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Planning Budgeting with SAP BPC
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Agenda

• Introduction of SAP BPC(EPM 10 NW)
• Fundamentals of BPC
• BPC Architecture Administration
• Reporting in BPC
• Integration of BW to BPC
• BPF, Work Status

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How BPC evolved?

• In 2004, SAP decided to create a next
  generation planning solution called Integrated
  Planning (BW-IP), which would be the successor of
  BPS. It looked like it would be a strong
  solution. However impressive , the technical
  advantages of BW IP only solved part of the
  equation the reality was that many businesses
  were growing tired of IT departments having to
  own and maintain planning and consolidation
  solutions with IT support, not ownership. In 2007
  SAP formed a new organization focused on the
  business user. So a Enterprise Performance
  Management team was launched under this area to
  address the needs being expressed by the CFO
  suite. So EPM team evaluated potential
  acquisitions that had the desired ease-of-use and
  simplicity, and discovered them with Outlook
  Soft. The user environment was native Excel,
  which Finance users live and breathe by.

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How BPC evolved?

• Members of Outlook Soft and SAP were summoned
  to SAP headquarters in Waldron. A business
  scenario was created and two teams were formed.
  The first was SAP and included BW experts, ABAP
  developers, web application development members
  and finance personnel. In the other corner was
  the Outlook Soft team made up of a couple finance
  users with no data warehousing or development
  skills. The two teams split up and started
  building their planning applications using the
  two different solutions, BW-IP and Outlook Soft.
  After thirty minutes, the Outlook Soft team came
  back with the completed application it took SAP
  team over six hours to build the same application
  using BW-IP. This sealed the deal within SAP and
  the acquisition of Outlook Soft gave SAP the best
  user experience in the industry, planning and
  Consolidation in one product. The rest is
  history.

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Concepts of Planning

• Planning It involves thinking ahead and
  formulating a set of activities you will execute
  in future in other words, it is the process of
  modeling or projecting future business
  activities. It is on high level.
• Budgeting It is the process of allocating
  resources once the planning process is approved
  and accepted by the companys management. It is
  on detail level.

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Concepts of Planning

• Forecasting It deals with the realization of
  the plan, and is used as a monitoring mechanism
  to facilitate the success of planning. Business
  environments do not remain the same what was
  planned yesterday may not be same today. It is
  done during the course of the current budget
  year with a key objective to provide visibility
  on the current state of the business in a timely
  manner so that corrective action can be taken
  when there is significant difference between the
  current state of the future and what was planned
  for during the planning process.

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Concepts of Planning

• People do not plan to fail, but they fail to
  Plan.
• The planning, budgeting and forecasting concept
  is critical to the success of the corporation.
  Common error is the fact that they didnt plan
  enough and didnt plan proactively.
• Its very difficult to plan, budget, or forecast
  in an accurate, timely and consistent way.

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Concepts of Planning

• Planning is not like consolidations, where
  someone else (GAAP or IFRS rules and regulations
  from the government) is telling you how to do it
  and when to do it, the consolidation process.
• Planning process is done on its own and is
  somewhat unique to the different industries.
• Planning process is the lifeblood of the
  short-term and long-term revenue stream of a
  corporation and the overall income/expense
  process within a corporation.

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Concepts of Planning - Planning Horizon

• The Planning horizon determines the time frame
  for planning. Planning horizons are divided into
• Short Term Planning
• The planning time frame in short term is
  usually a year or less. Business use this when it
  has clear cut goals such as cutting costs,
  increasing labor productivity by freezing new
  hires and effectively training the work force.

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Concepts of Planning - Planning Horizon

• Medium Term Planning
• It covers a period of one to three years.
  Business uses this when it plans to increase
  market share in a particular segment of the
  business.
• Long Term Planning
• When the duration of planning exceeds more
  than three years. Business uses this when there
  is a long gestation period between initial
  investment and final realization of sales and
  profits especially in Manufacturing industries or
  Infra Structure industries.

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Concepts of Planning - Planning Types

• Operative Planning
• It is used for short term and is generally
  conducted at companys operational level. It rely
  on a bottom-up planning approach. Employees at
  the bottom level of the hierarchy may be a part
  of the planning process to make it successful.

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Concepts of Planning - Planning Types

• Tactical Planning
• It is associated with planning for the medium
  term and is generally conducted at companys
  divisional level. Companys Mid level management
  plays a vital role.
• Strategic Planning
• It is associated with the planning for the
  long term and is generally conducted at the
  Organizational level. Companys Management
  usually plays a major role in this type of
  planning.

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Concepts of Planning - Planning Types
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Concepts of Planning - Planning Areas

• Planning is a generic function applicable to all
  area of business.
• Finance
• Liquidity Planning focuses on planning for
  maintaining optimal cash flow to be able to run
  the business. For AR and AP estimation.
• Cost Center Planning is done for operational,
  non operational, and capital expenditure costs
  the company will incur at various cost center
  levels.
• Asset Planning is concerned with the planning
  for the purchase of new assets and the disposal
  and maintenance of existing assets, based on the
  companys objective.
• Profitability Planning determines profitability
  by identifying sales revenue and costs that will
  be incurred in the future.

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Concepts of Planning - Planning Areas

• Production how much to produce and when and
  where to produce it in order to meet the
  market/customer demands. Variables such as
  seasonal behavior, geographic demand are
  considered when planning for production.
• Human Resources This area of planning is
  especially important in industries that require
  large numbers of employees and where specialized
  skills are required for realizing the objectives
  of the business. Costs associated with it has
  direct impact on the financial planning.

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Concepts of Planning Common Scenarios for
Planning in Business

• Gross Profit Margin Planning
• Profit Loss and Balance Sheet Planning
• Investment Planning
• Labor Planning/HR Planning
• Sales Planning

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Concepts of Planning Common Scenarios for
Planning in Business

• Considerations in Planning
• Importance
• Skills
• Internal
• Data
• Governance
• Communication
• Monitoring
• Planning Method
• Participation

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Planning Execution Time Frame

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Integrated Planning
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Concepts of Planning

• What Problem Are We Trying to Solve?The Gap
  between Execution and Strategy

Today, companies struggle to bridge the gap
between strategy and execution to optimize their
business performance.
Strategy disconnected from operations
Decisions made without context
Strategy / Vision
Information locked in storage
Misaligned action across organization
Execution
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Examples and Typical matters

• In practice, key issues of the process could be
  summarized as follows

Strategically disconnected a great number of
companies report have no link or weak link
between the strategy and the budgeting process
Slow a large number of organizations have not a
single tool supporting the budgeting process and
as result completing an annual budget usually
takes many days
Expensive the budgeting process requires the
collaboration of all departments and the
aggregation of all single data
Unreliable management is routinely surprised by
the variances between communicated expectations
and results
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Concepts of Planning

• Why is there a Gap?
• Employees dont understand how the strategy
  affects them, and how their decisions impact
  others.
• Its unclear as to who is accountable for
  ensuring execution of initiatives, projects, and
  tasks.
• Management systems dont empower employees to
  make their own decisions.
• Theres no formal mechanism for tactics to
  influence strategy or to share best practices.

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Concepts of Planning

• Theres no link between the budgeting process and
  strategy.
• Very often strategy is managed using inadequate
  tools that require much manual tracking and
  updating e.g. spreadsheets, PowerPoint, word
  documents, email
• Plus there needs to be Executive Commitment and
  a culture of performance management

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Concepts of Planning - Solution

• Alignment and Communication is key

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Fundamentals of BPC

• Welcome to the The budgeting process with SAP
  BPC course aimed at
• Introducing SAP BPC features and benefits for
  planning and budgeting cycle management
• Pointing out common matters and issues to take
  into account and clear out whenever you analyze,
  assess, and design the planning and budgeting
  cycle
• Providing you with consistent guidance as well as
  hits and tips to roll out an effective budgeting
  process efficiently empowered by SAP BPC
• Sharing experience

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Fundamentals of BPC

• What this course is not about?
• Not a genie with 3 wishes, black art, crystal
  ball gazing
• Not a guide to successful project Management
• Not the perfect project approach

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Fundamentals of BPC

• The budgeting combines historical data and
  economic trends with the Top Management vision,
  as a result budgeting is key to establish, keep,
  and maintain a tight linkage between strategy and
  operations
• Nothing more than
• spending money
• knowing what targets need to be met to get a
  bonus
• driving action
• influencing behaviors
• adjusting direction
• beating the competition
• creating value more effectively and efficiently

EPM Methodology Where we are
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Fundamentals of BPC

• Implementing a EPM framework enhances management
  effectiveness and overall performance in a
  variety of ways
• Improves decision making capabilities
• Improves progress by allowing line of sight into
  operational performance and compliance
• Allows management to spot potential problem areas
  and address them proactively
• Enables management to focus on areas requiring
  their attention and decisions

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Fundamentals of BPC

• Facilitates process improvement and provides a
  common yardstick to measure goal attainment
• Potential for business intelligence (BI)
  capabilities (predictive, forecasting, root
  cause, etc.)
• Provides quick analysis of functional areas
• Aligns employee performance with corporate and
  business unit goals
• Enables more collaborative processes
• Increases employee awareness of corporate
  strategy
• Reduces costs involved in Management Information1

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Advantages of SAP BPC tool

• How SAP BPC can support the budgeting process?
• SAP Business Planning and Consolidation is a
  single, unified, Enterprisewide solution. It
  represents a webbased, collaborative solution
  that unifies the business planning and
  performance management process, and integrates
  and manages the financial process

Provide modeling capability to develop plans and
budgets and link to KPIs/Strategic Plans
Created, maintained and run by the business users
Strengths of the tool
Fast end users acceptance means immediate
timetovalue
Unified planning, reporting and consolidation
Microsoft Office provides a familiar user
interface
Agile planning process driven by end users
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Budget Process Types

• Some types of budgeting processes

TopDown
Flexible
Blended
Zerobased
BottomUp
Rolling Forecasts
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Budget process types

• Approaches to Budgeting TopDown budgeting
• Works well for organizations with highly
  interrelated divisions, those in crisis
  situations, and for budgeting over longer time
  horizon
• Pro
• Fewer iterations required, often a better fit
  with flexible budgeting

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Budget process types

• Cons
• Line managers may feel removed from the process
  innovation may be stifled
• Most annual budget processes encourage and reward
  gaming
• Stretch numbers used for target setting are
  usually unsuitable for resource planning
  purposes 
• Overly tight control from the centre may stifle
  innovation and reduce agility at a local level

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Budget process types

• Approaches to Budgeting BottomUp budgeting
• A good fit for diverse organizations that
  require creative management at the unit level
• Pro
• Increased departmentlevel responsibility and
  sense of ownership
• Cons
• Can lack control and consistency, may overlook
  certain corporate objectives and can be
  timeconsuming
• Too infrequent to provide actionable information
• Annual performance contracts hard wired to budget
  targets, make it difficult to respond to
  unforeseen opportunities or threats
• Most annual budget processes encourage and reward
  gaming

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Budget process types

• Approaches to Budgeting Blended budgeting
• In practice, most organizations use some manner
  of blended or countercurrent budgeting
  process.
• All too often, these blended processes combine
  the timeconsuming and costly nature of bottomup
  budgeting with the minimal sense of unitlevel
  ownership and lack of innovation that can result
  from the use of topdown budgeting
• While often the right answer, organizations need
  to be particularly vigilant to avoid falling into
  a worst of both worlds scenario

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Budget process types

• Approaches to Budgeting Flexible budgeting
• Flexible budgeting predicts results over a range
  of possible operational outcomes
• Segregates controllable from noncontrollable
  expenses at a highlevel
• Uses key drivers and activity bases for
  predicting performance
• More effort is involved upfront, but rework is
  reduced and budgets stay more relevant throughout
  their useful life

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Budget process types

• Approaches to Budgeting Zerobased budgeting
• With the traditional budgeting techniques,
  every department must justify only the increases
  over the previous years budget level. With the
  zerobased budget, every function is reviewed and
  all expenditures must be approved rather than
  only the increases.
• Pros
• More efficient allocation of resources as it is
  based on the actual companys needs
• Identifies and eliminates wasteful and obsolete
  operations
• Cons
• In a large organization, the volume of forms may
  be so large that no one person could read it all
• Time Consuming

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Budget Process Types

• Approaches to Budgeting Rolling forecast
• The most forwardthinking organizations are
  replacing the annual budget with a rolling
  forecast.
• Making this move makes sense for
  organizations that are
• Empowered at the unit level line managers have
  access to actual performance information in
  nearreal time, and have the tools and knowhow
  to translate recent performance information and
  experience into accurate near to midrange
  forecasts
• Disciplined at the unit level keeping the
  forecast accurate and up to date is an imperative
• Managed by a corporate management team
  comfortable with reduced detail (but presumably
  higher accuracy) in near and midrange
  performance estimates

Actual Data
Budget Data
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Project approach

• The main steps of our operative methodology for
  managing a BPC project are

Realization
Prototype
Analysis

• Realization, based on the identified business
  requirements, of a prototype which takes into
  consideration all necessary data, reports, and
  processes
• Plan and execute workshop aimed to show defined
  solution

• Testing of the application in order to identify
  potential misalignment
• Data loading through automatic systems
• Reconciliation of historical data through control
  reports

• Understanding the organization business model
• Understanding the AsIs of the planning and
  control process
• Design of the new scenario (ToBe)

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The tools used for managing SAP BPC Planning
Project
Fundamentals of BPC - Project approach
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Different component of a budget process

• Both in the analysis / Design phase and after in
  the implementation phase, we will use Invenio
  reference model to realize the improvement to the
  actual budget process in terms of
• a more Efficient and Simple process
• accuracy e accountability (data collection
  through secure processes managed centrally and
  delegated to local user/function)
• Speed up the process through automatism and
  closed calendar
• Flexibility realization scenario simulation
  (market, currency, etc.)
• budget/actual coherence for obtaining a compliant
  variance analysis
• Provide the users with an independent vision and
  real time/quick information

Reference Framework
Sales Plannig
Purchase cost Budget
Quantity, Pricing, Payment Condition, etc.
Unit cost, quantity, VAT, payment condition, etc
Descriptive example
PL
Headcount, FTE, etc
Personnel Budget
CAPEX Budget
Non- direct cost Budget
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Different component of a budget process

• At the same time, to obtain a financial planning,
  we will realize
• The Budget completeness with the Balance Sheet
  area
• Provisional and Actual Cash Flow with the
  relevant analysis dimensions

Reference Framework
Sales Plannig
Debts, Credits and Net Financial Position
VAT, etc.
Purchase cost Budget
Quantity, Pricing, Payment Condition, etc.
Billings and Encashment Analytic Plan
Unit cost, quantity, VAT, payment condition, etc
Descriptive example
PL
Balance Sheet
Cash Flow
Headcount, FTE, etc
Tangible and Intangible Assets
CAPEX Budget
Personnel Budget
Non- direct cost Budget
Budget dei costi indiretti
Billings and Encashment Analytic Plan
TFR, debiti, PFN
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Fundamentals of BPC - Link between
economic/financial planning and operative planning
Link between economic/financial planning and
operative planning
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Link between economic/financial planning and
operative planning

• Topdown targets,
• Topdown forecast
• Automatic report generation from operational
  planning data

Economic/Financial Budget
Economic/Financial Budget

• Bottomup plans, subplans,
• Bottomup forecast
• Integration between MU and BU plans, though
  keeping each MU and BU peculiarities

Operative Budget
Operative Budget
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