a cfo’s guide to continuous planning€¦ · 6 i a cfo’s guide to continuous planning cfos need...

A CFO’s GUIDE TOCONTINUOUS PLANNING

2 I A CFO’s GUIDE TO CONTINUOUS PLANNING

INTRODUCTIONToday’s chief financial officers must contend with constantly shifting conditions that create uncertainty for their business planning, budgeting, and forecasting.

Not only are geopolitical forces creating rapid and often unpredictable changes, but digital transformations and new competitors are upending whole sectors. Often, companies survive only by remaking their entire business models. Continuous planning, or the ability to adjust business plans in response to real-time changes, allows CFOs and their companies to combat uncertainty and boost the accuracy of their planning while building company-wide confidence in the planning process. But research shows that CFOs need more than continuous planning. Rolling forecasts, non-financial data, and, most importantly, a unified cloud platform are the keys to effective planning, budgeting and forecasting for successful organizations.


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THE ENEMY: UNCERTAINTYCFOs now need continuous planning more than ever, to combat uncertainty and to more confidently predict future performance.

Uncertainties that throw a wrench into business plans are growing in number, and they’re arriving from several different directions. Many companies are encountering economic uncertainty, especially as economies grow more interconnected globally and as geopolitical forces exert greater influence. Digital evolutions are rapidly forcing changes to how and why companies make money, throwing into doubt whether the traditional markets for those companies will even exist in the future. And companies are evolving quickly to adapt, changing business models and putting stress on CFOs and their finance teams to chart the new financial paths to the future.


CFOs AND THEIR FINANCE TEAMS ARE CONCLUDING THAT TRADITIONAL BUDGETING AND FORECASTING, BASED ON REVISING THE ANNUAL BUDGET TWO TIMES A YEAR, IS NO LONGER EFFECTIVE.

With this newfound uncertainty, CFOs are finding it more and more difficult to look beyond a six-month horizon. Companies are raising concerns over the accuracy and integrity of business plans. CFOs and their finance teams are concluding that traditional budgeting and forecasting, based on revising the annual budget two times a year, is no longer effective.

Continuous planning offers several benefits. Under a continuous planning approach, companies make real-time changes to their business plans as necessary and take on the ability to adjust their plans, forecasts, and budgets almost immediately. Companies with continuous planning are four times more likely to respond more quickly to market change than companies without, according to a recent FSN survey of nearly 1,000 senior finance and financial planning and analysis leaders. The FSN report, “The Future of Planning, Budgeting and Forecasting,” showed that companies that adopt continuous planning are almost twice as likely to forecast earnings within plus-or-minus 5 percent than those that don’t adopt continuous planning.

The continuous planning approach also builds confidence in the plans that it generates. Finance functions that have adopted a culture of continuous planning are three times more likely to report that other business functions have more confidence in the process, according the FSN research. For some sectors that are rapidly evolving, such as retail or financial services, continuous planning can mean daily changes.



CONTINUOUS PLANNING ISN’T ENOUGH But continuous planning on its own is not enough to combat uncertainty. The more frequent forecasts that a company generates with continuous planning produce short-term benefits, but they don’t guarantee better visibility into the future, the FSN research shows. That’s because in many cases, businesses are simply repeating poorly executed processes and building on budgets that are already out of date.


CFOs need to focus on three key areas to help combat uncertainty: moving to rolling forecasts, incorporating non-financial data into their planning and forecasting, and adopting a unified cloud platform for analytics, planning, and transactions.

Unlike traditional forecasts and re-forecasting, rolling forecasts allow CFOs to continuously update business plans or budgets. Rolling forecasts typically look forward 12 months from the current date, though some extend to six quarters. Traditional re-forecasts are updated quarterly and typically look forward only to the end of the fiscal year—nine months with the first update, then six months, then three. With rolling forecasts, companies can project their future results based on their actual year-to-date financial results and original budget figures, or on updated revenue and future-period expense forecasts.

Implementing rolling forecasts isn’t easy, and CFOs need to encourage and lead a cultural shift within their finance teams. Also, the changeover should engage stakeholders from the customer-focused parts of the company who can offer a broader perspective than the finance team members can.


According to the FSN “Future of Planning, Budgeting and Forecasting” report, organizations that implement a continuous planning process are nearly twice as likely to engage more stakeholders in their planning. Also, the improved visibility from continuous planning means that companies are three times more likely to report that their business as a whole is more confident in the planning process.

Incorporating non-financial data into planning and forecasting is a step that is supported by best practices. Successful companies and their CFOs have demonstrated that bringing non-financial data into the process helps to extend their planning and forecasting horizons, looking beyond the short-term view. The volume and variety of non-financial data is exploding, thanks to today’s advanced data collection and advances in digital technologies. With non-financial indicators—which can include web analytics, customer satisfaction surveys, and supply chain information—CFOs can reduce uncertainty in their forecasting. The FSN research shows that with the added granularity of non-financial data, continuous planners are nearly twice as likely to agree that they can now produce much larger and more complex models, providing better visibility for all users involved in the planning process. The FSN report also shows that senior executives who make better use of non-financial data as part of their planning are more than twice as likely to be able to forecast beyond 12 months.

WITH NON-FINANCIAL INDICATORS—WHICH CAN INCLUDE WEB ANALYTICS, CUSTOMER SATISFACTION SURVEYS, AND SUPPLY CHAIN INFORMATION—CFOS CAN REDUCE UNCERTAINTY IN THEIR FORECASTING.



CLOUD IS THE KEY Adopting a unified cloud platform is the lynchpin for CFOs to combat uncertainty in their planning. Companies that under-invest in technology, and that don’t unify their analytics, planning, and transactions in the cloud, cannot take full advantage of the benefits of rolling forecasts and continuous planning.

FSN research shows that only 15.5 percent of the senior finance and financial planning and analysis leaders surveyed are capable of updating their forecasting within 24 hours, and another 39 percent take up to a week. That means, combined, about 55 percent are unable to respond rapidly to change. Their main problem is that their planning relies on scattered data sources, such as disconnected spreadsheets, multiple data models, and disparate solutions for reporting, budgeting, and planning and forecasting.


Historically, finance and workforce planning are housed in multiple systems and silos, typically in spreadsheets. Spreadsheets require finance, human resources, and business unit leaders to invest their time in manual calculations to ensure data integrity, which detracts from their attention on analysis and driving business outcomes. When companies rely on spreadsheets, their ability to execute rapid-cycle, agile planning and forecasting is severely restricted. Their limitations are also compounded by the disconnect between budgeting systems and the underlying financial transactions the budgets are derived from.

The solution is to derive financial and operational data from granular transaction data, and then combine it into a single planning and analytics environment. This allows financial planning and analysis professionals to model the business and obtain real-time transaction data from a single system. Another benefit of this approach is that the resulting budgets and projections created from the single system are seamlessly written back to the transactional system for operational and management reporting.

The unified environment also creates organizational advantages. While companies have traditionally built plans, budgets, and forecasts along functional lines, the reality is that business processes don’t respect functional boundaries. Plans in one area need to be consistent with projections in other areas so that resources are allocated efficiently, and to avoid unforeseen consequences. In taking a lock-step planning strategy, the CFO understands the importance of these inter-relationships and provides the technologies that allow for collaboration during the planning cycle from all different functional areas, such as operations, HR, and business units. When budgeting and planning is contained in the same technology stack and dataset as financials and the other functional areas of a company, it enables cross-functional planning. It also reduces costs, decreases reaction time, and allows for smarter decision-making. Planning can occur in real-time with data that is trusted by the entire organization.

WHEN COMPANIES RELY ON SPREADSHEETS, THEIR ABILITY TO EXECUTE RAPID-CYCLE, AGILE PLANNING AND FORECASTING IS SEVERELY RESTRICTED.


CONCLUSIONThe challenge to companies from unpredictable economic, geopolitical, and technological forces is extreme, and CFOs are hard-pressed to produce effective and accurate financial plans, budgets, and forecasts in the face of that uncertainty.

Continuous planning, and the culture that CFOs need to foster to implement continuous planning, is a step in the right direction. But CFOs need to complement and amplify continuous planning with rolling forecasts, non-financial data, and a unified cloud platform that brings it all together.

As with continuous planning, breaking down the silos created by spreadsheet fiefdoms requires cultural leadership from the CFO, and the change often isn’t easy. But research shows that the benefits of creating a single planning and analytics environment are great, including organizational advantages, trusted plans, consistent projections, cross-company collaboration in planning, faster responses to change, and smarter decisions. Companies that can adopt these changes to combat uncertainty in their planning will become more agile and capable of thriving in changing environments.

a cfo’s guide to continuous planning€¦ · 6 i a cfo’s guide to continuous planning cfos need...

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