How to Keep Up with an Ever-Changing Business Landscape

In this article we discuss:

• Rolling Forecasts
• What-If Scenario Planning
• Driver-Based Planning

Some of us remember the era before cell phones, when making plans meant agreeing on a time and place to meet, and then just trusting that the other person would show up. If you were running late, you'd flip through the phone book to call the location and try to pass a message along to your friend.

That was the archaic environment everyone knew and accepted before something better and more efficient came along. Thankfully, we're now able to reach our friends directly with real-time status updates. This allows us to course correct when our plans go awry.

In many ways, finance and corporate planning have gone through a similar evolution. A static, hope-conditions-remain-steady plan no longer makes sense. This approach to planning is usually characterized by laborious manual processes that force finance into the role of the budget gatekeeper. Spreadsheets, endless versions, stale data, and siloed information typically accompany this still widespread (but increasingly obsolete) planning style. To respond to real-world disruption in real time, finance teams demand the flexibility and agility of continuous planning.

When organizations plan continuously, always-fresh actuals inform plans and budgets. And rolling forecasts help teams course correct and make decisive changes quickly and confidently by staying in sync with an ever-changing business landscape.

Processes: The First Pillar for Continuous Planning

Three key elements are required to evolve from a legacy planning approach to continuous planning: the right processes, the right people, and the right technology. Without all three of these pillars working in harmony, there's no way you can maximize and realize the true potential of your continuous planning efforts.

Of these three pillars, your processes might be the most fundamental. After all, the new processes you adopt will determine the skill sets you need to train or hire for, along with the technology you need to invest in.

Let's look at the three foundational types of processes required for effective continuous planning.

1. Rolling Forecasts

The traditional static forecast is a CFO's best guess of what will happen over the next quarter or year. However, because the planning process impacts everything from headcount and marketing budgets to material orders and strategic investments, doesn't it make sense to base these decisions on current reality instead of speculation?

With a rolling forecast process, financial, planning, and analysis (FP&A) teams can adapt their forecasts in reaction to real-world forces such as shifting sales revenues, emerging threatening market opportunities, and competitive actions.

2. What-If Scenario Planning

A rolling forecast is ideal for more accurately predicting what will happen if you stay on your present course. However, the reason you need rolling forecasts-to respond to unpredictability-is the same reason you need to plan for multiple scenarios.

With what-if scenario planning, you can evaluate choices, opportunities, challenges, and changes in the market to determine the potential impact of different scenarios. The more scenarios you can evaluate, the more likely you can steer your business toward the most favorable scenario for your business.

3. Driver-Based Planning

A traditional budgeting process focuses on allocating resources to cost centers such as marketing, sales, IT, or operations. But businesses don't operate in a vacuum. Instead, each department acts in concert with others and is impacted by the performance of the entire business.

When organizations plan continuously, always-fresh actuals inform plans and budgets-and rolling forecasts help teams course correct and make decisive changes quickly and confidently.

So instead of budgeting by department, a driver-based planning process allows you to create cross-functional, end-to-end budgets that take your entire business into account. This helps create budgets and forecasts that reflect companywide performance (the ultimate indicator of success), instead of cost-center-specific performance that can ultimately steer you in the wrong direction.

Optimizing Processes in a Continuous Planning Environment

To incorporate rolling forecasts, what-if scenario planning, and driver-based planning, you need to create a continuous planning environment that empowers users with real-time, organizationwide access to data. That data should provide project- and process-level visibility so every department manager understands what drives the business as a whole (not just their department). Finally, data needs to be at the foundation of every decision, ensuring strategic recommendations and changes.

Creating repeatable processes that can be applied consistently across the organization is vital to responding quickly to new inputs. But transforming processes alone isn't enough. You also need people with the right skills (and buy-in) and the right technology for data collection, analysis, and reporting. The right skills and the right technology are the other two pillars of continuous planning transformation, which we'll explore in upcoming blogs.