Strategic Financial Planning & Analysis

How can Your Company plan for its strategic plan?

The thorough nature of building or updating a strategic planning financial model requires a great deal of information. Although a strategic plan is a high-level overview of your Company, it is important to obtain immense detail as it will better assist you in completing the strategic plan.Your Company will need to call upon various stakeholders to furnish information.

Some of the information that your Company will need

The information gathering process will take time. Depending on the size and nature of your Company, relevant stakeholders will need time in order to deliver certain information; some will send you revised information at a later date i.e. Treasury’s revised forecast on interest rates or the price of oil. Here is a list of information deliverables that your Company may need to consider when planning for its strategic plan:

  • All cost of labour information, such as base salary, pension costs and other compulsory employment costs for an employer.
  • A detailed breakdown of forecasted sales by product or service, by region and business unit.
  • Credible and accurate forecasted numbers from Treasury for interest rates, foreign exchange, foreign interest rates and applicable commodity prices such as oil.
  • Pertinent government subsidies or tax credits from your Company’s tax department – which your Company may qualify for.
  • If applicable, all the Company’s debt tranche details
  • An assets or corporations register to maintain an updated list of all assets/subsidiaries that have been bought and sold.
  • Accounting and tax depreciation information for all your Company’s tangible assets.
  • Dividend information covering not just your Company’s preference, but also the ordinary shareholders and whether imputation tax credits can be passed onto shareholders.
  • Anticipated government policies that may impact your Company, i.e. making a carbon liability provision in the balance sheet for a future carbon tax or cap and trade system.
  • Corporate tax and other applicable tax rate information
  • Expected debt or capital raisings by your Company, as they will impact credit metrics or shareholder earnings per share.
The benefits of planning your strategic plan

The above list demonstrates the need for your Company to implement some planning. The above list of shopping items is by no means complete or absolute; it is a list to merely jog your strategic planning mind and help you to brainstorm your information needs.

To execute a credible and value-adding strategic plan for your Company, you need to be detailed orientated and source complete data from relevant stakeholders such as treasury, accounting and finance, human resources, legal and policy, and sales/marketing. You need to educate these various stakeholders about the importance the strategic planning process will deliver to your Company.

Contract Pricing & Analysis

The financial need to cost a service contract

It is not a simple exercise to model a contract for your service-based company. There are a myriad of operating expenses, capital expenditure and labour costs that need to be fully costed to guarantee a profitable price is tendered during contract negotiations.

Each financial element of the contract must be thoroughly modelled and costed.

Why use a financial model to model a service contract?

It is not possible to undertake a back of the envelope calculation for a service contract, because service contracts often last for at least three years. It is vital to account for rising operating and labour costs, as well as the depreciation and repairs and maintenance costs associated with your capex to service the contract. Further, your Company needs to be aware of all financial and contract assumptions pertaining to this contract.

Activity-based costing is the very essence of building a financial model for a service-based contract. Your Company must understand the importance of accounting not just for the direct costs underpinning the contract’s delivery, but also indirect costs such as overhead, existing labour or capital equipment that can be apportioned to the contract. It is wise to build this detail into your model, which is demonstrated in the following screen shots.

A thorough financial model will solve this financial need

A service contract pricing model will assist your service-based company to better price contracts, based on budgeted and forecasted expenses, in order to deliver forecasted return on sales, profit margin and cash flows.

The full life-cycle of the contract can be modelled via activity-based costing. The model can forecast an increase in service activities and potential headcount increases, associated wage cost increases (i.e. employment insurance, other social security costs), inflation increases, and other operating expenses. This will enable contract stakeholders to better understand forecasted margins and returns based on a specific contract price and service volume.

Carbon Modelling & Analysis

Calculating your Company’s carbon emissions

There is a trend for companies to report their energy usage and carbon emissions in a succinct manner. While this may seem straight forward on the surface, if your Company is in an industry such as oil & gas or resources, then the task can be onerous and challenging.


The challenge of reporting emissions

The nascent nature of carbon reporting means your Company should start off with a big picture view. If your company has diverse business activities, then begin with your business units and then drill down into your respective assets or facilities by business unit. Remember, given the potential complexity of your Company’s business units, it may be necessary to build a separate emissions model by business unit and then consolidate into one corporate emissions model.

Your Company’s business units may differ in complexity and type; i.e. a downstream/retail business unit selling electricity or gas, and an upstream business unit exploring and processing the raw material.


The solution to your Company’s emissions reporting is via a carbon model

As discussed, the differing operations across your Company by business unit will make a consolidated carbon reporting model appear to be a challenge. Hence it is up to you as the carbon model builder or reporting manager, to implement some uniform reporting discipline into the overall process. The following video outlines a best-practice, base carbon reporting model that can solve your Company’s carbon reporting needs.

Your Company’s first carbon reporting model

In the early stages of requesting energy consumption data from your Company’s business units, try to keep it as least onerous for your business unit data providers as possible. It is recommended to compose vanilla energy and electricity consumption, and energy production reporting templates. This will assist the data provider in reporting all energy and electricity use, and energy produced by facility and fuel type.

As highlighted, the above video demonstrates a succinct, robust and comprehensive vanilla carbon model, which can meet your Company’s reporting requirements. Evidently, over time this model can be expanded to undertake more value-adding modelling such as forecasting, sensitivity/scenario analysis and commentary.