Recent years have seen both supply and demand fluctuate greatly, making dynamic financial planning a crucial part of a business's success.
FREMONT, CA: The trend toward more dynamic financial planning, which responds to changing conditions instead of a static annual exercise, has been introduced previously. Financial planning processes have become rigid, time-consuming, and unresponsive to the demands of business leaders and chief financial officers (CFOs). Traditionally, firms needed to adapt more quickly to external shocks or reallocate resources due to traditional planning methods.
Financial leaders are experiencing challenges due to brittle planning methods and recent volatility. A recent Bain survey of 240 CFOs reveals that financial planning and analysis (FP&A) remains their top priority.
The market fluctuations in commodities such as oil, steel, and wheat, and intermediate goods such as semiconductor chips, illustrate the increased market uncertainty and volatility. Businesses have become more complicated with new customers, geographical locations, business models, and communication channels. Many companies are adopting more modern working methods, including remote working, cross-functional teams, and agile methodologies. The financial planning process must catch up with these more fluid business conditions.
Finance departments and CFOs strive to be trusted partners of their business units. Finance and accounting teams help senior leaders see around corners while highlighting risks and opportunities within and outside their organization. A business's FP&A department uncovers hidden stories in its financial data to make better decisions.
Financial planning must excel in five areas: accuracy, timeliness, flexibility, innovation, and value. Most CFOs say they need help to achieve these outcomes consistently, with only 13% saying they do.
Planning more dynamically: Streamlining the current planning process, augmenting it with new techniques, or reinventing it are three paths companies can take to make their financial planning more dynamic. Companies should consider taking the third path for lasting benefits rather than the first two.
Process streamlining: Companies can prepare annual budgets or forecasts in three weeks or more. Creating, reconciling, consolidating, and approving their budgets requires multiple cycles. A streamlined approach would reduce planning days, reduce budget cycles, improve work sequencing, and automate where possible.
Implement new techniques to enhance planning: Streamlining is one of many ways to enhance a process. Rolling forecasts can include scenario planning.
Forecasting with AI, specifically machine learning, is an emerging technique. Forecasting accuracy can be improved, allowing the finance team to extract better business insights.
In a global consumer products company, business units took different approaches to revenue forecasting, with hundreds of people involved for half a month. AI enables companies to forecast revenues in a reduced time with 97% accuracy.
Reimagine planning: The fundamental flaws of annual budgeting must be addressed by streamlining or adding new techniques. The planning process is evolving in some companies now.
Some companies use the Beyond Budgeting framework. Beyond budgeting aims to do more than eliminate annual budgets. The business can react quickly to market opportunities or shocks by decentralizing accountability.
Creating truly dynamic financial planning by combining the right processes, talent, and technology allows an organization to respond quickly and confidently to shocks.
