is necessary to reconfigure the classes for RF and GBM). In addition, the forecasting situation is determined - one of three (Fig. 30, 31):
- the total inflow is greater than the total outflow;
- the total inflow is equal to the total outflow;
- the total inflow is less than the total outflow.
Rice. 30 - Forecasting cash flow
Rice. 31 - Preparing to manage your own payments
In other words, it is possible to manage your own payment terms, knowing the final payment date for your own payments (Fig. 31) and the probabilistic inflow (Fig. 30), taking into account the expediency of delaying payments (penalties, etc.).
So at the beginning of each day, the algorithm performs the following check (Fig. 32-33).
Rice. 32 - The first part of the cycle of the modified Stone model in theory
Rice. 33 - The first part of the cycle of the modified Stone model in practice and the conclusion of cash flow management (decision making)
Thus, the algorithm will independently announce the management decision, based on the weights of creditors, etc., and the person will only have to approve (agree) or refuse, arguing for such a decision.
After that, the vector of payments and the vector of weights are updated, and it will also be clear which payments were paid through the position vector (Fig. 34).
Figure 34 - Management of own payments (updating the vector of payments and the vector of weights)
The algorithm sorts payments in a hierarchical order so that, for example, earlier payments are paid first, taking into account penalties and the like. (fig. 34). Also, it makes sense to rank accounts payable, as it was done with counterparties, i.e. it is advisable to add weight to the lenders.
Thus, the step associated with updating vectors (Fig. 34) and the step associated with determining management decision(fig. 33) represent a cycle.
In addition, you can control the hyperparameters of the Stone model itself (Fig. 35).
Rice. 35 - Payment calendar (evaluation of results)
Under the appropriate assumptions, at this iteration, we can conclude that at the beginning 1 working week there was a feeling that part of the short-term financial investments could be invested in long-term ( absolute liquidity is higher than the norm), but then the absolute liquidity decreases to the optimal state and, therefore, long-term investment is impractical. In addition, the forecast this indicator 10 days will not be enough to make a decision on long-term investment.
Finally, the researcher will get a variation of the balance of the cash flow through its synchronization and equalization. Thus, the following Monte Carlo simulation results were obtained (Fig. 36-41).
Rice. 36 - Synchronization of cash flow (left) and a Tornado graph showing the dependence of correlation on independent variables (right)
The cash flow is maximally synchronized in time. Through the tornado graph, you can see the dependence of the target variable (correlation) on the independent variables.
It was found that the correlation is more dependent on the balance of funds in the account at the beginning of the period under review. The dependence of the remaining target variables on independent variables through the Tornado plot showed the same results.
The difference in standard deviations of cash inflow and outflow (outflow from inflow) is the first criterion for the risk of unevenness in Pokrovsky (Fig. 37).
Rice. 37 - Identifying the risk of cash flow shortages
The 1st criterion for assessing the risk of unevenness shows the likelihood of a cash flow deficit at 8.7%.
The difference between the modulus of the difference (standard deviations of inflow and outflow) and the cash balance at the end of the period under consideration or the second criterion for Pokrovsky shows the probability of covering the resulting deficit cash flow with the balance of funds on the account (Fig. 38).
Rice. 38 - Identifying the risk of a shortage of cash flow when using the balance of funds on the account
The second criterion shows that the risk of a deficit cash flow (Fig. 37) will be covered by the balance of funds on the account (Fig. 38).
The optimal Miller-Orr account balance encourages the firm to reduce its opportunity cost.
Rice. 39 - Determining the optimal level of the account balance
It was revealed that the optimal level of the balance of funds on the account tends to the minimum level (Fig. 39).
The forecast of the absolute liquidity ratio is shown in Fig. 40-42.
Rice. 40 - Forecast of the absolute liquidity ratio
Rice. 41 - Forecast of the absolute liquidity ratio
Rice. 42 - Forecast of the absolute liquidity ratio
The forecast of the absolute liquidity ratio for 10 days showed that its variation is higher than the optimum (Fig. 40-42). Therefore, if the forecast value of the considered coefficient for 30 days will also be higher than the optimum, then in the general situation, long-term investment is advisable.
The coefficient of variation of cash flow shows a relative estimate of how much cash flow can deviate from its expected value (Fig. 43).
Rice. 43 - Estimating cash flow equalization
The coefficient of variation of the cash flow shows that the researcher has leveled out the cash flow as much as possible.
Conclusion
Thus, algorithms based on the construction of decision trees and methods of gradient descent, models of firm behavior (for example, a modified Stone model and a system for maximizing short-term profit) and simulation (Monte Carlo method) can be confidently applied as a foundation for planning and optimization. cash flows and assessments of all associated risks. The main actions of the firm to create a “sliding flexible payment calendar” were also outlined and substantiated.
Research results
As a result of the study, the use of GBM and RF machine programming methods, models of firm behavior (modified Stone's model and short-term profit maximization system) and simulation (Monte Carlo method) in the operational planning and cash flow optimization system were analyzed and substantiated. And also the main actions of the company to create a “sliding flexible payment calendar” were outlined and substantiated.
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There are two main budgeting methods:
Zero method... It is used for a new venture or when reengineering an activity operating enterprise... This method requires a significant investment of time associated with the formation of a new structure of the Central Federal District, the development of new forms of budgets, etc. This allows you to re-examine and critically rethink the activities of the enterprise.
Traditional method - planning from the achieved level, i.e. based on prior budgets. It allows you to use a rolling budgeting algorithm throughout the year
Most domestic organizations in the service sector that use budgeting as a management tool often use periodic budgeting. Moreover, they are faced with a huge number of difficulties and problems in the process of forming budgets and their implementation. The specificity in each case is different, both for small and large organizations in the service sector. Basically, these complications in the use of this mechanism are able to put an end to the effect, due to its use. However, it is enough to change only some of the principles of budgeting to solve most of the management problems. In particular, the organization of the service sector can move from periodic, classical budgeting to rolling.
Under periodic, classic budgeting understand "the process of forming budgets of the organization of the service sector for a certain period of time (year), after which the process is repeated."
WITH slip budgeting - this is "a planning process, where the period of time is divided into several stages, after which the planned indicators of the budgets of the organization of the service sector move forward at the same stage." Accordingly, the organization that developed the plan for the year, at the end of March, analyzes the implementation of the planned budgets for the 1st quarter, makes the appropriate adjustments to the budgets by the end of the year and draws up the budget for the 1st quarter of the next year. Both approaches to budgeting have their own advantages and disadvantages.
Let's touch major recurring budgeting problems .
The instability of the existing economic environment, high economic and political risks, the need for structural reforms, dynamically changing markets and their conditions - all this impedes planning and management of the term even for a year. It turns out that the budget, formed annually, is noticeably losing its relevance.
There are several effective ways, within the framework of periodic budgeting, the adherence to which will partially cope with the problem of relevance. First, an organization can create multiple budget options. Leaving the most acceptable ones, it is necessary to determine a reasonable number of these budget scenarios, since an increase in the number of budgets significantly reduces the utility of budgeting itself. Secondly, after the approval of the annual budget, certain deviations are removed by making appropriate amendments. An excessively frequent introduction of significant adjustments to the budget of the organization of the service sector completely negates the effect of its use. But these methods, or even a combination of them, will not allow organizations to eliminate all deviations of the actual values from the planned ones. Summing up, the accumulated differences by the end of the planning period are capable of reaching significant values.
An organization, having an annual budget at the beginning of the period, by the end of the year will certainly face a budget constraint of several months. The emergence of such a problem can be caused by the "myopia" of the decisions made, economists who make up the budget, and the inconsistency of decisions in general.
The use of periodic classical budgeting leads to a belated search for the missing funds for investment in recent months, as a result, the organization will be able to attract only loans at high interest rates. The question of time plays a significant role, having been puzzled by such questions earlier, the organization will be able to improve its financial result.
In addition, organizations face another problem: heads of departments (structural divisions) postpone the implementation of budgetary targets for the next period, to the detriment of the financial results of the organization.
In most cases, budgeting in an organization is built without the use of incentive and bonus tools. Responsible persons have no incentives to reduce costs below the planned targets in the budget. The current problem can be divided into two.
Firstly, favorable conditions may develop, leading to a decrease in the level of costs below those planned in the budget.
Secondly, budgeting pushes the heads of departments (structural divisions) to a certain system of behavior in relation to the funds provided to them]. On the one hand, the existing universalization improves the management system of the organization of the service sector and the replaceability of heads of departments (divisions). But on the other hand, it prevents the emergence of new ways of absorbing funds that can lead to cost savings without loss in the quality of services provided or manageability by the organization itself.
The development of an annual budget suppresses the initiative of the employees of the organization of the service sector. During the year, projects, initiatives and ideas of many managers and employees are transferred to the budget for consideration only for the next year. As a result, the organization is not able to respond flexibly and quickly enough to new opportunities and threats that are opening up for it. Suppression of the initiative of managers and employees will push them to move to other, more dynamically developing and loyal organizations. The consequences of being demotivated are very broad:
Encouraging managers and employees to exceed budget targets only by the end of the year. The reason for this is the reluctance to make adjustments to budgets to eliminate deviations that have arisen due to high results achieved in the middle of the period;
- middle managers often strive to establish and fulfill ordinary budgetary indicators instead of really achievable ones that can increase the financial result of the organization;
- a significant excess of budgetary indicators will cause corresponding high requirements for the results of further periods. This is why middle managers are more interested in achieving low goals.
Traditionally, two methods of budgeting are distinguished: "top-down" and "bottom-up." etc. The opposite is “bottom-up” budgeting, which is based on bringing together the planned indicators of the budgets of departments and services of the organization.
The state of budgeting systems shows that domestic organizations more often use the first method - budgeting in the form of corporate, centralized management and control. This seems to be quite logical, because most organizations are characterized by low involvement of middle managers in the formation of the management system and budgeting. This entails a number of negative consequences:
Low involvement of the organization's employees in the process of forming the management system and budgeting reduces their loyalty and motivation;
Budgeting is viewed by employees of the organization as a mechanism to reduce costs, and in the future, as a decrease in the number of jobs, which can result in collective resistance
The next problem is that most organizations do not have a well-defined strategy to follow. Accordingly, the allocation of resources, the formation of projects and their priority are often random or based on contradictory and subjective assessments of the management and managers of the organization.
The result of budgeting in the organization should be the improvement of the management system, i.e. increased controllability. Then the organization acquires the opportunity to track how it functions in accordance with the formed plans (strategy). Today, most organizations superficially understand the task of budgeting as managing costs in order to reduce them generally, and not as a tool for increasing revenue, retention and development. customer base and improving the quality of work and services
The budgeting process in most domestic organizations is not focused on creating a management information base, and therefore does not bring the expected value for shareholders.
In addition to breaking away from the strategy, studies on the state and application of budgeting abroad and in Russia show that organizations do not pay due attention to the economic analysis of budget performance. Often, analytical work at the stage of developing budget indicators is neglected in order to reduce the time for budgeting and reduce budgeting costs.
The final problem is bureaucracy. Periodic budgeting for large organizations with a broad financial structure, with a large number of services and departments is very problematic to organize due to the need to harmonize interests and smooth out conflicts between them.
Accordingly, the organization faces the difficulty of forming budgeting procedures in such a way that the achieved effect is higher than the costs. Difficulties in budgeting arise due to: changes in the operating conditions of the organization; the departure of decision-makers and budgeting economists; change of leadership, etc.
Now let's look at the problems of rolling budgeting. Firstly, rolling budgeting, which is more expensive compared to the classic one, especially at the stage of implementation. To develop budgets, track their implementation, analyze and then make adjustments, the organization will need significant financial resources... In addition, the use of normally functioning rolling budgeting in the organization must be preceded by the formation of an appropriate atmosphere. Employees need to explain the specifics of rolling budgeting as a tool for managing an organization and the importance of the work they do.
The organization should involve budgeting professionals in order to free the organization's employees from combining their day-to-day activities with budgeting. In addition, the organization will be able to devote more time to economic analysis of budget indicators, and as a result, better and faster to respond to the threats and opportunities that arise before the organization.
The process of developing rolling budgets itself is repeated more often than in the case of periodic budgeting. Therefore, in this case, it is easier for the organization to develop regulations that are consistent with the goals of the organization. Budgeting work becomes more understandable, which greatly increases the effect of rolling budgeting. The more frequent involvement of employees in the organization in the budgeting process entails a cumulative increase in the time spent. At the same time, the more frequent work on the preparation of budget indicators leads to the fact that the work on the preparation of budgets becomes more understandable and commonplace than with periodic, classical budgeting.
It is more expedient to build the budget process depending on market benchmarks and resource requirements, and not vice versa. To meet these goals, rolling budgeting is much better suited for organizations. As the relevance increases, project budgets are refined and detailed.
Benefits to an organization using rolling budgeting:
Analyzes the implementation of budgetary indicators for the past 1st quarter;
Makes appropriate adjustments to budgets by the end of the year;
Detail budgets for the 2nd quarter by month and week;
Forms the budget for the 1st quarter of the next year
Thus, rolling budgeting can solve many problems. It carries in itself a rethinking of the entire resource management system of the organization and the organization as a whole, which occurs as a result of the application of this management tool. The resulting flexibility in project management and the organization as a whole contributes to the formation of an understanding of the organization's management of the real role and place of budgeting in the organization.
The transition to rolling budgeting will allow the organization to solve many problems and move to a more adequate and flexible management system, both for individual projects and for the organization as a whole. The last step in the development of budgeting in the organization of the service sector is the integration of this process into the system of information and analytical management support and its positioning as a management support technology, which makes it possible to introduce logic into the process of forming prospective values and increase the objectivity of planning data.
How to Improve Planning with Rolling Forecast
Why do most organizations prepare a traditional budget?
Most organizations use the budget as the primary management system for setting goals, allocating resources, and evaluating performance.
For a business operating in an ever-changing environment, traditional budgets quickly become obsolete, which makes you wonder about their real value and need. In recent years, a more frequent budgeting process has become prevalent, which allows for the updating of outdated annual budget figures. This means that the budget is revised not once a year, but every six months or even a quarter. This approach offers managers more recent (and thus more accurate) numbers, but the focus remains on the current fiscal year. A further development of this approach is the so-called rolling forecast, the time frame of which can reach twelve months or even exceed this period.
Budgeting remains the top priority for business managers as it defines the resources that will be available to the unit in the coming year and sets goals for business performance. Thus, over the course of the year, the manager will evaluate the operational efficiency, correlating with the budget indicators, identifying deviations and taking the necessary measures to eliminate them. By its nature, the budget is short-term (12 months) and very rarely includes goals and proposals that arise during the strategic planning process.
In most organizations, the budget is weakly linked to the company's strategy, so the attention and actions of managers are focused on short-term operational details, and not on the implementation of a long-term strategy.
Since the budget is often the primary control in an organization, it’s not surprising that managers are focused on getting it done, even though the budget is inherently just a very short-term and financial task only.
Is it worth giving up the budget in its traditional sense?
Dissatisfaction with the budget as a management system is not a new problem. A few years ago, a well-known consulting and research company, Hackett Benchmarking and Research, conducted a study of the budgeting process in various organizations. According to their data, for every $ 100 million of the firm's turnover, there are 2,500 man-days spent on the budget process, and the average time to complete the process is 4 months. In addition, 66% of CFOs said the budget depended more on the firm's policies than on its strategy, and 60% said there was no link at all between budget and strategy. And almost 90% of CFOs surveyed were not satisfied with their budgeting process.
There are several reasons for this displeasure. In addition to high costs and time costs, many companies are beginning to revise their performance, especially in the event of currency fluctuations, price cyclical fluctuations, high growth rates and significant inflation. Budgets lead to "trading" around revenue targets and other activities that can reduce the value of the business. For example, in the public sector, the so-called "correction factors" and the "use it or lose it" mentality are especially common.
If the budget is seen as the main management tool, then conflicting roles appear. A traditional budget (i.e. a fixed goal) cannot be a good means of motivating staff to improve business performance. Comparing current figures with a budget that was approved some time ago doesn't make a lot of sense. If the budget is used to plan and coordinate resources, then the plans must be constantly updated.
But despite all these limitations, budget fulfillment remains the main task of managers. And that won't change until business leaders make fundamental changes to how they measure business performance and how top management compensation is determined.
The following sections will look at the steps business leaders need to take to move away from traditional budgets and change their business in ways that make it more efficient. Such a change includes several stages, and, as examples from practice show, the further the company moves along this path, the more the value of the business increases.
Implementing rolling forecast
The first step is to implement rolling forecast, which differs from traditional budgeting in several ways. First, in plan-fact analysis, there is no fixed “finish line” at the end of the fiscal year. The analysis is carried out within a constant time interval, for example, the next 12 or 18 months (Fig. 1).
Fig. 1. Example of a quarterly rolling forecast
The rolling forecast, which is usually published quarterly, is not budget related. It focuses on key business drivers, which are measured against key metrics (eg, core income, expenses, and capital expenditures). Performance, as well as incentives and rewards, should not be tied to a forecast.
Forecasting isn't just about copying the budget and updating the numbers for the rest of the month. This should be a bottom-up process involving all recipients of budget funds. Accordingly, such a process cannot be controlled on the basis of an Excel spreadsheet system; it requires the installation of corporate planning software.
Implementing a rolling forecast model means that costs can be revised and approved on a quarterly basis, giving budget recipients the opportunity to make new demands that were not anticipated in the preparation of the annual budget. Monthly reporting becomes more meaningful as it evaluates performance against the most recent forecast, not monthly budget figures. The forecast system allows you to draw up a balance of working capital, which helps to better cope with applications for money when the need for money increases or decreases.
There are many other benefits to the rolling forecast. Managers can use it as a planning and resource coordination tool. It promotes longer-term planning. Finally, rolling forecast helps executive directors more quickly recognize impending changes in business performance and thus maintain realistic expectations among investors.
If the forecasting system is well developed, then the process itself should not take more than a few days per quarter. If for annual budgeting the same software planning as before, quarterly forecasting and annual planning should not take longer than the budgeting process has hitherto taken.
Integration strategy
Implementation of the strategy requires a specific management system. The focus of the strategy is usually on tasks and projects related to long-term goals (for example, 3-5 years), while the focus of the budget is on current operations and finance, and its time frame is limited to one year.
As a result of realizing this problem, the so-called Balanced Scorecard was developed. It is a management tool designed to link goals, projects and metrics on the one hand, and an organization's strategy on the other. Its advantage is that it allows you to assess the performance of a business not only by financial indicators, but by indicators related to customer service, employee activities and internal processes.
This approach includes two main points.
- Don't just rely on financial performance. It is necessary to develop and use key performance indicators (Key Performance Indicators, abbr... KPI), and the word "key" is the defining one.
- The strategic budget should be integrated into the rolling forecasting and planning process.
Although the strategic budget is usually a small fraction of the total annual budget (typically around 10%), it is the key element and provides all the important links to the strategy.
The strategic budget includes projects such as launching new products and services, identifying new customers, markets, areas and regions for doing business, as well as organizing new partnerships and joint ventures.
The strategic budget includes strategic projects that have received approval and corporate funding and for which a team of executors has been established. This is to ensure that both the human and financial resources required for the project are accounted for in the budget.
With this approach, rolling forecast turns from a mechanical action that focuses on short-term performance, into a management tool that directs attention and resources to the most important strategic projects.
Out of budget model
Of the approaches to budget preparation discussed in this article, the most potentially beneficial include the most radical transformations. The so-called Beyond Budgeting Model was developed by the organization of the same name (Beyond Budgeting Roundtable, abbr... BBRT), founded in the UK in 1998, it includes 60 companies from the UK, Europe and the USA. The reason companies join this organization is the realization that their budgeting process is too long and expensive, does little to add value to the company, and does not align at all with the competitive business environment.
Previously, the companies that are part of this organization followed the traditional approach to planning. The process was either top-down (ie, the plan was drawn up by managers or a central planning department) or “bottom-up” (ie, field teams prepared their plans and then coordinated them with higher-level leaders). Moreover, many of the plans were based on certain upgrades within departments, which were not always within the framework of strategic goals. After months of discussion, the final plan provided clear guidance to employees on their activities in the coming year. But such a predetermined plan can be a hindrance in an unpredictable business environment like today's.
Companies monitored their performance against a predetermined budget and, if necessary, took steps to ensure that performance was not compromised.
After adopting the new paradigm, these companies have found that the lack of a traditional budget as a measure of performance does not mean that managers have no benchmarks. Interestingly, managers have become even better in control of the situation, since they have more adequate indicators. They use metrics and controls to focus on the future rather than explaining past mistakes. The main ones include comparisons with external standards and performance rating tables, as well as leading indicators and rolling forecasts. In addition, real financial results, comparisons with previous years and trend analysis are used. Taken together, it gives a complete picture of business performance.
These companies have gotten rid of the role of the corporate center as the "main banker", accepting or rejecting plans on the basis of short-term performance. They also got rid of the "subsidy culture" as managers are now motivated to improve the position of their department over others. Finally, the “use it or lose it” mentality, which calls for spending the entire allocated budget at all costs, has disappeared in these companies.
Companies that have embraced the new paradigm have also gained a lot. The role of the corporate center has changed: it has become a venture capitalist maintaining a portfolio of existing and new investments. By adopting a management style that can be called coach and support, companies have given local offices the freedom to manage and account for their resources at a later date. They created their domestic market where the central services serve and support the operational units. As a result, local teams are able to respond to emerging challenges and opportunities as they arise.
The key changes offered by the BBRT model are shown in Fig. 2.
Rice. 2. The "Beyond Budget" Model: Dramatic Changes
The key principle of this model is the relationship of efficiency with the so-called adaptive management processes, which include:
- contract based on relative efficiency;
- continuous corporate planning processes;
- rolling forecasts.
This model also includes the so-called devolved responsibility model, which implies:
- decentralized resource management;
- self-regulation and transparent information;
- incentives different levels: both group and organization-wide.
The BBRT website (www.bbrt.org) has a variety of practical examples demonstrating the successes achieved by member companies of this organization that have implemented changes based on the above principles. These companies are working to create a strong corporate culture, which is based on the personal responsibility of each, both for their actions and for the entire team.
Publications
John Smith. How to Improve Planning with Rolling Forecasts (Invigorate your Planning with Rolling Forecasts).
- Any budget prepared in advance at a certain stage may no longer correspond to the real needs and capabilities of the company, its development strategy. Therefore, CFOs resort to rolling planning, revising forecasts as evidence accumulates or the market situation changes.
The essence of rolling planning
The budgeting process, as a rule, begins with the determination by the company's management of the directions of its development, growth rates, key indicators and takes a lot of time. So, in a fiscal year from January to December, work on the formation of the budget begins in April-May, and the first version of the budget is usually ready by July.
However, in the first half of the year, the company has actual data on the implementation of the current budget for only a few months. It is clear that the budget formed on the basis of such data has some inaccuracies, therefore, it cannot serve as a guideline for the company throughout the next year.
Imagine that 2006 sales were projected to be $ 100 million, and the 2007 budget was based on a 20% increase in sales. However, the actual volume of sales in 2006 amounted to $ 110 million. It is clear that the set parameters of the 2007 budget will not be met. If the company decides to keep the forecasted sales volume at the level of $ 120 million, then it will have to reduce the sales growth rate to 9%. If sales growth remains a priority for the company, it will increase its forecasted sales volume for 2007 to $ 132 million.
If in some months or quarters there are deviations from the value set in the budget, then the company has to adjust the budget indicators for the entire remaining period.
For example, the annual sales budget for 2007, equal to $ 120 million, is divided monthly into budgets of $ 10 million. Let's say the actual sales volume in January was $ 15 million, and in February - $ 11 million. What should be the plan for March in this case? Options - $ 10 million, as planned earlier, or, in order to fulfill the quarterly budget, - $ 4 million. Thus, the company must either revise the annual budget, or change the plan for future months (Table 1).
If such situations are in the order of things, then the company has to adjust its budget constantly, in other words, use rolling planning. The latter is understood as the method of budgeting, in which it is regularly revised taking into account changes in macroeconomic indicators (inflation, prices, taxes, etc.) and actual data on budget execution.
Personal experience
If the actual budget execution data differ by more than 3% from the level planned in the annual budget, or the sales forecast, assortment portfolio, and margin plan change by the end of the year, then the annual budget is adjusted once a quarter. When the planned figures are close enough to the actual ones, the company's annual budget is revised at the end of the six months. Individual budgets in our company are split into shorter periods. For example, a sales budget is prepared on a daily basis, with the monthly planned sales for the period from January to November distributed evenly across the days. The exception is the budget for December. The daily sales volume for this month is uneven and is based on statistics from the past five years.
Rolling Budget enables management to manage current operations so as to achieve the goals set in the annual budget, even in the event of changes external environment... If the budget is detailed, then the forecasting accuracy decreases with an increase in the planning horizon. The January budget will be the most accurate, somewhat less accurate in February, and in December, the details may turn out to be completely approximate.
With rolling planning, we only revise individual functional budgets. The company has processes that, due to the nature of the business, are difficult to plan for a long time. For example, it is quite easy to plan the production volume of a specific product in a given month, but any fluctuations in the market, delivery times of raw materials, etc. may cause the production of that product to be deferred to another budget period without affecting the annual production and sales budget.
The budgets of marketing, current and emergency repairs, budgets of taxes, payments of the current period and some others can be fully specified or revised. For example, if a seminar is postponed to the next month, then the budget for payments for the current month for employee training, which includes payment for seminars for medical representatives, may be revised. The rest of the budgets, as a rule, are analyzed and revised no more than once every six months.
Deviation analysis
Rolling planning begins with a variance analysis, in which the planned values of the key budget indicators (sales, margins, costs, etc.) are compared with the actual ones. The analysis can be carried out at different levels - both for the company as a whole, and for divisions, for products, projects, centers of financial responsibility. Based on the results of the analysis, a key decision is made - whether the annual profit figure will be revised.
The assessment of deviations can be carried out annually, quarterly, daily, in a word, it all depends on the level of analysis (the company as a whole, a separate shop, a separate product, etc.), the time frame during which it is necessary to identify the problem, and the time horizon of rolling planning. For most indicators, variances are analyzed monthly based on actual reported data.
Personal experience
Vladimir Mosin, Chief Financial Officer trading network"White Wind DIGITAL" (Moscow)
The current analysis of deviations is carried out by us on the basis of operational reporting data. Sales, inventory balances, analytics by product categories, etc. are analyzed daily or weekly. At the end of each day, the reasons for the deviations are established and appropriate decisions are made. Such daily control allows you to predict in advance the level of sales at the end of the month, inventory, size accounts payable and improve the quality of operational planning.
Andrey Evseev, Director for Economics and Finance, Tsaritsyno OJSC (Moscow)
The annual budget figures of our company are, in fact, the goals set by the shareholders, they are not adjusted. Of course, there are adjustments within the periods of operational planning. The assessment of the most important indicators - the volume of production, the state of stock (in terms of volume and quality parameters), material profit (the difference between the sale price and the so-called material value, which consists of the cost of the recipe, shell, packaging) - is carried out constantly, every five days. The rest of the indicators are tracked once a month. The reasons for the deviations that have arisen are analyzed, the possibility of reaching the given annual parameters is assessed, measures are developed to level the negative and support positive trends. During the analysis, it is necessary to identify the nature of the detected deviations and consistently determine whether they are significant or insignificant, favorable or unfavorable, whether they are systematic or temporary.
Significant and insignificant deviations... It is extremely important to establish the degree of materiality of deviations, this will allow the planning department employees not to waste their efforts in vain. The materiality threshold can be set as a percentage or in absolute terms. For example, deviation of more than 5% or more than $ 50 thousand from the planned level can be considered significant. In many ways, the criterion of materiality depends on the turnover of the company and often varies in terms of indicators: for the volume of sales, a higher sensitivity can be adopted - 3%, for gross profit - 5%.
Favorable and unfavorable deviations... Any deviations that lead to an excess of the actual profit indicator over the planned one (for example, cost savings, an excess of sales over the planned one) can be considered favorable. Adverse deviations include the excess of costs over the planned level, insufficient sales.
Personal experience
Dmitry Novoselov, Chief Financial Officer of Otechestvennye mediciny OJSC (Moscow)
In the course of analyzing deviations of the fact from the rolling budget of a particular month, the company assesses its ability to short-term planning, identifies the reasons that did not allow the fulfillment of the short-term plan or that led to an overstatement or understatement of the planned indicators by the management. In any case, short-term cost variances are unfavorable, both increasing and decreasing from the target, and require careful analysis.
Anatoly Vinogradov, Financial Manager, Infinity Group Ltd. (St. Petersburg)
We consider a significant deviation from the plan within 5% per month, and if it concerns income, it is natural that no managerial intervention is required. But if the actual values for items of expenditure begin to exceed the planned level, an analysis of the reasons is immediately carried out, because inaccuracies in planning cannot be ruled out.
The company is always interested in keeping favorable deviations in the future, and eliminating unfavorable ones by taking corrective actions. For example, in case of cost overruns for certain cost items, establish austerity regime, introduce authorization of applications for payments, suspend shipments to debtors-debtors, reduce the period of payment deferrals, etc.
Controlled and uncontrolled deviations... At the very least, the company is encouraged to divide adverse deviations into controlled and uncontrolled. So, if the reason for the deviation of the cost products sold Since there has been an increase in customs duties on certain groups of goods, here we can talk about uncontrolled changes. However, if the growth in prime cost is caused by an increase in transportation costs, such a deviation can be easily attributed to controllable.
Personal experience
Vladimir Mosin, Chief Financial Officer of the White Wind TSIFROVOY trade network (Moscow)
Deviations arise for all cost items, for different indicators. Our company's budget is particularly sensitive to variances in sales and margins. The reason for these deviations may be factors that the company is not able to influence, for example, the prevailing market conditions, operating hours shopping centers, climatic conditions, etc. But there are also deviations associated with inaccurate planning of sales for some regions, commodity items or through individual stores.
The annual budget includes sales through new stores that are planned to open in the current year. If a store does not open on time, then you have to adjust the sales budget. Accordingly, the planned volumes of purchases of goods, indicators of accounts payable, the company's needs for funds change. At the same time, plans are being adjusted: production, to attract personnel, business trips, etc.
Temporary and systematic deviations. Deviations can be temporary (accidental) or systematic. The temporary deviation should not go beyond a quarter (in some companies - a month) and can be adjusted over time. Deviations that cannot be corrected or that exist for a long time should be recognized as systematic.
It is important to note that deviations are often interrelated and affect each other. Therefore, it is necessary to analyze them together. The variance can be due to both a clear cause (for example, a variance in sales may be the result of earlier shipments to customers or a new product), or fluctuations in other indicators.
Companies often want to recognize any favorable deviation as systematic, and unfavorable - temporary. Keep in mind, however, that the purpose of rolling planning is to reflect reality. The task of the CFO and the planning department is precisely to critically assess deviations, to identify their nature, to try to preserve favorable trends as much as possible and level out unfavorable ones.
Further actions in relation to the company's budget will depend on the nature of the identified deviations. If it is clear that the deviation is temporary (both favorable and unfavorable), then companies adjust their plans for periods, leaving the final annual indicators unchanged. If the deviation is systematic, then it will not be possible to limit ourselves to adjustments; a new one is drawn up on the basis of the basic budget.
Budget adjustments
When the company's budget is limited to the financial year, then when it is adjusted, the total profit indicator can either change or not. In the second option, the indicators of the periods are changed, but the final financial result is not affected, which, according to the author, is more preferable.
Personal experience
Dmitry Novoselov, Chief Financial Officer of Otechestvennye mediciny OJSC (Moscow)
Applying the rolling planning methodology, we leave unchanged the key indicators of the annual budget, which the company's management aims to achieve - revenue, production cost, EBITDA, profitability, net profit, turnover and liquidity ratios, indicators of the company's capital structure. For management, the budget is part of the company's strategy. It is formed on the basis of a strategic business plan and approved by the board of directors. Therefore, managers have the right to change the values of indicators only in short-term periods while maintaining the target values for the year. If, for some reason, the budget cannot be fulfilled, then only the board of directors can make the decision to change the key indicators. Then the annual budget becomes an element of rolling planning.
Let's consider both options for adjusting the budget - with a change in the annual profit rate and without a change.
| Indicators | Initial budget, thousand rubles | Fact, thousand rubles | Plan, thousand rubles | Deviations, thousand rubles (column 5 - column 2) | |
| Year | 1 semester | 2 semester | Year | Year | |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Sales | 200 | 90 | 100 | 190 | -10 |
| Cost price | 70 | 31,5 | 35 | 66,5 | -3,5 |
| Margin | 130 | 58,5 | 65 | 123,5 | -6,5 |
| Operating expenses | 60 | 27 | 26,5 | 53,5 | -6,5 |
| Operating profit | 70 | 31,5 | 38,5 | 70 | 0 |
Profit does not change
It is clear that it is difficult to achieve budget execution in terms of both cost and revenues. If the identified deviation (temporary or systematic) can be adjusted, then you can redraw the budget items so that the total profit indicator does not change. There are two possible ways.
The first is to make inter-item adjustments, that is, at the end of the year, the ratio of items will change, for each of them there will be deviations, but the profit indicator will remain the same (example 1). The second way is to make temporary changes to the articles so that the total annual values for each of them do not change (example 2).
Example 1
The company "Ikar" has formed an initial annual budget, presented in table. 2. According to the results of the half-year, a deviation of the sales volume from the plan in the amount of 10 thousand rubles was recorded. Taking into account the savings in variable costs, the negative deviation in profit amounted to 3.5 thousand rubles.
If the company does not consider the option of changing the budget and believes that the deviation in profit caused by the failure to fulfill the sales plan is systematic, but at the same time insignificant and amenable to adjustment, then in the second half of the year it is possible to make permanent changes (Table 3).
In the first half of the year, the profit amounted to 31.5 thousand rubles. To reach the profit value set in the annual plan of 70 thousand rubles, it is necessary to receive 38.5 thousand rubles in the second half of the year. arrived. This value is immediately entered into the annual rolling plan - in fact, we need to overlap by 3.5 thousand rubles. negative deviation of the first half of the year. This can be achieved both by increasing sales (with an increase in margin by 3.5 thousand rubles), and by reducing costs (by 3.5 thousand rubles), as well as by a combination of these two measures. According to the author, the easiest way is to leave the Sales and Margin indicators unchanged for the second half of the year, but to reduce operating expenses (by 3.5 thousand rubles). Therefore, the plan for operating expenses for the second half of the year will amount to 26.5 thousand rubles.
Although there are deviations between the indicators of the annual rolling plan and the initial one (column 5 - column 2), non-fulfillment of the sales plan is fully covered by cost savings. As a result, the profit for the year remains unchanged.
| Indicators | Initial budget for the year, thousand rubles | Fact, thousand rubles | Plan (for reference), thousand rubles | Plan, thousand rubles | Deviations, thousand rubles | Annual rolling plan, thousand rubles |
| 1 semester | 2 semester | |||||
| Sales | 200 | 90 | 100 | 110 | 0 | 200 |
| Cost price | 70 | 31,5 | 35 | 38,5 | 0 | 70 |
| Margin | 130 | 58,5 | 65 | 71,5 | 0 | 130 |
| Operating expenses | 60 | 27 | 30 | 33 | 0 | 60 |
| Operating profit | 70 | 31,5 | 35 | 38,5 | 0 | 70 |
If the analysis of deviations suggests that the failure to fulfill the sales plan is of an insignificant, temporary nature, then you can go another way. In particular, make adjustments to the planned indicators for the items of the plan so that the changes affect only the indicators within the planning period, and the total annual values do not change for any of the items (example 2).
Example 2
Having failed to fulfill the sales plan in the first half of the year, LLC “Ikar” decides to increase the volume of sales in the second half of the year in order to reach the previously set values by the end of the year (Table 4).
As a result, at the end of the year, there are no deviations in the items, there are only deviations within the planned period of activity.
Profits are changing
No matter how good the planning is, you cannot predict all the events that can affect the final financial result. Deviations almost always occur, but they are not always the result of an obvious mistake or miscalculation in planning. In situations where irreversible unfavorable changes are observed or significant and non-random favorable deviations are noted, a strategic decision can be made - to change the planned annual profit and all intermediate indicators associated with it.
Companies willingly revise the budget downward if unfavorable changes occur and, not wanting to admit the systematic nature of positive deviations, until the very end they try to draw up a rolling plan without changing profits upward. It is appropriate here to recall again that the company needs real plan... Otherwise, it will cease to be a guideline for business development.
Returning to the deviations of the profit indicator from the planned level, we note that the reasons for the fact that the fact does not correspond to the plan are most often the fluctuations of two indicators - sales revenue (change in sales volume or prices) and costs.
Revenue variances... Let's say that the original quarterly sales plan was 100 rubles, but according to the results of the first quarter, the deviation in sales was 20 rubles. The plan for the next period will depend on the nature of the identified deviation (Table 5). If the company specializes in retail, then it will not be easy to compensate for lost sales once. Adjustment is only possible with special events, such as additional advertising campaigns or promotions. For such a company, the deviation will be systemic, and a suitable option for adjusting the plan is a decrease in sales (Table 5, option 1). If we are talking about wholesale business, then the deviation may be caused simply by the terms of the contracts, in this case it may be effective to transfer the missing sales volume to the next quarter (Table 5, option 2).
Let's imagine that the second quarter has passed and again the sales plan has not been fulfilled. Now there are three possible scenarios for the development of events: maintaining the baseline plan for the third and fourth quarters; adjusting these plans upward in order to reach the annual level; adjustment of the plan for the III and IV quarters on the basis of deviations of the I and II quarters in the direction of further reduction (Table 6).
The final choice of the option for changing the plan will depend on the reasons that caused the deviation.
Suppose that the wholesale company was unable to fulfill its obligations to customers on time. If, as a result, buyers refuse to fulfill contracts for the first and second quarters, but plan to fulfill their obligations for the third and fourth quarters, then it is reasonable for the companies to reduce the annual sales plan (Table 6, option 1). If buyers are still willing to buy back the goods that were not delivered on time, then the second option will be the most suitable, that is, a corresponding increase in the sales plan for these quarters. When it comes to retail business, and the deviation from the planned level of sales is caused, for example, by the violation of plans for opening stores, then the company will have to accept the third version of the rolling plan, reducing the previously planned sales volumes by the amounts identified in the previous quarters.
Cost variances. This type deviations need to be analyzed taking into account the nature of the costs (fixed or variable), as well as their type (for example, personnel costs, rent, transportation, etc.). It is important to understand what causes this or that deviation. If the company finds cost savings, then the revenue and margin metrics should be analyzed. You can hardly talk about real cost savings if they are due to a shortage of revenue. Conversely, when an increase in costs is accompanied by an increase in revenues and profits, it can be concluded that there is a complex positive impact of deviations on the final financial result. If revenues have not increased and the deviations in costs are not related to changes in the volume of sales, then the company should strive to either reduce the overall level of costs, or leave it unchanged. For this, the excess on some cost items can be offset by savings on others.
Adoption of a new budget
The revised budget is adopted as a new plan. At the same time, plans are being developed for corrective actions, measures aimed at consolidating favorable deviations and minimizing negative ones. For example, if the actual sales turned out to be higher than planned due to a well-conducted marketing campaign, then in order to maintain this favorable trend, an action plan for the development of new products and the development of new marketing programs is needed.
A company's budget can extend beyond one fiscal year. As the budget is fulfilled, all new periods can be added to it: year or month. Thus, the company's budget will slide, and it will always have a budget equal to a certain period(for example, 12 months).
Rolling planning is also used for wider horizons, most often companies draw up a rolling plan for 3-5 years, detailing it by year. This plan includes the same components as the annual budget (projected profit and loss budget, projected balance sheet, etc.), not only absolute, but also relative indicators(sales volume by years, sales growth rate, cost growth, change in the share of certain products in total sales). The achieved results are compared with the long-term plan. After analyzing the identified deviations, a decision is made to adjust the plan. Then, in accordance with the basic long-term plan, a short-term plan for the next year is formed.
Personal experience
Alexander Petrenko, Financial Director of SantaHouse (St. Petersburg)
The planning system in our company is based on business indicators (revenue per square meter, number of visitors, average check amount, distribution of space by product category, demand for inventory per square meter of store, processing speed of commodity flows, etc.), which determine the normative values. These standards are used in the formation of a strategic (five-year) and operational (annual) business plan and, accordingly, a long-term and annual budget, forecast reporting (profit and loss statement, balance sheet, cash flow statement). The system of business indicators allows you to monitor budget execution on a monthly basis with minimal costs and, in conditions of rapid development of the company, promptly make changes to the business plan and budget of the company with the necessary detail by articles and centers of financial responsibility.
Sliding planning is a rather laborious process that requires significant material costs. It cannot be ruled out that the company will have to specially create a planning department. But the main problem when applying a rolling plan is changing the attitude of employees of the company to the budget. They must understand that the budget is not a document that can be revised if necessary at any time.
If the CFO gives up too soon, recognizing the need to cut profits, it can lead to discouraging employees in relation to the company's financial goals. Therefore, it is recommended to remain as tough as possible with respect to the intended financial result. While admitting deviations within the planning period, it is nevertheless necessary to strive to maintain the final result at the previously set level 1.
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Trade tax or "rent tax
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