Long Range Planning (LRP) is a strategic blueprint for organizational growth plans – competing in existing markets, expansion to new markets, new product investments, supply chain improvements etc. It includes all activities that are vital to achieving financial goals. Long range plans maybe developed at the corporate or the business unit level, depending on the objectives, and the annual operating plans are based on the LRP. With a focus on key areas of productivity and service quality, LRP helps set a direction for the entire organization, driving teams to invest the necessary efforts for targeted results and empowering business leaders to make informed decisions.
How LRP helps optimize enterprise processes
At the outset, LRP breaks down the high -level strategy into specific, actionable initiatives that accommodate both long-term and short-term objectives. It eliminates tedious, manual efforts that results in multiple forecasts, filled with data errors, and not aligned to the broader busines goals, thus reducing the cycle time to produce annual budgets and long-range forecasts. Optimizing key decisions around margins and profitability, product launches and M&A, it encourages the participation of business stakeholders, integrating disjointed processes and groups within the organization. LRP solutions from reputed vendors have the ability to integrate customers, channels, and products, connecting top-down financial models with bottom-up operational plans. Most importantly helps organizations to plan their investments in to processes, technology, acquisitions and divestitures for next 3 to 5 years and align it with overall organization’s growth objectives and goals
The role of P&L, balance sheet and cash-flow in LRP
The income statement (IS), the balance sheet (BS) and cash flow (CF) statements are the pillars of both internal and external performance reporting. However, the real time integration of financial plans, sales forecasts, inventory planning with the balance sheet, has always been a challenge for organizations, and the lack of visibility into cash flows and income statement makes it difficult to incorporate external data. This creates a misalignment between corporate strategy and that of individual business units, consuming a lot of time and effort to consolidate the multiple inputs into accurate statements. Leveraging tools that facilitate real-time scenario modeling can help optimize inter-company cash distributions and provide higher transparency and visibility. Many leading solutions offer multiple easy-to-use integration options to incorporate external data as well as native drill-down capabilities that can highlight income statement drivers and outliers. The ability of top-down target setting aligns business units with corporate strategy. Finance teams can then integrate all strategic initiatives into the income statement and create cash flow models and balance sheet, which are critical to ensure that the organization has the ability to fund LRP, and accordingly make changes and modifications to their LRP. The LRP includes all three financial statements with a specific focus on Revenues, Expenses, and Cash Flow needs.
LRP adoption – use cases
A European car audio company was struggling with inaccurate data, a lethargic analysis process, and isolated finance functions across geos. Partnering with a global cloud solutions provider, they connected finance and sales across business and built an end-to-end RFQ process that enhanced collaboration, speeding up “what-if” analysis, enabling the finance team to support a growing, without any increase in headcount.
A global insurance firm relied on proprietary tools, spreadsheets, databases, and even pen and paper for planning, which resulted in months of planning. Centralizing processes on an automated platform, the client discarded many manual processes, leading to better transparency and planning completion in just one week.
LRP partnering makes all the difference
Long range plans extrapolate future performance based on historical data and financials. But for most, LRP is not worth the efforts that go into developing it. Apart from being a time and resource heavy process, there are also a lot of assumptions made, and at the end of the day not many know what went into it. That is why having an LRP partner can make this process more efficient and enable businesses a real-time impact to metrics views of the critical drivers, such as Gross Margins, EPS, EBITDA, etc. The increased visibility and transparency into business drivers that matter powers quality decisions and a much better alignment of plans to goals.