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This lecture will discuss the following three topics: Corporate Business Planning Process, Terminal Business Planning and Alignment to Corporate Plan. Corporate Business Planning Process. Let us first define Business Plan. Business Plan is also called the LRP or Long-Range Plan, it has a 5-year planning horizon and comprises the strategies, plans, and programs of the company. Resource requirements like manpower, OPEX and CAPEX budget are some of the major components of the Business Plan. Operating Plan is the first year of the 5-year Business Plan. This includes the firm targets and commitments of the divisions. The two main documents of the operating plan are the OPEX and CAPEX budgets. The Capital Program consists of the capital investments for Operating Plan. This includes the proposed projects for the next 5 years. Project cost estimates are initially at 20% tolerance level and refined to 10% tolerance level with a clearly defined scope when presented to Management for funding. Now let us discuss the difference of CAPEX and OPEX. Investing or Capital Expenses are costs to obtain future flow of benefits going beyond 1 year. The benefits may include reduced costs, increased revenue, or may be non-quantifiable such as safety, security, and operating efficiency. The CAPEX also includes new acquisitions, extensions or additions, and improvements. While Operating expenses are charges against income for the same period. They are non-capitalizable costs, and they are money spent to turn inventory into throughput. These expenses may include exemptions from capitalization due to low project amount or accounting considerations. To further explain Capital expenses, here are some categories and criteria. Capital expenses are stand-alone assets with a useful life of more than 1 year and are at least 100,000 in amount. However, some purchases and replacements are not subject to the 100,000 threshold. They are major appliances like Airconditioning Unit, Television Set, Refrigerator, Freezer, Washing Machine, Laundry Dryer, Vacuum Cleaner, Microwave Oven, Kitchen Stove, and other similar appliances. Purchase and replacement of IT and OT related items like computers, printers, scanners, and photocopiers are also not subject to the 100,000 threshold. For systems and software, amount should be at least 5,000,000 for it to be considered a capital expense. While for improvements, upgrades, major repairs and spare parts, amount should be at least 5,000,000 and should extend the life of the assets by more than 1 year. CAPEX proposals are grouped into 3 clusters: A for top 10-20%, these are high-risks, high urgency, and high penalty. B for the next 30-50%, these are high-benefits. C for the bottom 30%, these are non-essential and least priority. To further explain operating expenses, here are some classifications: Employee benefits includes basepay, benefits, and training expenses. Materials and supplies includes chemicals, catalysts, and office supplies. Maintenance and repair includes requalification of LPG cylinders and out-of-service inspection of tanks. Purchased services and utilities are power, security, consultancy for special studies, local and foreign travel, conferences and meetings. Rental are for properties occupied by the depots. Insurance of assets. Taxes and licenses like real estate taxes, licenses for software or systems. Business Expenses are for advertising. And Depreciation – arising from capital investments based on service life of asset. There are 2 different types of OPEX – base and program. Let’s differentiate the two. Base OPEX are regularly, or annually recurring, necessary expenses associated with administering, operating and maintaining the business to be able to deliver the products and services to the customer while ensuring compliance to safety and environmental standards, national and local laws and regulations. “Fixed costs” are normally under base OPEX like base pay of personnel, purchased services, M&R, rentals, leases, etc. Some “variable costs” are also under base OPEX like electrical/water costs, and OT pay of personnel. M&R works that do not qualify under Program OPEX are also charged to base OPEX. Program OPEX on the other hand are one time or periodically recurring expenses, they can be related to strategy programs and projects. They can also be cyclical maintenance work or material replacements. One time or non-recurring special maintenance work or improvement project like activities related to new legal/regulatory requirements, special employee related programs and non-recurring general activities are also considered as Program OPEX. But we always need to keep in mind that this programs and projects should be planned or included on the original opex proposal or budget unless project is due to unscheduled shutdowns and unforeseen events Program OPEX projects are grouped into 3 clusters. For cluster A, approval of Division VP is needed while for cluster B &C, BPPD review and endorsement or CFO Approval is necessary. All approved program OPEX project is given a unique SIO which has a validity of 1 year hence each SIO budget will expire on the last day of the year. An SIO or statistical internal order number consists of the following characters, the first 2 characters represents the division, the 3rd and 4th the department, next is the section and then the year and project number.   As mentioned earlier, program OPEX projects must always be included in the proposal so it could be approved and assigned a budget, in case of an unplanned program, due to emergency and criticality, it will have to use up budgets for other planned programs or base OPEX. Now let’s classify charges per cost category if they should fall under base, program or capex. For supply, purchase, and replacement of material and supplies here are the following classification per charges. For repair or rehabilitation of an existing asset, here are the classification of charges. For improvements or upgrades of an existing asset and programs requiring third-party services, here are the following classification of charges. The corporate business planning process is broken down to the following steps: First, is the management directions. Example is to maximize crude run and sales thru petron’s different networks. Second is the Environmental scanning – Different planning groups of each division and BPDD are involved in this process. They analyze what external factors will impact on the business and assess industry demand, competitive activities, and infrastructure developments. Third is the Development of Plans and Programs. This involves setting of targets, development, and prioritization, alignment with different divisions, and preparation of resources required. Next is the translation of plans and programs to financial which is the Proposed Budget, this is consolidated by BPDD. Next is the review and approval of capital projects. Once the budget is approved, divisions may request approval to spend through AACE. And lastly, the performance review wherein all divisions review attainment of operating targets and recalibrate programs. BPDD on the other hand performs financial review. The corporate business planning calendar usually starts in June and ends in October. The planning forum and budget briefing take place in June while the presentation of Doc 1, Price Projections, and Volumes and Margins happens in July. Submission of budget exhibits, business plan write-ups, manpower, IT, and safety requirements is in August along with the Mid year business review, Supply plan, and price projections. September is the presentation of Division Business Plan to Mancom and PH Subs board meeting for budget approval.