Video

Moving Beyond Traditional FP&A

Transforming Planning and Budgeting for Current Times

FP&A organizations can give their executives a sustainable competitive advantage by having the tools to make their company more agile and adaptable.

Robert Kugel, CFA

Senior Vice President & Research Director

00:00:12Charles Darwin never said evolution was a matter of survival of the fittest. On the contrary, he said, it is not the strongest of the species, nor the most intelligent that survives. It is the one that is most adaptable to change.

00:00:26Any crisis, whether within a company or global, is a stress test that measures the adaptability of the Finance Department and the adaptability of an organization determines its agility in responding to change. The ability of the Finance Department to execute rapid planning, forecasting, and budgeting cycles is a major factor that determines the company's adaptability to change because the planning process enables executives to guide the organization on a path to success.

00:00:54Technology, software especially, is the essential element that enables companies to execute the rapid cycles that make it more agile and adaptable. Success in business is a matter of evaluating and managing trade-offs because there are never enough resources. Evaluating trade-offs requires contingency planning. Planning that provides executives with a clear picture of the impact of choosing Option A versus Option B. The impact on sales, on time deliveries, operating margin, customer satisfaction, the balance sheet, and cash flow, to name a few. This is planning that focuses on action items and getting results.

00:01:34Contingency planning of this sort is possible only if a company has unified its operational planning and financial budgeting so executives can understand if the desired operational result is both feasible and desirable from a financial standpoint. The goal is to determine the best operational plan that achieves a financial objective. Here too, technology is essential to enabling a company to integrate operational planning with financial budgeting to increase the business value of the processes.

00:02:05Unfortunately, our business planning benchmark research has found that only 12% of companies can fully explore all relevant contingencies in their planning process. Just 32% can understand the financial and operational implications of their sales plans. And fully, 58% of companies have a limited or no ability to measure the trade-offs in assessing contingencies. In short, few companies have the ability to take a data driven approach to evaluating and managing contingencies and scenarios as they create action plans for their corporation. For this reason, they have a limited ability to quickly adapt to changes in the economy or the competitive landscape.

00:02:46One reason they don't have the ability is that they don't use technology that makes it possible for them to plan and budget with agility or to integrate their operational planning and financial budgeting. But today, practical, affordable technology is available to connect business planning and financial budgeting. A connection that makes executives and managers more agile and better able to adapt to changing markets and environments. Technology that provides them with the ability to quickly explore the financial and operational impacts of multiple scenarios at a level of detail necessary for data driven decision-making.

00:03:21Technology can shrink the time required to answer important "What if?" business and financial questions from hours or days down to minutes, so collaborative planning sessions can end with a set of well-considered action items instead of "Let's discuss this later when we have more information". The only constant in business is change. Senior executives must have a financial planning and analysis organization that makes them more agile and adaptable under any circumstances. The FP&A group must have the tools to quickly deliver answers to any question that begins with "What if?", and to provide the answer right away instead of "I'll get back to you with that".

00:04:01Rapid planning and budgeting cycles that integrate the operational and financial dimensions are at the heart of running a modern corporation. Few companies can do that now. FP&A organizations can give their executives a sustainable competitive advantage by having the tools to make their company more agile and adaptable. This is Robert Kugel of Ventana Research. Thanks for listening.