Boosting organizational agility with Long Range Planning

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.

The multiple dimensions of driver based budgeting

As many CFOs and Finance managers would agree, traditional budgeting is most often a tedious and time-consuming process. Even after putting in months of dedicated effort, there are frequent disconnects between budgeting and actual execution. Budgeting and planning strategies that are not in sync can lead to decision-making delays and decelerate business outcomes. With typical finance roles evolving to include operations and decision-making responsibilities, budgeting too has transformed to take on a more business centric perspective.

Driver based budgeting is a futuristic approach that creates models around key business drivers and connects to operational objectives. It is the simple answer to complex budgeting queries and helps finance managers draw an accurate picture of the overall business. With driver-based budgeting, finance is no longer an isolated function, but an important step towards integrated business planning. A quick look at some of the key benefits of this budgeting model.

What does it bring to the table?

  1. Enhanced productivity: In traditional budgeting, a lot of detailed planning is called for, even in scenarios when that is not required. Driver based budgeting eliminates such un-necessary details and non- productive work. Relieving many business users from creating and maintaining standard departmental spreadsheets, it helps enhance overall productivity of the business.
  2. Quicker financials:  With driver-based models in place, finance teams can quickly and easily develop regular financial analysis. With the financial data organized around the key drivers identified for the organization, understanding and communicating the same to other business functions is a much easier task. In the case of changes in any of the drivers, same can be quickly updated. This also builds in greater agility in the system.
  3. Better insights: Driver based budgeting also provides much higher visibility with details available in multiple formats and also incorporates multiple levels of detail. With all operational details available within the model itself implies that necessary action can be taken sooner than later, thus empowering organization-wide decision-making.
  4. Higher accountability: Traditional budgeting creates islands while Driver based budgeting bridges the gaps with a higher degree of accountability and flexibility. With a higher transparency, this model ensures that all contributors are accountable for their submissions. The responsibility in turn ensures better alignment to operational resources and demand.

Leveraging drivers for quality decision-making

Implementing key drivers has some obvious benefits. The higher visibility at multiple levels makes identifying the activities that drive business decisions quite simple. And since most drivers are connected, it enables financial manager to run multiple scenarios for enhanced forecasts. Senior leadership can pro-actively take key decision instead of waiting for things to unfold.

Hurdles to driver-based budgeting implementation

One of the biggest challenges of the driver-based model is organizational alignment. If people do not understand their specific role and accountability within the framework, then organizations may not be able to realize the real value of driver-based budgeting. Secondly, driver-based budgeting is based on the assumption of everything being variable in the short term. This might pose a challenge while accounting for certain fixed-cost elements.

Driver based budgeting is here to stay

Driver-based budgeting is not a new concept, albeit an important one as it enhances the five As– agility, alignment, awareness, accuracy, and accountability by connecting people, operations and financials. The concept is smart and simple, the execution may need some work. There is no doubt that the ‘pros’ far outweigh the ‘cons’ of this model. Also, for bigger organizations, spreadsheet planning is no longer viable. This model empowers businesses by letting data do the talking. With time business tend to get better insights and understand the various working parts leading to quicker and better business decisions. With a technology partner who can deliver transformations on cloud, organizations can avoid un-necessary delays, create a customized solution and reap the many benefits of this model with ease.

Driving long term business value with efficient revenue and OpEx planning

Envisaging the financial future of the business is not easy but is critical for long term growth and profitability. Organizations with strong OpEx and revenue planning processes and tools are able to make informed business decisions and stay ahead of the curve at all times. However, we see the vast majority still struggling with manual processes, with a high dependency on spreadsheets which results in an error-prone and lengthy planning process. The outcome of such processes is in-consistent and in-accurate forecasts that ultimately lead to poor and ineffective decision-making. The low adoption of AI and analytics also implies that the traditional tools cannot adapt to changing circumstances and factor in business growth and other customer variables.

Re-imagining the finance function

The ability to make frequent adjustments enables better planning and more accurate forecasts. A pre-requisite for revenue and OpEx planning success is the in-built agility to quickly fine-tune in response to unexpected circumstances and market dynamics, as well as the resilience to accelerate revenue goals while aligning organizational execution to executive strategy. Let us look at the groundwork needed to improve multifaceted Revenue and OpEx planning processes:

OpEx optimization:

Optimizing operating expenses provides the much-needed visibility into current spending and helps align the same to corporate objectives. It is important to ensure that the spending is against the right investment (people, projects, etc.) and not just another un-planned cost-cutting initiative. An efficient OpEx plan helps identify unnecessary spending and arms leadership with the relevant insight to determine areas that can be enhanced for higher productivity. For many CFOs, people productivity is the single and most common area of concern that contributes to a large portion of the overall organizational OpEx. Optimization efforts involve ensuring the right alignment of people skills to organizational objectives for higher productivity and reduced OpEx.

Designing scalable technology solutions

Even today the Finance function continues to reel under legacy technologies and the slow pace of change.  Many organizations are still locked in a spreadsheet world. While investing in new-age planning and forecasting solutions, organizations should prioritize agility or the ability to adapt quickly to changing business scenarios.  Modern solutions can leverage business drivers, zero-based methodologies, and other means to plan operating expenses and provide immediate aggregation and P&L impact. Most also understand the impact as information is updated, and have a dynamic set of drivers to model revenues and associated expense structures. The ability to evaluate the impact of operating expenses and implement course correction as required, provide real-time aggregation and income statement impact for leadership, and analyze various “what-if” scenarios for insightful decision-making, are some of the other key tenets of modern-day financial planning and forecasting solutions.

Establishing a collaborative culture:

Advanced technology solutions will not enable planning efficiency and success if the organization remains embedded in age-old practices with little or no alignment between different business functions. Planning success calls for a strong finance leadership with practices in place to cascade top-down targets and aligns to bottom-up plans for consensus-building and collaboration. CFOs and other visionaries need to align revenue targets to long-term strategic planning and factor in other aspects of geography, product, business unit, etc. Measuring revenue growth and variances, and then building in course-corrections as required, is an organization-wide initiative.

A case in point- Top global insurer drives efficient, decisive action

A fortune 500 insurance company was spending weeks on data compilation. Their fragmented tools and manual processes slowed down decision-making, thus intensifying the competitive pressure to compete, deliver value, serve customers in a timely and efficient manner. Integrating multiple planning processes on a single platform, the enterprise achieved a 25% faster annual planning cycle and 3x faster expense reporting and end-of-month financial statements.

Connected Planning for financial success

Revenue and OpEx planning is one such activity that touches every part of the organisation, connecting people, processes, data, and technology. If executed properly, it has the potential to drive better business decisions and create a competitive advantage for the organization.  Leveraging the right tools to enable vast scenario modeling, predictive and prescriptive analytics can assist organizations to better react to market risks and opportunities and deliver long-term business value.

Dynamic, collaborative and intelligent financial organizations

Connected planning to infuse new rigor in finance

For long, businesses have built their financial planning and budgets based on past performances, and these budgets have been an essential part of an organization’s overall annual strategy. The increased uncertainty in the current times has placed CFOs under duress to anticipate and react to market changes more quickly and efficiently. Finance organizations are also walking a tightrope with the realization that financial plans, budgets and forecasts need to reflect the current reality and not that of bygone quarters. The typical first-generation planning tools for finance, the likes of Oracle-Hyperion, SAP and IBM (Cognos Planning and then TM1), have not been able to keep pace with the market evolution. They fell out of favor with finance managers and leaders owing to the expensive infrastructure, heavy reliance on IT systems, long implementation times, complex upgrades, and lack of integration capabilities. With financial planning technology having remained stagnant for a long time, very recently business have started to appreciate the need for continuous planning and an access to real-time plans, budgets and forecasts throughout the year.

Connected planning to the rescue

The continuous struggles of finance teams to deliver timely and relevant insights has led to the evolution of connected planning solutions that integrate people, data and processes across the enterprise. The new systems could easily automate manual data for quick insights to enable business decision-making.  Let’s look at how these new solutions take a renewed approach to traditional finance challenges.

  • Easy monitoring and measurement: By integrating source systems and processes, connected planning enables quick and easy generation of financial reports and dashboards. Financial leaders get an overview of financials in the form of easy-to-understand dashboards, and can also insert KPIs that need to be tracked continuously or at certain intervals, as the case may be. With complete visibility of financials, business leaders can quickly anticipate performance gaps between actuals, targets and forecasts and take remedial actions.
  • Comprehensive analysis: Connected planning solutions allow financial planners an in-depth understanding of the performance, drilling into rich financial details, benchmarking actual vs. budgeted numbers, analyzing cash flows, calculating forecast trends, and reviewing the overall financial growth of the organization.
  • Situation analysis: With such industry leading tools, financial planners can also anticipate the impact of alternate course of action Financial teams can analyze multiple scenarios to determine the most appropriate course of action and thus enhance strategic and effective decision making and execution.
  • Multi-level integrations: Most leading connected planning solutions integrate easily with existing ERP and other source systems to create a unified view of the business. Thus, in addition to automatic data collection, teams can also collect data in traditional formats such as excel documents. The availability of this option is beneficial for business units that are still in the process of implementing or in-between ERP transitions.

Connected planning in action: a customer journey

A global FMCG organization took a phase-wise approach in their connected planning journey. They started out by mitigating their immediate challenges around revenue forecast, P&L budget, long range plan, and profitability modeling. In the second phase, they connected volume and revenue plans, followed by workforce and project portfolio plans in phase 3. The fourth phase took care of production planning and inventory optimization challenges, and in the fifth phase OpEx and CapEx issues were streamlined. Trade promotion planning was integrated in the sixth phase and then a zero based budgeting initiative was deployed in the final phase.

From automation to transformation – the path to connected planning success

Connected planning takes organizations on a transformation journey. Starting with immediate pain points, organizations gain efficiency by automating basic financial activities. The next stop on the journey is driving agility by adopting best practices and connecting multiple finance use cases. At the final stage, real transformation happens with the integration of key business units – supply chain, sales, marketing and HR, creating a dynamic, collaborative, and intelligent organization.