Does your financial planning have an effect?
Many organisations have problems in achieving the desired effect on their business operation from their financial planning. A disproportionately large amount of resources are often used to complete a budgeting or forecasting process. There is insufficient time and energy for communication and any measures resulting from analyses and conclusions of planning work.
Financial planning that has an effect on the business is proactive. It supports decision-makers in good business governance. The planning process is an integral part of the work of decision-makers and is viewed as support ahead of upcoming decisions. It is frequently reviewed so that changed conditions can be incorporated into the plan. To achieve success with this, financial planning needs to run smoothly. Here are a few important factors in achieving this:
Driver-based planning – the right drivers with the right level of detail
Financial planning should take place primarily with a limited number of drivers. The factors that are really important for the business should be defined as drivers in the financial planning process. The right drivers with the right level of detail provide satisfactory forecasting precision with a focus on what is significant, which makes any discussion about decisions in the business much easier.
Decentralised planning with central control
Financial planning should be largely decentralised. Those responsible with good knowledge of the business should be operationally active in the planning process. They should be given the opportunity to plan the drivers identified, which are also important indicators for how the business is performing in each area of responsibility. It is, however, important in certain respects for central control to be retained. This is true, for example, of workflow and associated attestation structure, authorisation for templates and planning objects, and so on. Decentralised planning with central control retained brings ownership of planning closer to those responsible who are actually making decisions and implementing what is planned. It also guarantees good order in respect of version management and what has been approved in which body. There is also less risk of duplicate planning or something falling between two stools in some respect.
Financial planning needs to be able to take place on the planner’s terms. One part of the organisation needs to focus on customers or products, while another part has projects as their primary area. Staff costs may have to be managed in a special way for all, but separated from other planning. Part of the organisation may need to work with a number of accounts, while the finance department needs to be able to work with them all at a detailed level. New planning objects may also be added that might not have even been previously known or in any pre-system. It needs to be possible to incorporate these into planning while the process is ongoing. Dynamic planning makes it easier for the planner and contributes to improved quality and accuracy in the forecasts.
The planning process needs to take place iteratively in order to take dependencies into consideration. Changes in one respect can have a consequence in another. Increased sales might perhaps increase the demands on the delivery organisation. Difficulties in recruiting staff may make it necessary to re-prioritise projects. In order to capture this, analytical work needs to be carried out during the ongoing planning process. The analysis is discussed, its conclusions are communicated and any corrections can be included in the plan before the forecasting process is completed. Iterative planning means that planning has a relevant impact that is consistent in the different parts
Financial planning that is driver-based, decentralised, dynamic and iterative has good conditions to be proactive and consequently have a good impact on the business. The planning process can become an integral part of the work of decision-makers and is likely to be viewed as good support in driving the business forward. It is so simple that it can be repeated frequently, which means that changed conditions can be managed at an early stage.
How is your financial planning?
- To what extent is it proactive, providing support for decision-makers for good business governance?
- To what extent is it reactive, simply a financial reflection of a lot of decisions that have been made?
Mikael Winander, Solution Architect, Effectplan