The planning process — planning, budgeting, forecasting, and analysis — presents a formidable challenge to many companies, regardless of size or industry. Planning is a crucial component of financial performance management (FPM), and it can contribute greatly to a company’s overall success or failure, especially in times of volatility.
When planning is dynamic and based on input from across the enterprise, it offers enormous opportunities to drive process efficiency and business insight. A well-integrated, dynamic planning and forecasting “nervous system,” aligned with operations, enables management to engage in aggressive, creative activity, to develop intelligent contingency plans, and to adjust resource reallocations to meet changing business conditions.
Such a dynamic planning process must leverage leading-edge tools and technology, in order to support accepted best practices, enhance timeliness, increase information reliability, and encourage participation by key people throughout the organization. A best-practice approach requires that planners employ ten key strategies and tactics:
Align strategic and operating plans. To engage department managers in the planning process, finance professionals must clearly communicate corporate strategic plans and the reasoning behind those plans to those who run the business.
Start at the top — and at the bottom. Senior management provides a top-down perspective on strategic goals, objectives, and expectations. Employees and line-of-business managers build a plan from the bottom up, indicating how they intend to meet the established goals.
Model business drivers. Importing and manipulating past actuals does not reflect underlying operational causes and financial effects in a business. Building driver-based models into plans ensures consistency across functions and promotes planning coordination among functions.
Drive collaboration between functions. Line-of-business managers must be directly involved in a collaborative approach to planning and forecasting. In addition to understanding strategic goals, department managers must know what other departments are planning.
Continuous forecasting. Multiple market pressures mean that forecasts may need to be updated monthly or even bi-weekly. Continuous forecasting helps managers answer questions such as “How are we doing against our plan?” and “How should we adapt our plans going forward?”
Rolling forecasts. Planning should be an ongoing process, with frequent opportunities for managers to view the company’s latest internal and external performance data. Contributors should be able to test new plans or alter existing plans based on new information.
Manage content you can act on — reduce what you can’t. More detail does not necessarily make a better plan. Managing material content requires attention to information that has real and significant impact on expenses, revenues, capital, or cash flow.
Timeliness and reliability. Technology-enabled planning is less costly and produces more accurate results than the processes followed by many companies today. At a strategic level, timely and reliable financial plans provide more credible guidance to stakeholders and enable faster, better-informed business decisions.
Best-practices templates. Templates enable planners to build models faster and establish dynamic connections that keep strategic objectives, operational plans, people, and initiatives in sync as business conditions change.
Technology supports best practices. The limits of spreadsheet-based planning are well known. Solutions that address the full cycle of planning processes – analytics, modeling, contributing and reporting – put the enterprise on a common planning platform.
In conclusion, a successful planning process requires the orchestration of technology, business processes, and best practices. By matching a company’s planning process to established best practices, facilitated by a proper planning solution, an organization can significantly improve its financial and operational performance. The ultimate results are improved visibility to performance gaps and alternative courses of action, more reliable forecasts, and shared commitment to achievable goals.
For more information about dynamic planning, visit IBM’s Financial Performance Management center.