A password will be e-mailed to you.

There is one thing that has become abundantly clear during the pandemic. The core processes, planning, analysis and reporting (PAR) are critical to an organisation during crisis and uncertainty. The CFO and the finance team were always aware of this and were never in any doubt. However, it feels like it is only now that others within the organisation appreciate this as well.

So, that is the positive, but what are the negatives? Now that everyone understands these processes’ strategic importance, the spotlight is now firmly on how efficiently and effectively they perform. All eyes are on finance, especially the Financial Planning and Analysis (FP&A) team if it exists within your organisation, to deliver.

In a series of articles, GenerationCFO will look in-depth at the issues faced by this renewed focus on PAR and what the finance team can do to meet and exceed the organisation’s expectations.

What we have learnt

Since the start of the pandemic, we have spoken with many finance professionals and performed two surveys to gather insight into the impact on the finance team. It has impacted all functions and processes within finance to some extent.

As may be expected, planning has seen the most significant impact. The reasons for this are clear. An organisation needs a plan, to set actions, identify and allocate resources effectively and prepare for uncertainty (as much as is possible). 

Of course, analysis and reporting are critical for measuring actual performance against a plan. However, they have not fundamentally changed as a result of the pandemic. No longer can we rely upon the past or the ‘gut feel’ of experienced staff. One planning scenario cannot suffice. We have needed to plan across different time horizons, at a deeper granularity level and more frequently than ever before.

Where and why have we fallen short?

Our research shows that most organisations rated their planning process as less than 80% effective, the average being around 60%. When we drilled into this, we identified scenario modelling, driver-based planning and connectivity as ineffective processes. In comparison, analysis and reporting processes, overall, were more effective than planning.

Given that we have identified the planning process as the most valuable to the organisation, the ineffectiveness picked up in our research is a huge concern. 

In our experience, many have invested in specific technology for analysis and reporting, with Business Intelligence (BI) and visualisation now commonplace in most finance teams. However, the planning process has not attracted the same level of attention.

One of the issues we see is a lack of investment in enterprise-wide planning technology. There is still a massive reliance on Excel for planning and modelling within organisations of all sizes. Excel can be the right answer in some circumstances, but not all. It has limitations, potentially exposed in challenging times (I will discuss this in more detail in the next article).

The right mindset

The second aspect is the mindset and thinking behind the process itself. Many planning processes (this includes budgeting and forecasting) have remained fundamentally unchanged for years. Much discussed and accepted best practice initiatives, such as rolling forecasts, have yet to be adopted by the majority. 

You could argue that the technology platform’s constraints (i.e. Excel) causes this inertia, which is a valid argument. Without an efficient and effective process in place, often as a result of using the right technology, makes it almost impossible to change the mindset and adopt other planning theories. 

During the crisis, the finance team has overcome the shortcomings and failings with a mixture of innovation and endeavour. However, this risks the wellbeing of individuals. 

The reality is that the planning process is ineffective in most organisations, and the pandemic has merely exposed this. Until we address the fundamental issues that we are facing, moving on will be exceedingly difficult.

How do you meet expectations?

First, you need to identify where you are as an organisation. While not all organisations have an FP&A team, for simplicity, we will use this term to describe the team that delivers the three processes that underpin that function: planning, analysis and reporting (PAR). When we look at an organisation, GenerationCFO identifies four distinct phases. This indicates the level of FP&A maturity, its ability to cope with a crisis, and a development path to follow.

Figure 1: The Generation CFO PAR maturity graph

The levels of PAR maturity

At ‘Level 1: Low’, plans consist of basic P&Ls, possibly with a stand-alone cash flow (CF). Simple variance analysis and reporting (actual v budget) is normally performed at GL nominal code level. These tasks are controlled and driven exclusively by the finance team. In this category, organisations are typically small, performing an annual budget only and with a ‘gut-feel’ approach.

A mindset change is required to reach ‘Level 2: Medium’. Finance devolves responsibility for aspects of planning to other departments, increasing the level of collaboration. The objective is to leverage their operational knowledge to develop driver-based P&L models, such as sales (product, unit x price) or HR (by employee), and subsequently contribute to them. 

Many will probably find these models already exist in disconnected systems or workbooks. However, the key is gaining visibility and connecting to P&L, balance sheet (BS) and CF models. With all this additional operational detail now accessible to finance, analysis and reporting is more efficient and can be developed to another level. 

Achieving ‘Level 3: High’ results from further development of driver-based models for each area’s area and function until the P&L is fully modelled and connected. 

With the addition of other models (such as CAPEX), you can model a fully automated BS and CF. There is also a need to address analysis and reporting by integrating other data sources that contain information to a granular level. This is necessary to enable the efficient analysis of variances. 

You will require a change in reporting mindset to optimise analysis and reporting. Taking the burden away from finance and passing this to the data consumer.

Our research shows that organisations already at Level 3 at the start of the pandemic were more likely to have the agility to meet their organisation’s expectations.

You can achieve ‘Level 4: Optimised’ by embracing advanced technology in planning and analysis. Examples of this are AI analytics, predictive analytics, optimisation (e.g. calculating optimal staffing levels) and machine learning.

Where are most organisations?

In a recent webinar we participated in, a poll revealed that 54% of the audience identified themselves within Level 1 or 2. There were 35% in the lower Level 3 with 10% in upper Level 3. No one identified as Level 4!

The average organisation appears to be using Excel as the primary tool and sits at the upper end of Level 2/lower end of Level 3. Parts of the P&L plan are driver-based, producing a basic balance sheet and cash flow (although mostly unconnected to the P&L). Analytical and reporting capability is reasonably well developed.

Where to next?

Quite evidently, we need to improve the core processes, planning, analysis and reporting. This will create a higher level of capability and agility. The ability to move quickly and easily, think and understand to a more detailed level, is imperative in a time of crisis and uncertainty. 

I believe you should be aiming for Level 3. At this level, planning, analysis and reporting should be an organisation-wide, multi-disciplinary process. All functions can use the same data, technology and processes, fully integrated across the organisation. To achieve it requires a collaborative mindset that breaks down the traditional silos between finance and operational departments.

And what do others think? Well, Gartner has recently coined the term ‘extended planning and analysis’ (xP&A) to describe a strategy remarkably similar to the one we suggest. Great minds think alike!

Upcoming articles in this series:

  • Why an Excel-based approach only gets you so far
  • Making the leap to an enterprise solution
  • How an effective (PAR) foundation supports Business Partnering
  • A practical journey to an effective (PAR) foundation