Here we are, me and my team of financial analysts, working late at the office in preparation for the annual budget discussion. We’re putting together a deck of slides (currently working on slide 87) that explain all our revenues and costs down to the tiniest level of detail, just in case the General Manager has questions. We’re still waiting for 23 more slides from the Treasury Department on cash development, and the Marketing Team is working on their pack in parallel. I can’t help but wonder whether this is actually time well spent, and how exactly all these man-hours bring value to the business.
Financial planning & analysis (FP&A) is something that most companies do, isn’t it? The owners want to set the right expectations, managers need targets and spending limits set within the annual budget. The finance people need a baseline to compare actuals against, and the Treasury Department needs to ensure that the cash is there to pay the bills. So everyone is going to use this annual plan that we’re cooking up at the moment. Or are they, really? I have a worrying feeling that, with things changing as fast as they have been in the past couple of years, our budget assumptions are already old news and we will have to start re-calculating our numbers before the first deck of slides has even been finally approved by the Board. So why bother at all?
Indeed, the business environment has become extremely volatile (a VUCA world is deteriorating into BANI — brittle, anxious, nonlinear and incomprehensible) and the old ways of financial planning, looking to produce an all-encompassing, super-detailed, set-in-stone target book now seem inefficient and even impossible to stick to. So what do we finance people do now? Seems like we have no other choice than to follow Darwin’s advice: adapt or disappear. We need to remember what financial planning should be giving us, and it’s something that’s ever so critical in the unstable world: integrated business communication. It is not about THE EBIT number, but about what the drivers of our results are, what risks can obstruct our way, and what options we as businesspeople have to mitigate the risks and still deliver what owners expect from us.
Creating a truly useful financial plan now is about putting the key business functions together in a constructive discussion about scenarios, decisions to be made (by whom, and when), and options to be developed. It’s about creating transparency for the stakeholder, about allocating responsibility together with authority, about setting and monitoring key performance objectives. That’s what’s known as integrated business planning (IBP), or Connected Planning.
But you still need a process, system, and technology behind the concept, especially in complex multi-unit businesses. Luckily, there are system approaches and expert methodologies available that can help companies transform their processes of financial planning so that they really add value and truly partner the business.
So, who needs financial planning? I would say: all businesses that want to have (A) a shared set of objectives, (B) an agreed framework for decision-making with clear responsibility for financial deliverables, and (C) continuous monitoring of risks and opportunities, with relevant actions taken. These outputs are what you should ask for from a useful and well-designed financial planning process.
The author is a leading expert in financial and performance management, a Project Supervisor and Business Consultant, and the former Supply Chain Finance Director for Central and Eastern Europe in a global FMCG company.