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Finance

Continuous Planning: The New “Must Have” In Finance

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By Dafydd Llewellyn, EMEA GM, insightsoftware

Finance teams have always been integral in developing the short and long-term trajectories for businesses. Financial plans are used to drive strategic decisions for businesses – from M&A options to annual bonus allocations for employees. The traditional approach to financial planning typically involves an annual planning cycle performed by a dedicated team which manually obtains data from around the organisation, then models growth using top-down assumptions.

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But, COVID-19 happened.

The COVID-19 pandemic has shown, in a dramatic fashion, how the levels of uncertainty and volatility can change overnight, making previous financial forecasts obsolete. In addition, businesses face a whole host of other global and local challenges – from macroeconomic events such as Brexit to local supplier shortages.

With world events changing hour-by-hour, financial planning needs to be agile, and businesses need to adopt a continuous planning model.

What is continuous planning?

In its essence, continuous planning is a rolling business plan which is kept up to date with real-time information either from data within the business, external data, or a mixture of both.  It uses technology to allow rapid planning cycles to enable businesses to respond quickly to events, rather than being tied to inflexible annual or semi-annual plans. Continuous planning allows management teams to model and test the impact of internal and external factors on critical KPI metrics at any time. It also allows finance teams to focus on analysis and scenario forecasting, rather than manually gathering data, so they can make informed decisions about the future to drive better business outcomes.

Increasingly, scenario planning is being supported by automated technologies, artificial intelligence, and machine learning to help understand the relationship between different sets of data.

 What if?

COVID-19, and the resulting lockdowns, demonstrated the benefit to businesses of real-time scenario planning. For example, at the start of the pandemic, supermarkets faced a number of questions. Will customers stockpile certain foods? Will they want to avoid shopping? How long will the lockdown last? Do we need to adjust staffing levels?

Clearly it was impossible to know the answers to these questions, but a continuous planning model would allow for forecasts to be adjusted in real-time and updated as more information on shopping habits became available. With the ability to see the impact on business forecasts, management can make more informed decisions on costs and restructuring or take advantage of other market opportunities.

Successfully implementing a continuous planning model

Like all transformational change, adopting a continuous planning model will involve the entire business and can be a complex process. To get the most from an investment in continuous planning, businesses should consider the following:

  1. Understand your operating model

Continuous planning involves understanding the key drivers of the business, which can subsequently be modelled and automated. A deep understanding of business drivers requires a business-wide approach incorporating the views from Finance, Sales, Marketing, and Operations. The key to understanding the drivers of the business is to extend the planning process to those on the frontline, in addition to the finance team, getting first-hand inputs from those in the field.

  1. Prioritise the important data

Businesses now have more data than ever before, and this level of data will only increase in the future. However, data, and its interactions with the different systems inside a business, needs to be understood then linked to the drivers of the business.

  1. Tell the right data story

Linked to understanding the key drivers and data of the business is determining how the business will be monitored by the executive management team. What are the metrics of success, and should these be monitored on a daily, weekly, or monthly basis? There needs to be a clear set of KPI’s that are used to measure business performance so that one planning scenario can be compared to another. Crucially, these business leaders may not come from a finance background and so will need to grasp the data story easily. Getting the right KPI and visualisation dashboards in place will support this need.

  1. Find the right technology partner

Finding the right technology partner will vary business to business and will be dependent on existing skills, the number of systems in use, and the fragmentation and complexity of data. Finance teams will need to embrace advancing technologies, particularly in relation to automation, predictive analytics, and data visualisation. Keeping data in siloed models in Excel is not the answer anymore – finance teams must adopt more automated solutions to do the heavy lifting for them.

  1. Consider whether the finance team requires additional skills

The finance team needs to possess a detailed understanding of the financial drivers of the business and the ultimate KPI metrics used to manage the business. However, the finance team of the future will also need to be scenario planners, strategists, and data scientists. These skills are needed to model potential scenarios using increasing volumes of data from internal and external sources. Introducing data analysts and data scientists to support the team is a must.

2021 and beyond

Pre-COVID, many businesses may have thought they were not mature enough to require a new approach to planning. However, the last 12 months have shown the need for businesses of all sizes to be agile so they can respond to global challenges, or conversely take advantage of opportunities. The ability to model the answer to “what happens if we source materials from Brazil?” or “what happens if we increase the marketing budget in Europe?” provides businesses that adopt a continuous planning model with a strategic advantage over competitors. Successful continuous planning requires a strong understanding of business drivers, key dataflows, and collaboration across the organisation.

And that’s why a continuous planning system that reaches into the wider business is the new “must have” in finance.

 

Global Banking & Finance Review

 

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