A review of the contenders for the planning crown
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A review of the contenders for the planning crown

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Planning may not, after all, be dead. We know that it is the foundation of corporate strategy. It is the original map drawn up to reach the goals set by the enterprise, the reference document to ensure that progress is made. We also know that it cannot guarantee success in isolation. Agility and flexibility are vital ingredients, alongside a strategic mindset that takes account of the operational environment.

What planning techniques can be harnessed to deliver the detailed roadmap and reference document while enabling an agile response and giving the organization a chance to pivot when the need arises?

There are a handful of contenders.

  • Traditional budgets are still the preferred planning method in most organizations, familiar to everyone and loved and loathed in equal measure.
  • Rolling forecasts have gained traction in the past twenty years or so, an attempt to bring agility into the budgeting mix, but there are drawbacks.
  • Driver-based planning brings a different perspective to the process, breaking down the activities and resources of the enterprise and expressing each element in financial terms as the plan is constructed.

Let’s have a look at each of them.

The contenders

The vast majority of companies are still using traditional budgets, first employed almost two hundred years ago. Budgeting is a vast and complex task that reflects the organization it serves. It can take months to finalize the budget, going through all the internal processes to reach something approximating to a roadmap for the year, three years, five years, or beyond.

The advantage of a budget is its familiarity. Everyone has some understanding of what the budget does and what it means to them, whether it’s their guide to what is expected or the benchmark against which their performance is judged.

Unfortunately for the finance function, the time and effort expended on budgets often detract from the value-added activity and effective business partnering. Budgets still need to be flexed through the year for effective performance management, especially as, after a long preparation cycle in a rapidly changing world, even Month 1 may be out of date when it’s implemented - let alone Month 12 and beyond.

Rolling forecasts evolved to try and solve this problem. The intention was to respond rapidly to a changing environment, to take opportunities as they arose and build them into the plan. The intentions are worthy, but a rolling forecast is in danger of becoming a never-ending budget cycle.

If not properly managed, the finance function’s commitment to constant forecasting can smother its value creation activities. Processes reliant upon traditional budget cycles must also be updated to take account of rolling changes. One of the aspects that can be overlooked is performance management. People need to know on what criteria they are being judged, and regular changes can throw the incentive system into disarray.

The third contender, driver-based forecasting, looks at planning from a whole new angle. The budget cycle is still vital. Performance can still be benchmarked. But the agility that is required can be achieved at a granular level, adjusting for changes in resources and activities. It’s not an easy process to set up, as it requires a thorough understanding of the value-added effect of each driver. It can be counter-intuitive and time-consuming but provides a worthy tool for scenario analysis and agile responsiveness lacking in traditional budgeting or rolling forecasts.

Moving towards a new paradigm

All three of the main contenders for the planning crown have their pros and cons. None are perfect, but each brings something valuable to the table. How can we harness the best of each approach and develop a new paradigm for planning? We’ll look at this in more detail in the next article.

We’d love to know more about your experiences of planning methodologies and the positive aspects you would take forward. Let us know your thoughts.

This was the third article in the series "Planning as we know it is dead". You can read the previous articles in the series below.

Planning as we know it is dead. Long live... WHAT?

A history of planning: How did we get here?

While you await future articles why not read our latest series "FP&A Transformation Talks" below.

FP&A Transformation Talks

FP&A & Strategy - A marriage made in heaven

Setting the FP&A team of the future

What roles do you have on your FP&A team?

The FP&A Transformation Process: A deep dive

The Vital FP&A Transformation Mindset

The secret sauce of FP&A transformation

You can read a lot more articles about FP&A, Business Partnering, and Finance Transformation below. It all start's with “Introducing The Finance Transformation Nine Box” where you set the ambition for your transformation. You should join the Finance Business Partner Forum, which is part of the Business Partnering Institute's online community.

How Finance should use its seat at the table (the last article in a series about the "Unfair Advantage" of Finance)

The ultimate guide to decision-making for finance professionals (the last article in a series about the decision-making process and how Finance should impact it).

The Mindset Change Checklist For Finance Professionals (the last article in a series about the mindset change that finance and accounting professionals should make to become business partners)

It's Time To Decide If You Want To Be A Business Partner (the last article in a series about the personality traits of business partners)

All Successful Business Partners Are "Leaders" (the last article in the series about our new capability model)

Should We Keep Talking About Business Partnering? (part of a 17-article series where we deep-dive on the WHY, WHAT, and HOW of business partnering by putting it on a formula)

Your Journey To Successful Business Partnering Explained

How To Create Value Through Business Partnering

Everyone Can Adopt A Business Partnering Mindset (part of a six-article series about FP&A Business Partnering)

From Business Partner To Working Within The Business (part of an article series where I interview finance professionals about their careers in FP&A and Business Partnering)

Is Your Product Optimized For Value Creation? (part of a toolbox series where we look at what tools FP&A professionals should leverage to drive value creation)

How Business Partners Turn Analysis To Insight (part of case study series where I interview business partners about how they drive value creation using real cases)

The Future Of FP&A: Two Ways To Take The Reins

What Is The Accounting Profession Paradox?

What Defines A Finance Master?

The New Career Path For Finance Professionals

How Finance People Can Be More Successful

The CFOs Roadmap To Transforming Finance

How To Become A Finance Business Partner

Financial Analyst vs. Finance Business Partner

Finance Business Partner Is A Bullshit Job

How Business Partners Keep A Plan On Track

Anders Liu-Lindberg is the co-founder and a partner at the Business Partnering Institute and owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 10,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner” and a long-time Finance Blogger on LinkedIn with 70,000+ followers and 150,000+ subscribers to my blog. I am also an advisory board member at Born Capital where I help identify and grow the next big thing in #CFOTech. 

Leonard Brown

Helping Finance Managers of ‘busy’ SMEs improve profits | Turnaround 'busy' loss-makers | Improve profits of the already profitable | A proven step-by-step process | 90-day projects | Training & Coaching throughout |

2y

It can be difficult to move Management Teams away from Annual Budgeting. I can remember, on one occasion, giving a presentation called "Make our last Budget our LAST Budget. to the Management Team of a division of a large corporate. The idea it put-forward was to move from Annual Budgeting to Quarterly Rolling Forecasts. It got many appreciative 'nods' - but after (not a lot of) consideration - 'No change'. 👎

Christian Wattig

Director Wharton FP&A Certificate Program | Corporate FP&A Trainer | ex. P&G, Unilever, Squarespace | 100k Finance Audience

2y

A framework that has served me well in the past when I had to decide which large project to undertake is this: „Would there be any advantages to me or to the company if the project fails to achieve it‘s main objectives?“ In the case of planning, the main objectives are linking strategies with concrete action plans and producing a P&L that can serve as a valid benchmark to measure performance against. So, set up the planning process in a way that even if it doesn’t fully achieve these objectives you are still benefiting. For example, you create scenarios that allow for faster decision making, build your understanding of critical business drivers, or review if any strategies need to be adjusted or scrapped. Great food for thought, thanks for sharing Anders!

Tejas Parikh (ACMA, MBA)

Finance Transformation Specialist | Delivering Finance Digitalisation: Efficiency & Effectiveness Improved +100% | Business Intelligence & Budgeting / Forecasting Technology | FP&A Thought Leader🌟 See recommendations⬇️

2y

Planning should not die! Failing to plan is planning to fail! It may evolve in to something more hybrid but not die for sure! 😊

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