How Performance Management and Beyond Budgeting are Transforming DFW Airport

Transcription

1 How Performance Management and Beyond Budgeting are Transforming DFW Airport Beyond Budgeting Annual Conference April 25, Chris Poinsatte, EVP and CFO Dallas Fort Worth International Airport

2 Finance Challenges in 2005 PERFORMANCE MANAGEMENT AND BEYIOND BUDGETING AT DFW, APRIL 25, Long disjointed budget process Budgets built on annual versus monthly basis (no seasonality) No driver-based capabilities If you go over budget You re Fired! Led to significantly inflated budgets Expenses department; Revenues - cost center/business unit Minimal visibility into cost centers and Settlement during the year No business unit P/Ls No forecasting or financial planning capabilities No capital project cash flow visibility No strategic plan linkage, no KPIs, no prioritization process 2

3 Original Budget Timeline In 2005, the budget process took 9 months from planning to reporting New FY J F M A M J J A S O N D Planning and goal setting Develop departmental budgets and Exec review Download into 40 tab spreadsheet to estimate revenues Board review and approval of Expense Budget City Council Review and Approval of Expense Budget Continue to massage revenues into cost centers Board approval of Forecast and Schedule of Charges Download budget into Excel and spread by month Upload budgets into Oracle by department Begin departmental reporting Old 9 Month Process 3

4 Initial Approach to Resolve Finance Challenges Needed a new financial planning tool Selected Longview Solutions Took about one year to select and implement software Implemented in phases: Phase 1 Expense Budget (FY 2006) Phase 2 Revenue Budgets/Forecast (FY 2007) Phase 3 Capital Project Cash Flows (FY 2007) Phase 4 Year End Settlement (FY 2007) Change management focus from budget Introduce continuous forecasting 4

5 Benefits of the New Longview Platform Shortened budget cycle Linkage to drivers Ability to continuously forecast Improved reporting Shift staff time to value-add work Capital Project visibility 5

6 FY Budget Process is 5 Months Shorter The DFW Budget Process has been reduced from 9 months to 4 months with a dedicated staff timeframe of about 6 weeks. Time to develop reduced due to continuous forecasting and ability to develop revenue and expense budgets at same time. New FY J F M A M J J A S O N Planning and goal setting Develop department budgets and Exec review Develop revenue budget and Schedule of Charges Board review/approval of Budget/Schedule of Charges City Council Approval of Budget New 4 Mo Process Old 9 Month Process 6

7 Benefits Linkage to Drivers PERFORMANCE MANAGEMENT AND BEYIOND BUDGETING AT DFW, APRIL 25, Managers understand operating drivers better than financial numbers 47% of DFW expense budget related to personnel costs Over 90% of revenues based on drivers Landing fees landed weights Terminals lease space Parking rates and number of parking days Concessions passengers and square footage Commercial development acres Build driver based models into system Link directly to driver based operating systems for actuals Provides ability to analyze rate and usage variances 7

8 Benefits Continuous Forecasting Departmental Controllers continuously update departmental forecasts throughout year Two formal Outlooks or Forecasts each year (February, July) System allows changes in future years Update major contracts and key drivers continuously Focus on large dollar items Significantly reduces time to implement budget 8

9 Benefits - Improved Reporting PERFORMANCE MANAGEMENT AND BEYIOND BUDGETING AT DFW, APRIL 25, Ability to slice and dice on all levels Flexibility to create standard and what-if reports Ability to drill down into variances Business Unit P&Ls Cost center perspective to identify potential settlement issues 9

10 Benefits Shift Staff to Value Add Work Previous significant time spent on process Eliminated budget transfers Estimated savings of 2-3 man years of work with new system Did not reduce staff Focus on more analysis and forecasting to meet department s needs Perception of Finance significantly improved 10

11 Beyond Budgeting at DFW Future Challenges 11

12 Beyond Budgeting Future Challenges We still have a budget! By middle of 2007 lot s accomplished Very efficient shortened budget process (about 6 weeks) Use of continuous forecasting to view the future Use Executive Contingency and baselining of past expenditures to eliminate budget fluff What was yet to be done? Still have a budget (state law) Huge expenditure hockey stick in final two months Lacking updated strategic plan Lacking linkage of strategic plan to priorities and budgets Lacking KPIs for all levels of airport management 12

13 Solutions We still have a Budget! DFW s budget is required by law, approved by Cities and DFW Board, and is needed to calculate airline rates, fees, and charges by Use Agreement Requires structural changes to DFW s Controlling Documents Contract and Agreement with Cities Cities have no financial stake in DFW Switch from budgets to year reporting EOY actuals This will be a challenge State law requires a budget Downplay significance Introduce 4 month reporting cycles with focus on continuous improvement Airline Use Agreement New agreement being negotiated for 2010 Convert to rolling four month settlement periods This would be a first in airline/airport industry 13

14 The Yearend Hockey Stick!!!! A Real Challenge for Continuous Forecasting Expense Budget (in millions) $40 Excludes Year-end Pension/OPEB Contributions in FY06 and FY07 $35 $30 $25 $20 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep FY07A FY06A FY08 Budget FY08A 14

15 Yearend Hockey Stick PERFORMANCE MANAGEMENT AND BEYIOND BUDGETING AT DFW, APRIL 25, Why? Engrained in culture Use it or lose it. Projects slide to EOY Vendors don t send invoices until EOY What to do? First plan for it Get vendors to invoice regularly More focus on Outlooks Harder close every four months rather than just end of year Get management out of fiscal year mentality Things can start and stop at any time 15

16 Performance Management at DFW Strategic Plan and Key Results 16

17 DFW Airport Overview Strategic Plan PERFORMANCE MANAGEMENT AND BEYIOND BUDGETING AT DFW, APRIL 25, VISION STATEMENT: DFW International Airport Connecting the World MISSION STATEMENT: DFW International Airport will provide our Customers outstanding facilities and services, expanding global access and economic benefits to those we serve. PRIMARY BUSINESS GOAL: Grow the core business of domestic and international passenger and cargo airline service. KEY DRIVERS/RESULTS: COST COMPETITIVE CUSTOMER SATISFACTIO N OPERATIONA L EXCELLENCE Strategic Objectives EMPLOYEE ENGAGEMEN T Strategic Initiatives 17

18 Strategic Execution at Three Levels Level 1 Board/CEO Level 2 Executive Management Level 3 Vice Presidents/Departments 18

19 Strategic Execution at Three Levels DFW is focused on execution and monitoring at three levels. Level Organization Priorities KPIs Funding Level 1 Board/ CEO CEO's Initiatives (20-25) Key Airport Measures Funded Level 2 Executive Mgmt Other Critical Initiatives ( 50-75) Leading Indicators (KPIs) Funded & Use of Contingency Level 3 Departments Continuous Improvement Initiatives Process Level Metrics Part of Ongoing Budget 19

20 Strategic Execution at Three Levels DFW is making progress, but full roll-out will take two years. Completed tasks are in dark blue. Tasks in process are in light blue. Level Organization Priorities KPIs Funding Level 1 Board/ CEO CEO's Critical Initiatives (20-25) Key Airport Measures Funded Level 2 Executive Mgmt Other Critical Initiatives ( 50-75) Leading Indicators (KPIs) Funded & Use of Contingency Level 3 Departments Continuous Improvement Initiatives Process Level Metrics Part of Ongoing Budget 20

21 Level 1 KPIs - Key Airport Measures Grow the Core Business Passengers Destinations Landed Weights Customer Satisfaction Survey Rankings Operational Excellence FAA Safety Compliance Environmental Compliance Completion of Level 1 Initiatives Cost Competitive Airline Cost Airline Cost per Enplanement Parking Revenue per Employee Concessions Sales per Enplanement Commercial Development Acres Leased Natural Gas Wells Drilled Bond Ratings Employee Engagement Employee Engagement Surveys Wellness Program Participation 21

22 Strategic Initiatives Prioritization of initiatives is extremely helpful to support organizations like ITS. Initiatives are not KPIs; they are how you improve your business results. Level 1 - CEO Highly visible Very measurable and quantifiable initiatives Major construction projects Monitored quarterly Level 2 Executive Management Team Major cross-functional Councils Strategic - significant cost or revenue impact High public relations impact Monitored Quarterly Level 3 - Departmental 22

23 Link to Incentive Compensation Modest Incentive Compensation Plan based on Achievement of corporate goals: 50% - Cost Competitive 25% - Customer Satisfaction 12.5% - Employee Engagement 12.5% - Operational Excellence Outstanding individual performance Cost goals based on reduction in Airline Cost from budget This will need to change next year to avoid budget manipulation 23

24 Tomorrow s Challenges Strategy Learning Map for Internal Training and Communication 24

25 Tomorrows Challenges PERFORMANCE MANAGEMENT AND BEYIOND BUDGETING AT DFW, APRIL 25, Roll-Out of Strategic Plan to organization Completion of KPIs through Level 3 - Department Level Initiation of formal review process EVPs and VPs Three formal review meetings per year Struggling with format and content Breaking link between managing initiatives on a fiscal year basis only and on an on-going basis. Budget Individual performance plans Focus on continuous improvement of processes 25

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