FI.Chapter14 - Go te ernan;ffi i 1 j-il,Ut:l if.i='r,r...

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Go te ernan .i" 1, .;;;ffi if).i= j-il,,Ut,!:l 'r,,r '/. {r, ,l* ,$ ',. .ii Chapter 14 Financial Planning and Forecasting Financial Statements 486 Chapter 15 Corporate Valuation, Value-Based Management,
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f,s) Q'-' FEc€ameEaE PEanmEerg ae?d Fianaatsial Stateaaeecrts rrcent sur\jcy of CFOS on financial planning iornd a paradox. On onc hand, most respondents bclieve that fnr.ncial plannnrg is irrportani, with the majoriiy stating ihat budgcting is high- ly rseful for allocnting resourccs. On thc .,r1,, I h,r,(1. ,rany In,,raB, r. 1,.,re doubr- about the process, largely because the)' believe that the inplrt data are rarely accu rrt" erorrtl' ro ) iel,i r.dl:-r., r,-ul.-.Tn f.r.l 4i. olrh, (lO- rep,'rrrd tl'ar bu,lgcrinp;, '1or,'.nr. 'u. . p^rilii.r l. .rrrd rin c-on.umrng. Even {,orse,53% said that tLr€ budgetiLrg process can encouragc undesirablc behavior amont managers as they ie8oiiate budgets to meet their oivn rather than the compa- ry's objcctil,es. What calr CFO5 do to improve the sit a lron' ('.,r\,dpr tl,, bfldgetrnE proce.\. rt iypicall), starts inJuly and ends ir Decembet just priof to the forccasted ycnr. The proccss begnls with data acquisition, includinit his torical irformation on sales, costs, invenk) ries, batch sizes, dcfect rates, number ('f repeat customers, product mix by custoner tvpe, hoors of cnlployee iraining, ard the like. Unfortunately, most largcr companics have stan(l alone software p.rckages rnd sprcadsheets ihal vary from division to division, making data acquisition iim€ . or.urr Ing rrd (rr(.r filleJ. In-tFaJ ofbr-i g gr'owih and pcrforrnancc tartets on analvs$ of the markets and competitors, targets are ofien set as lasi-year's-rcsults plus-a-p€r- centage-increasc. In hclp 'ol\p lhi, froblprn. c,'nrp"nip. .,rqJe\eloping .r ranetv .f eh \tr.rte8ie. "Demand pull budgeting" h*s the budget to salcs forecasts, and the sales forecasts arc 1i0' q,'Fnt\ upd,,tFd lo rene,r c|.,'rginB eLollon ir conditions. A similar but more rcgim€nt€d, procccture ihat is now uscd b)r 48% of the responding compnnics is the "rolliig forecast.' These co panies makc forecasis for 1-year ahead and s-yenrs ahc'ad, bui ihen modili thcm each quarter (or month) as new re Llts become ai'ailable. A]so, somc companics are - nor,v Llsing "activity-based blrdgcthg," which allocates costs mrd revenues by products and scrvices miher than by iraditjonal departments. Another chanSe is that the budgeting proccss at many companics is now focus€d
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on compctitors'performances rather than th. firm's own previous year, and then linking
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FI.Chapter14 - Go te ernan;ffi i 1 j-il,Ut:l if.i='r,r...

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