Financial planning is a key process in any successful business. Yet many struggle to effectively budget and plan for their future. The problem is that planning is often conducted in silos within a static environment that does not allow finance executives to anticipate and respond to changes in business conditions. Traditional planning processes are ineffective and disconnected and hinder executives from effectively impacting business decisions. In recent years, this problem has been compounded by increased regulations, unresolved economic hardship, and a move towards corporate globalization.
However, with budgets shrinking, financial planning has become more important than ever. And finance executives are being asked to step up to the plate in terms of addressing these inefficiencies.
“It’s an exciting time in finance, because our role in [business] is evolving,” said Kelly Battles, CFO, Host Analytics, a software provider to the finance industry, during a recent CFO Magazine webcast—Unlocking the Value of Dynamic Financial Planning. “It’s my belief that today finance is being asked, and really showing up in being a true business partner.”
The key to executives effectively transitioning into this role, Battles believes, depends on three things—people, processes and infrastructure—in that order.
She believes that for an organization to effectively implement a new infrastructure to streamline the planning process, it must first have the right mix of people on the job, and then must think dynamically and holistically about “information as a process.” Then, and only then, will adopting decision support technologies such as Enterprise Resource Planning (ERP) and Corporate Performance Management (CPM) tools help move finance executives towards being true partners in the business.
8 Best Practices for Budgeting and Planning
While ensuring that an organization’s people, processes and infrastructure are in place will improve financial planning, that is not all it takes. Battles believes that there are eight themes that should be employed in every finance department to ensure organizations are conducting budgeting and planning at optimum levels.
- Make technology work for the organization
“I love [Microsoft] Excel, but in budgeting and planning it only goes so far. There are applications out there now that help you get this right. And if you buy into these themes as being important and you look into these applications, you need to make sure before you purchase an application to do budgeting and planning that they will help enable some of these other best practices themes,” she said.
- Employ a rolling forecast to enable dynamic planning and increased visibility
With limited visibility and minimal value, monolithic plans are a thing of the past. Instead, forecasts should be updated and extended at the close of each period or quarter to provide consistent and clear visibility into the future. Doing so will also provide a real time view of performance and how one fiscal period impacts the next.
- Utilize initiatives planning for transformational decision support
Simply put, initiatives planning addresses and understands the impact that new business initiatives (i.e. purchasing a manufacturing facility) will have on the budget and overall business.
“Typical extrapolating budgets are more about running and growing” your business, said Battles. “Where you start understanding the impact of decisions and how they transform your business is when you can integrate in your budgets and in your plans true discreet initiatives planning.”
- Make time for scenario modeling
While all finance executives understand that planning for “what if” scenarios is something that should be done, few are intentional in making the time to model these plans. However, doing so is critical. By thinking dynamically about these situations and understanding their impact on business, executives will be ready to act on a dime if and when the time comes—removing “fire drill” situations and enabling organizations to focus on growth.
- Address strategy and execution from every angle
“As you approach budgeting and planning, you’ve got to think big picture strategically. You have to plan from a top-down point of view as well as a bottom-up point of view and you have to make sure those things meet in the middle,” said Battles.
Information such as growth projections and customer count should be used in the planning process to build out bottoms-up plans. By addressing these drivers in the planning process, planning and execution will converge to drive greater results.
- Move towards budget that address operational drivers and key performance indicators (KPIs)
To accomplish this, finance teams should work with financial stakeholders to understand how they think through their goals, performance, drivers and metrics and then take that understanding with them as they build their budgets. Whereas financials and financial statements are lagging indicators, providing only results, drivers and KPIs are leading indicators that provide insight into the future.
- Focus on is providing information to management through higher-quality, real-time reporting
While all of these themes are strong in and of themselves, they will mean very little unless management can view and understand the intelligence they provide.
“Make sure that you’re not only coming to good solid budgets on a real-time basis and you’re keeping those updated with what you learn about the business. But you’re also making sure that great wealth of information lands back in the hands of the executives on a real-time basis so that they can also focus on what they’re going to do about it,” said Battles.
- Take the time to establish driver-based long range plans (LRPs)
This should move beyond the typical LRP that focuses only on extrapolations. Instead, executives should address they key drivers in each functional area and then benchmark where these should be over time. From there, financial plans can be built out based on those drivers. By thinking long term, executives will also have a context to understand the choice points they face, their response to these points, and the impact these decisions will likely make.
Bringing Best Practices to Life
Employing all of these themes may seem overwhelming. However, the good news is that technology does exist that can streamline these processes, and the benefits from integrating these technologies into everyday practices are numerous.
One such technology is Host Analytics’ CPM tool designed specifically to address these budgeting needs. By utilizing their technology, and ensuring that the right people, processes and infrastructure were in place, Host Analytics was able to reduce their close and disclose process by 60 percent.
“On roughly a 20-day business cycle, to get six days back consistently is incredible for your team. What does that mean? It means they’re spending less time on the mechanics and more time on the value-add—the dynamic planning, the forecasting, or understanding the variances and what they mean for the business—less time on cutting and pasting,” said Battles. “What does it mean for your stakeholders? It means they get information materially faster and a higher-quality output, so they can do something about it. They can invest more, they can cut back—whatever the results show that they need to be doing.”
At a time when budgets do not seem to be increasing, these time-saving tools and the information they provide are more valuable than ever.
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