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Planning Done Right

Jul. 19 2017 by Alessio Lolli, Vice President and General Manager - CCH Tagetik North America

Budgeting & Planning Strategic Planning

Most customers we interact with have very similar answers when asked about their planning process: 95% of the discussion around their planning requirements is actually around the annual P&L budget.

In a previous post, I have already discussed the importance of shifting to a rolling forecast approach when it comes to planning, thereby making the annual budget part of a continuous operational review. In this post, I want to examine what the word "planning” actually comprises.

Planning can be analyzed according to three main perspectives:

  1. Time Horizon: A proper planning process starts first with the definition of a long-range plan (LRP) or strategic plan to set annual targets for the upcoming three to five years, usually at a very aggregated level. The LRP then gets further detailed out with the annual budget, which is typically a very granular and intense approach at a monthly or even weekly level and builds up to the targets defined in the first year of the strategic plan. Since the annual budget is basically outdated the moment it's completed, a monthly re-forecasting process is highly recommended to incorporate the latest changes, usually at a level of granularity somewhere in between the long-range and annual budgeting plans.
  2. Breadth of Reach: Profit and loss planning is a common practice in any organization of any size and industry. However revenue and expenses are only two components of the economic value added (EVA) measurement of a company's financial performance. Translating the projected P&L into a projected balance sheet first and a projected cash flow next are vital exercises to assess and project the wellbeing of any organization. Especially focusing on the often-forgotten balance sheet will unveil important insights on your projected working capital, which is as important as cash!
  3. Functional Coverage: The nomenclature around “planning” has evolved over the years. "Financial planning” later extended to "operational planning," to finally becoming the "integrated planning" we hear much about today. However you want to label it, the planning process needs to "integrate" across multiple functions of the organization to maximize financial performance. Reach out to your marketing team or your supply and demand department to integrate their detailed plans into your overall financial plan.

It sounds great on paper, does it not? But I am sure you are questioning how this approach might adapt to your specific organization. How realistic is it to change entrenched processes in your organization? Do the benefits outweigh any extra work? Is this all too much for your short-staffed FP&A team?

All are valid concerns. Certainly, change management is the biggest struggle you’ll have to overcome to make such a transition and get buy-in into the vision. But by gradually exploring the areas above, your users and your organization as a whole will enjoy the benefits of a holistic approach to planning.

Are you ready to give it a try?

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