Agile Financial Planning: A Guide for Finance and FP&A Teams

To be considered agile, companies and teams need to be both stable and dynamic. Yet many finance teams still rely on outdated and manual forecasting and budgeting methods, which reduces the ability to be truly agile.

As the organization’s backbone, Finance must adopt an agile planning approach that includes processes and tools to maintain efficiency, facilitate growth, promote resilience, drive innovation, and unite the business through collaborative partnership.

3 ways you can create agile financial planning & Analysis Processes

To build an agile finance function, financial professionals should:

1. Support Cross-functional Collaboration

Success with agility requires cross-functional collaboration across multiple departments such as finance, marketing, operations, and human resources, and with external stakeholders. For example, cross-functional collaboration is vital for the financial close because this process requires obtaining data, information, and knowledge from many stakeholders including accounting and other areas. 

The key to cross-functional collaboration is moving away from traditional spreadsheets and investing in technology that enables collaboration, connection, and communication between Finance and the business. 

The problem with relying on spreadsheets, which most finance teams do, is that they create data silos and impede collaboration between the business and other stakeholders. Since spreadsheets are a single file, only one person can access and edit the data at any given time, and changes are hard to track and consolidate.

2. Perform Driver-based Rolling Forecasts

Rolling forecasts allow Finance to inform and guide the business by utilizing new information around costs, resources, and projects to adapt new insights into the future performance of the business.

Rolling forecasts are the gold standard for high performance FP&A teams. When it comes to agility, rolling forecasts are a better alternative to traditional static budgets that rely on set periods such as the fiscal year. This is because while static budgets create fixed forecasts, rolling forecasts allow your company to continuously reforecast 4 to 6 quarters out to reflect industry, economic, and business changes. With rolling forecasts, you can reduce risk and more optimally allocate resources in pursuit of your financial objectives. 

A key technique you can use as part of your rolling forecast process is driver-based planning. The idea here is that instead of budgeting or forecasting every line in your revenue or expense budget, you instead identify key business and value drivers. Doing this enables you to create business plans and budgets based on the factors that are the most critical to driving success. Also, when completing a driver-based planning model, it’s important to focus on just a few of the most important business drivers. Knowing which business drivers are critical comes from Finance understanding the business by partnering tightly with the business. 

Key business drivers vary based on the industry and company, but typical examples include market size and growth, market share, or the number of customers/subscribers. By connecting operational processes to the key drivers, you can focus your forecasting efforts on material factors, such as orders or sales reps, and see the impact that changes to processes will have on the overall budget or forecast. 

Continual forecasting provides more accurate financial plans and increased agility and helps identify more opportunities to generate revenue for the business.

3. Conduct Scenario Analyses

“What-if” scenario planning, or simply scenario analysis, is the practice of using modeling capabilities to understand the potential aftermath of a variety of business circumstances. Potential business-related scenarios can include changes to the industry, supply chain disruptions, product releases from competitors, or environmental events. 

This approach to planning helps your organization be better prepared for the future and to adapt to changing conditions.

Planful is the pioneer of financial performance management cloud software. The Planful platform is used around the globe to streamline business-wide planning, budgeting, consolidations, reporting, and analytics. Planful empowers finance, accounting, and business users to plan confidently, close faster, and report accurately. More than 1,300 customers, including 23andMe, Bose, Boston Red Sox, Five Guys, and Zappos, rely on Planful to accelerate cycle times, increase productivity, and improve accuracy. Planful is a private company backed by Vector Capital, a leading global private equity firm. Learn more at www.planful.com