How to move from “static” planning to “active” planning

The days when finance professionals only  tracked past performance and explained the outcomes are long long gone.

Constant economic volatility, disruptive technologies, and increasing competition has left companies struggling to quickly respond to market pressures and opportunities. At the same time, the volume and complexity of financial data continues to grow exponentially. So you as a finance professional are not just tasked with managing more information—you’re also increasingly asked for operational and strategic insight.

Which is, we guess, how you want it to be…if you have the time and tools to deliver. But that can be a big “if”.

These demands mean that collecting data in, and creating reports from, spreadsheets is becoming increasingly untenable. Why? Because the collection process becomes errors prone and labour intensive and reports are simply not dynamic enough, are tough to translate to actionable goals, and lack a single point of view. And this is why so many CFOs say they can’t focus on strategic priorities.

This traditional “static” approach to planning is well understood and has thus, in many cases, become low-risk for many campanies and thus transitioning to a modern, “active” planning  process can seem both daunting and risky.  But the benefits are countless – and risk can be minimal.

So to get you started on considering “active” planning, we have collated four specific best practices that high-performing FP&A teams have implemented.

1. Institute a continual planning process—and the correct software

If you want your business to join the league of elite companies, you need to move away from semi-annual or even a quarterly forecasting, and instead do it all the time. These firms evaluate their model and look at projections as frequently as weekly, and then go into further detail on a quarterly basis. These rolling forecasts allow FP&A teams to provide almost real-time insights that C-suite executives crave. Additionally, it prevents the guessing game that results from once-a-year planning.

Constantly updating forecasts cannot be executed in spreadsheets and still be cost -effective. – or even timely. Rather, it requires innovative software that enables team members to immediately adjust their model based changes in the business.

2. Stay in constant contact with business units

Beyond utilising powerful software to make their lives easier, top finance teams also encourage collaboration between departments by deploying a decentralised team. This way, FP&A representatives attend stake-holder meetings and will constantly stay up-to-date, which is invaluable when working in a high-growth, rapidly changing .

3. Work backward

The basic principles of good time management go a long way toward avoiding those dreaded all-nighters. High-performing FP&A teams start by identifying dates and, working backwards, plan to ensure their budgets are built in time to avoid last-minute deadline drama. This encourages team members to schedule meetings far in advance of deadlines, which plots sufficient time to meet with their boards and executive teams to fine-tune their forecasts. Proper planning also allows time for building in scenario and what-if planning.

Often these teams meet with their boards in the third quarter. This review ensures that everything from the balance sheet to the P&L statement looks correct for the next 12 to 18 months, minimising any unexpected surprises.

After meeting, the teams can compare their own “business as usual” forecast to the feedback and guidance it receives from the board on next year’s bookings, profitability, etc. From there, the teams meet with executive management to receive priorities, which get layered on top of the information from the board. For example, if management provides a new strategic initiative that requires incremental investment, the finance group can look at the board’s information to determine where that money can come from.

Doing this early leaves a three- to- six-month buffer that can be dedicated to improving guidance before receiving budget approval.

4. Focus on drivers, not details

Staying in close contact with the business you support is critical. However, it’s also important not to burden your business partners with an overflow of data. Their primary job is to run the business, not to answer endless questions from finance. A clever way to nail the right communication balance is to create quality forecasts that focus on business drivers that are important and relevant to the goals of the organisation—think profit, risk, working capital—without digging into nitty-gritty details.

Technology has increased access to non-financial benchmarks, allowing FP&A groups to have far more KPIs to measure. In fact, according to the Adaptive Insights CFO Indicator Report, 76% of CFOs said their teams are tracking non-financial KPIs, rather than merely relying on balance sheets and income statements. These KPIs are incredibly useful, but it’s important to note that by having too many, it can become confusing for employees to understand the specific direction of the business.

Choosing the drivers will depend on the business. Some—like R&D or general and administrative expenses—are fairly common. However, more specific areas such as the finance team at a software-as-a-service company, should also take a look at sales and marketing efficiency, as well as lag time in revenue recognition.

To learn more about active planning, Schedule a personalised demo to see how Clear Plan can help your business