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What is Strategic Modeling?Learn how to use the Strategic Modeling framework to improve your strategicplanning

Agenda Functional Trends in Strategic Planning Case Studies Strategic Modeling in EPBCS̶̶Strategic Modeling OverviewModels AccountsForecastingReportsModel ConsolidationsScenario modelingFeatures Integrating Strategic Modeling Design and Tips and Tricks

Results of the 2019 State of Business Analytics SurveyCompanies need to get to 0 day (continuous) closeTimely reports and interactive analysisMultiple plans with different images of the futureNeed to shift directions quickly in reaction to newsevents and changes in the competitive landscape Greater analysis across a wider scope - fewer surprisesand panic situations for agile businesses as theyrecognize pre-identified scenarios and patterns Machine Learning and AI will be key differentiator forthose who can harness their power before theircompetitors epm.bi/SoBA

Trends in Strategic Planning Agile Planning̶̶Timeliness over precisionAnalysis over reporting It’s better to have a plan that’s recent at high-level versus one that’s detailed but out-of-date. Understand the immediate direction of your company to make quick, data-driven changesHow quickly can I come up with a number that will cause me to make a differentdecision?̶ Continuous planning̶̶Is Dec 31 materially different than Jan 1?Rolling forecasts Zero Based Budgeting̶Rethink business needs instead of just rolling costs forwardMore data is available than ever before, but how do we use it efficiently?

Agile Strategic Planning Needs React to opportunities̶̶Focused on analysis vs. buildingmodelsBottoms up / Top Down Strategic planning vs. strategicthinking.̶One is analysis, and the other issynthesis Strategy needs to beoperationalizedStrategicExecutive InputStrategic Plan

Strategic Planning“The real purpose of effective planningis not to make plans but to change themental models that decision makerscarry in their heads.”“The ability to learn faster than yourcompetitors may be the only sustainablecompetitive advantage”- Arie de Geus

Typical Planning Cycle Strategy needs to adaptreal time Reason for StrategicPlanning̶ Focus decisions Real World Issues usingExcel̶ Budget obsolete afterBOD approval̶ FP&A focused onminimizing variances notAnalysis̶ LRPs with 100 tabs,frequently crashing Excel̶ #REF errorsStrategic tegic LRP(Quarterly)Strategic recast(Monthly)Forecast(Monthly)Strategic LRP(Quarterly)

Typical Long Range Planning Process FP&A creates IncomeStatement to Op Income(EBIT)Treasury creates BalanceSheetCAPEX assumptions linkthe twoIntegrates in areas“Below the line” (D&A,Interest Inc/Exp, etc.)Cash Flows areafterthought Cash FlowStatement

Typical Long Range Planning Issues Executive wants newassumptions ASAPNew information fromthe fieldVersion controlModels need updating(hard coded cells, FP&A)Cash FlowStatement

Strategic Long Range Planning Process with Strategic Modeling / HSFSM/HSF is thecentralrepository forstrategicfinancial Capex

Example: Long Range Planning Process

Example: Data kforceGL seOtherPlanningFormsReportingCube

Strategic Modeling –Case Studies

Case Study: Technology / Real Estate / REITDesign̶̶Many Foreign EntitiesCurrencyConsiderations(Constant Currency)Memo Account DriversREIT Asset Testing̶̶Integration̶̶Input from PlanningForms to EBIT frommultiple divisionsOutput to Essbase(BSO then to ASO)

Case Study: AirlineDesign̶ Combined Scenarios (FuelCones)̶ Debt Modeling outside HSF̶ Capex̶ Cash Flows: Assetsconstructed for others̶ Drivers RASM / CASM Fuel Prices Stats (Fleet, BH, ASM,etc.) Treasury strategies(Dividends/Debtrepayment)Integration̶ Actuals / Forecast fromPlanning as a base

Case Study: Healthcare StaffingDesign̶̶̶Several Entities Simplified P&L’s Rollup / Consolidation /Unit OwnershipDrivers - Unit P&LRevenue / ExpenseAssumptionsIntegration̶ Debt / Depreciation Modeled in HSF atCorporate Entity Fed back to Planning

Case Study: International Energy Holding companyDesign̶ 29 highly diversifiedmodels̶ Consolidations with NCIs,wholly owned entities andJVs̶ Regulated and nonregulated accountingMultiple ConsolidationBusiness Cases and Scenarios̶ Modeled different risklevels̶ IFRS vs. Adjusted vs.GAAPNew product (one of the firstSM projects anywhere)

Strategic Modeling - Overview

Strategic Modeling - Overview Came with EPBCS or PBCS 1̶̶̶Enabled like the other frameworksCustom financial engine, notEssbase basedWill be included as “ScenarioModeling” in Enterprise Planning Integrates through GroovyScripting or Data Maps Allows for agile creation ofstrategic plans with what-Ifscenario analysis Creates integrated financialstatements with accountingintegrity

Strategic modeling in Smart View Download the Strategic Modeling add-infrom EPBCS Need to install Smart View first Run the install program as Administrator

Strategic modeling in Smart View Creates new options in the Smart View Panel Adds ribbon menu to ExcelNote: As of September 2019, Several Functionslike Creating Free Style Reports are available inSmart View only

ModelsModels (Entities in HSF) contain the financialframework of Strategic ModelingModels are checked in and out to maintainversion controlModels can be linked together in a hierarchy inthe Consolidation viewSecurity can be set at a global or model level(Modeler, Analyst, Viewer, None)Considerations: Legal structure / Geographic M&A / Divesture Impact of business scenarios Plant / Store

Creating New ModelsCan be created from: A Template An Existing ModelModels are stand aloneentities and eachcontains an entire set offinancials (I/S, B/S, CFS)Depending on yourcorporation models maybe legal entities, plants,stores, M&A targets, etc.

Templates Templates are used to quickly create a model basedon various industries Templates provide different accounts and reportsdepending on the industry Templates include a hierarchical set of accounts butwithout data or time periods You can create custom templates or use the onesprovided

Consolidation View Consolidations arrange models into a hierarchy and allow for combining models viavarious accounting methods Scenarios can vary by model to provide flexible views of the forecasts Business Cases allow for agile what-if modeling of different Scenarios

Consolidation View More detail on consolidation can be controlled in Child orParent attributes Groups of accounts for eliminations Deal time periods to consolidate

Models - AccountsThe Account View is the main areafor creating forecasts. It contains allaccounts (I/S, B/S, CFS, Memo,Ratios, etc)Accounts: Predefined and are permanentlylinked to maintain accountingintegrity Can be sub-accounted foradditional detail and memoaccounts can be used for furthercustomization Each account has 2 parts, inputand output Can be grouped with customgrouping for easier navigation

Account Forecasting Accounts can be forecasted using predefined methods or free formformulas Can be linked to other accounts (ex. LIBOR, GDP, etc.)

Models - FeaturesScenarios Create and managescenarios to analyze what ifsituations Reports can be created toprovide variance analysisbetween scenarios Scenarios can be used tocreate different businesscases for consolidations

Models - FeaturesAudit Trail Providestransparency intocalculatedamounts Can drill back intocomponents – Allthe way to theinput

Models - FeaturesGoal Seek Allows user to set a target foran account by making changesin another related account Can be performed for a singleperiod or a range of periods Can be adjusted by the same %or amount

Models - FeaturesDebt Scheduler Easy way to model all features ofdebt Capture and manage cash flowinvolved in debt investments (debtamortization, payments, interest,and interest rates) Automatically flows into appropriatefinancials (ex. Interest Expense onI/S, Principal amount on B/S, etc.)

Models - FeaturesFunding Options Balancing routine whichmaintains accountingintegrity between all ofthe financial statements Users can specify what todo with cash surpluses orhow to fund deficits

Models - FeaturesSimulation Recently simulations havebeen added to StrategicModeling Features similar to CrystalBall Run Monte Carlo or LatinHypercube samplingbased on probabilityassumptions

Models - ReportsStandard reports are available outof the box when models arecreatedReports are automaticallypopulated with data from theAccount ViewAudit Trail can be used fromreports to drill back to accountdetailsFreestyle custom reports can becreated directly in StrategicModeling (Smart View)

Strategic Modeling –Integrations

Integrating to Strategic ModelingProConVery FlexibleDifficult for noncodersDefine complexmappingScalingProEasy for non-codersHigher MaintenanceConLimited flexibilityGraphical interfaceExcel templateNo scaling

Integrating to Strategic Modeling - Examples

Strategic Modeling –Considerations and Tips andTricks

Tips and Tricks - Design Get strategy right first, then build themodels around that (Determine thepoint of having an LRP) Change Management - Get buy in fromusers, not just rebuilding Excel models,but creating a better method Use the Oracle SR system, follow up,provide feedback and stay active withthe support team

Tips and Tricks – Strategic ModelingTry to leverage SM functionality when possible Build Account Groups for easy navigation Audit Trail from reports to providetransparency Debt Scheduler integrates directly intofinancial statements (Interest Expense, S-Tand L-T Liabilities, etc.) Consolidation functionally to roll up models Up front efforts to build master models touse as a template

Design Issues Over complicating models̶̶Trying to fit every aspect of the business into a LRPImmaterial details in out yearsLoses agilityIncreased maintenance̶̶ Change management̶̶̶Users need to be on board with the toolRelying too much on ExcelRefusing to admit past errors

Strategic Modeling –Conclusion Summary

Summary Trends in Strategic Planning Case Studies Strategic Modeling in EPBCS̶̶Strategic Modeling OverviewModels AccountsForecastingReportsModel ConsolidationsScenario modelingFeatures Integrating with Strategic Modeling Design and Tips and Tricks

Continuing Education

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