Business Planning & Analysis Is the Next Generation of Financial Planning

Most commonly, answers lean toward “not yet” or “not quite.” While a small but growing group of finance organizations have achieved next-generation cross-functional planning, the need for greater agility and increased collaboration across companies has never been greater.

Sophisticated financial systems, analytical applications and access to even greater data sources are foundational to next-generation business and financial planning. The predictive insights that finance teams have generated from these tools (and the internal and external data sources they access) have helped expand the CFO’s strategic contributions and role in recent years. Leading finance organizations have the ability to operate as proactive sources of forward-looking financial and business insights. Other equally important enablers of next-generation planning are more procedural in nature, including scenario planning, collective determination of key performance indicators (KPIs) and more dynamic forecasting. Responsibility for developing and strengthening these enablers falls squarely on CFOs and financial planning & analysis (FP&A) teams, however cross-functional business partners also play a critical role.

Finance leaders are on the clock to establish and bolster these building blocks and secure adequate coordination across the organization. However, their current planning proficiency requires more than a moment of self-assessment. Improvements to essential capabilities often need to be implemented “mid-flight,” as the need for financial insights that drive organizational resilience and strategic agility intensifies with each successive disruptive event.

Why business and financial planning requires an upgrade

The demand for more frequent financial forecasts and enhanced analytics increased as a result of key disruptive events, including the global pandemic, market volatility, supply chain challenges, inflation and rising interest rates. This also could be important when companies are undergoing mergers and acquisitions or dispositions. The impact of these events, coupled with the current labor market and talent challenges, has intensified the concerns many CFOs have in their teams’ abilities to support and drive critical business decisions. Business partners continue to have an even greater need for more astute and frequent strategic insights from their finance partners to be able to anticipate and quantify risks and opportunities so that proactive action plans may be developed. Finance organizations that lack the structure, applicable data, and requisite business acumen and analytical capabilities struggle to help business leaders navigate such uncertainty.

So, what should finance leaders focus on to strengthen their capabilities to achieve the next generation of financial planning?

Next-generation enablers

The next generation of financial planning is business planning & analysis (BP&A). BP&A is an enterprisewide collaborative effort to develop meaningful strategic, analytical and financial insights to drive critical business decisions in an agile environment. It is a bit of a mouthful; however, the building blocks of successful BP&A functions are straightforward in nature.

• Upskill and attract the right talent. The CFO’s talent management role is increasingly twofold. From a finance perspective, CFOs must design innovative ways to blend their upskilling approaches and retention activities of existing teams, alongside sourcing new talent to augment gaps in ability to efficiently analyze data and leverage strength in business acumen to strategize with business partners. Doing so helps ensure that they maintain access to the skills required to proactively produce strategic business and financial insights to help guide business decisions. At the same time, CEOs and chief human resource officers (CHROs) are calling on finance leaders’ unique expertise, data-driven insights and risk-management mindset to strengthen the enterprise’s overarching capabilities. CFOs and finance leaders need to apply the relational side of their skill sets to stimulate the cross-functional information-sharing and alignment that next-generation planning requires.
• Include business partners in financial planning processes. Including cross-functional business partners in financial planning processes provides CFOs prime opportunities to connect the dots while translating and quantifying how various risks and resulting actions can affect different parts of the business. The increasingly interconnected nature of external challenges and strategic responses (along with their cascading implications on different parts of the business) requires finance leaders to translate financial risks into business terms and tradeoffs that organizational leaders can understand and act upon. For example, rising interest rates mean higher debt-servicing costs, which could result in a business decision around capital investments. Knee-jerk cost reduction decisions, including those related to staffing, can impede longer-term value generation.
• Invest in technology. Financial planning and business intelligence tools and platforms can greatly reduce the time required to conduct planning, budgeting and forecasting activities. Such tools also enable more timely scenario planning, an activity that is necessary to navigate uncertainty in the short and long term. Many finance organizations have become accustomed to focusing on the task-related work due to an overreliance on the use of spreadsheets; however, technology can unlock automation capabilities, freeing up finance teams to invest more time, partnerships and creativity in performing higher-value analyses and predictive planning.
• Champion a data-driven mindset. Data sourced from a growing body of sources are the lifeblood of next-generation financial planning. Organizations should look beyond their own internal sources and incorporate more external data points into their analyses. However, more data does not always mean better data – organizations should strive to instill a culture of data governance to ensure the integrity of data used to inform key business decisions is complete, accurate and relevant. Data, combined with advanced technology and analytically skilled professionals, provide the ability to produce more robust and insightful analyses and allow leadership to remain focused on KPIs and key business indicators (KBIs) that monitor a broader collection of factors (e.g., productivity, engagement and workforce quality) affecting business performance.

Business planning & analysis sees trees and the forest

As finance groups implement and continually refine those foundational enablers, they should avoid missteps that can degrade planning and forecasting activities. For example, rather than going through the motions when performing routine financial forecasts, finance teams should clearly identify the purpose of the activity. If the goal of the planning activity is to drive more proactive business decision-making regarding cost optimization and capital investments, for example, what type of insights should a forecast be designed to produce? The following considerations and actions can help finance leaders avoid these common pitfalls:

• Clarify BP&A’s mandate. While different organizations will structure their BP&A function differently to address unique needs of the business, the time devoted to non-planning activities can be minimized simply by articulating purpose to all involved. Finance leaders also should clearly establish and communicate “swim lanes,” responsibilities and ownership across the organization to ensure a collective focus on what matters, as opposed to the process itself.
• See the trees and the forest. While the abundance of data and technologies provides finance teams with the tools to produce complex analytics and planning models, focusing too much on the details and too little on the most important business drivers can result in skewed results or misinformation. For example, the forecast for an oil and gas company that zeroes in on subtle variations in marginal cost of production and average realized prices but neglects the impact of a stranded tanker is too focused on the trees.
• Keep it simple. As organizations continue to develop and strengthen the necessary critical skills, unlock access to data and invest in various technologies needed to perform forward-looking analyses, they should resist the temptation to overengineer the processes. Agility is necessary to be able to respond to changing business needs amid times of uncertainty. Process simplicity and open communication across the organization can contribute to a more agile enterprise wide environment.

BP&A is the next generation of financial planning and is, by definition, strategic. To establish a successful BP&A function, agility and cross-functional collaboration, coupled with the ability to source data and intelligence from across the business, are critical to deliver financial and business insights to drive business decisions and navigate uncertainty. Organizations that can successfully achieve these objectives will increase organizational resilience and strategic agility and be better prepared to navigate unforeseeable future events that could negatively impact their business.