A $100M environmental services company, operating across the U.S., faced a significant challenge: they had no formal Financial Planning and Analysis (FP&A) playbook, hindering their ability to create a cohesive annual budget and effectively manage financial performance. Our team was brought in to design and implement FP&A processes, working directly with senior operations leadership to create a bottoms-up, driver-based annual budget.
Step 1: Establishing Key Operational and Financial KPIs
To develop a focused and actionable budget, we first worked with the leadership team to identify the top operational and financial KPIs that would guide their planning and forecasting efforts. After extensive analysis, we determined that the following KPIs were critical drivers of their operational and financial health:
- Equipment utilization: Maximizing the use of machinery to improve efficiency and reduce costs.
- Labor utilization: Ensuring effective deployment of personnel to meet operational demands.
- Gross margin: Tracking profitability at various levels to maintain healthy margins.
- SG&A as a percentage of revenue: Monitoring the overhead costs relative to the company’s revenue to keep spending in check.
These KPIs became the backbone of the annual budget, driving focus on key performance areas.
Step 2: Building the Bottoms-Up Budget
With the KPIs in place, we worked alongside senior operational leaders to create a driver-based, bottoms-up budget. This process involved:
- Data extraction from Salesforce and SAGE: We integrated historical performance data and sales projections from Salesforce and financial data from SAGE into our forecasting model. This allowed for a more accurate picture of revenue projections and prior performance.
- Surveying leadership for P&L creation: We gathered input from senior operational leaders to create individual profit and loss (P&L) statements for each department, region, and business unit. These P&Ls were then consolidated into a company-wide P&L, providing a comprehensive view of financial performance across the organization.
Step 3: Forecasting Revenue and Analyzing Performance
Using the extracted data and KPIs, we built a detailed model to forecast future revenue and track prior performance. This model allowed the company to:
- Anticipate financial outcomes: By forecasting revenue and expenses based on key drivers, the company gained the ability to project future performance and make informed financial decisions.
- Monitor operational efficiency: With a clear view of equipment and labor utilization, as well as gross margin and SG&A as a percentage of revenue, the leadership team could identify inefficiencies and areas for improvement.
Step 4: Implementing Drill-Down Capabilities for Performance Monitoring
The final step was implementing a budget structure that allowed for drill-down capabilities. This enabled the organization to:
- Track performance at multiple levels: From the executive level down to individual business units, the budget allowed for granular performance tracking.
- Pinpoint inefficiencies: The company could now easily identify where inefficiencies were occurring, whether in specific regions, departments, or cost centers.
Results
As a result of implementing these FP&A processes, the environmental services company was left with an annual plan that was not only comprehensive but also highly flexible. The drill-down capabilities allowed leadership to understand performance at varying levels, enabling them to pinpoint inefficiencies and focus on the KPIs that matter most. This newfound clarity gave the organization a robust tool for managing both operational and financial performance, setting the stage for long-term growth and sustainability.
This case study demonstrates how implementing structured FP&A processes can transform financial planning, enabling organizations to better understand their performance and make data-driven decisions that lead to significant improvements in efficiency and profitability.
