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Budgeting That Works: How to Plan for Success in an Uncertain World

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The Budgeting Blues

You’ve just wrapped up another marathon annual budget cycle spanning multiple months, countless late nights and endless revisions; you’ve finally pinned down the dreaded planning gap between top-down targets and bottom-up submissions. You appear to have a fairly consistent set of functional budgets with marketing initiatives aligned with sales targets, which in turn are aligned with operational plans and a suitable workforce plan.  It is a masterpiece.  Unfortunately, during the months since the budget cycle started and the corporate targets were agreed, the world has moved on, leaving your budget masterpiece in tatters.

A Better Way: Driver-Based Budgeting

Surely, there is a better way?  Enter driver-based planning: a thoughtful approach that focuses on the key factors that truly move your business forward. Instead of getting bogged down in granular line-item details, driver-based budgeting focuses on identifying the key business drivers that really move the needle for your company. These could be things like sales growth, production capacity, headcount, or any other factors that have a major impact on financial performance.

By building your budgets and plans around a focused set of core drivers, you can create a more agile and responsive planning process. As the world changes, you can easily adjust your driver assumptions and assess the ripple effects across the business. Driver-based budgeting also aligns inputs to the right business owners – the sales team weighs in on bookings forecasts, operations gives their view on production capacity, and so on. This not only leads to more accurate plans, but also creates accountability and buy-in across the organization.

Defining the Right KPIs

To get started with driver-based budgeting, the first step is to nail down the right key performance indicators (KPIs) for your business. But more isn’t always better when it comes to KPIs. The most effective driver-based models focus on a concise set of metrics that:

  1. 1. Can be reliably and consistently measured for historical actuals
  2. 2. Are predictable enough to forecast
  3. 3. Have a direct link to key business goals and objectives
  4. 4. Have clear business ownership

For example, a software company might zero in on KPIs like new logo bookings, billings growth, and sales rep productivity as core drivers of the sales model. The finance team partners with sales leaders to pressure-test the assumptions, and the model projects how different scenarios would flow through to revenue, margins, and cash.

Eliminating Data Silos

With the right KPIs defined, the next step is to eliminate data silos and create “one source of truth” in your budgeting process. Driver-based budgeting thrives on collaboration and integration – sales, operations, finance, and executive teams all need to be looking at the same set of numbers. Modern cloud-based planning platforms make it easy to connect data, build driver logic, and engage business users in a streamlined process.

Planning with Agility

Driver-based budgeting enables a dynamic, rolling forecast rhythm to replace the annual or quarterly budgeting cycle. By refreshing forecasts on a monthly basis (or more frequently), you always have an up-to-date view of where the business is headed, allowing for more informed decision-making and better resource allocation.

Pair this with the ability to regularly and efficiently generate multiple additional “what-if” scenario versions and you gain the agility to quickly course-correct as conditions change and new opportunities or threats arise.

A True Business Transformation

But driver-based budgeting is about more than just building a better mousetrap. Done right, it can be truly transformative for an organization. It elevates the role of finance to focus on strategic business drivers rather than just policing the numbers. It creates alignment and accountability across functions. And most importantly, it arms decision-makers with visibility and insight to navigate through periods of volatility and change.

Start today

In a world of rapid change and pervasive uncertainty, agility is the ultimate competitive advantage. By focusing your planning efforts on the critical drivers of your business, you can position your organization to ride out the storms and seize new opportunities. So ditch those broken spreadsheets, engage your business partners, and start your journey towards more dynamic, driver-based plans. Your future self will thank you.

Revelwood is dedicated to helping the Office of Finance succeed through the strategic use of technology. We have a nearly 30 year history helping CFOs and FP&A leaders modernize and transform the Office of Finance. Our approach is to focus on your success, speak business first and to leverage best-in-class technology that suits your organization’s unique needs. Contact us at info@revelwood.com to start a conversation on how we can help your Office of Finance be thes best it can be.

More from our FP&A Done Right Series:

10 Steps to Transform Financial Planning & Analysis: A Guide to a Successful FP&A Implementation

Workday Named a Leader in the Gartner Magic Quadrant for Financial Planning Software

Recommendations from the 2024 CFO Study

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FP&A Maturity Assessment: Where Do You Rank?

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There are tangible, concrete benefits to having a mature FP&A process. These include improved decision-making, increased efficiency, agility and responsiveness, enhanced forecasting accuracy and more. 

How do you know if your processes are mature? Here are some key indicators:

  • Data integration and accuracy. You have reliable data sources integrated with your planning environment for real-time analysis.
  • Forecasting and predictive analytics. You use advanced forecasting techniques, scenario modeling and predictive analytics.
  • Cross-department collaboration. Your FP&A team works closely with other departments.
  • Agility and adaptability. You have the ability to rapidly adjust forecasts and strategies in response to changing conditions.
  • Technology-driven automation. You leverage automation tools to streamline reporting, budgeting and forecasting.

Would you like to learn how advanced your organization is at financial planning? Take this short (two minutes!), FP&A Maturity Assessment from Forrester Research. You’ll get customized results and recommendations for your organization.

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Navigating Economic Volatility: Insights from CFOs

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In today’s dynamic business landscape, economic volatility has become an ever-present challenge, impacting organizations across industries. Chief Financial Officers (CFOs) play a critical role in steering their companies through these uncertain times. McKinsey & Company’s newest survey of CFOs sheds light on how financial leaders are adapting and strategizing in the face of economic headwinds. 

The Reality of Volatility

The survey finds that economic volatility and inflation are the top concerns among CFOs, posing significant threats to company growth. In a world characterized by unpredictability, a staggering 57% of CFOs reported high volatility in their businesses’ performance, with little expectation of stability in the near future. The rise in inflation has added to the complexity, becoming the top-cited threat to growth, with 58% of CFOs expressing concern.

Adapting, Not Hunkering Down

Despite the challenges, CFOs are not passively weathering the storm. They are taking proactive steps to tackle the uncertainties. The survey reveals that finance leaders are adjusting their priorities, focusing on performance, productivity, and managing operational value drivers and key performance indicators (KPIs). CFOs recognize the need to be agile and responsive to changing circumstances.

Strategies for Managing Volatility

To manage the volatile economic environment, CFOs are adopting specific strategies. The survey shows that raising prices to ensure margins is a top approach, even though passing on higher costs poses difficulties. Furthermore, CFOs are reallocating investments across their organization’s portfolio and reducing exposure to fixed costs to enhance flexibility.

Operational Practices for Success

CFOs are also engaging in operational practices to navigate volatility successfully. They are increasing their own participation in business decision-making, making it a top priority. Additionally, CFOs recognize the importance of frequent cash flow analysis and short-term budgeting to stay on top of financial performance. By proactively managing these areas, CFOs can make informed decisions amidst the uncertain economic landscape.

Shifting Priorities for Finance Organizations

The survey reveals changes in finance organizations’ priorities for the next year. CFOs are now placing a greater focus on operational value drivers, KPI management, cash management, and capital structure. These areas are deemed vital to actively drive value for their companies. In contrast, other priorities, such as strategic planning and risk management, have decreased in importance, reflecting the need for adaptability in today’s volatile market.

Economic volatility remains an ongoing challenge for organizations, but CFOs are leading the charge with resilience and adaptability. By adjusting priorities, adopting proactive strategies, and focusing on operational practices, these financial leaders are guiding their companies through uncertain times and positioning them for success in the face of volatility.

More from our FP&A Done Right Series:

No, Artificial Intelligence Will Not Replace Finance Jobs

Annual Planning Versus Continuous Planning

Professional Services Firms Need Future-Ready Forecasting

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Annual Planning Versus Continuous Planning

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This is a blog post from our partner Workday Adaptive Planning. Bob Hansen of Workday explains how the switch to continuous planning makes organizations more agile, proactive and successful.

A common measure of business success is growth. Because if you’re not growing, you’re not succeeding. Even in times of tumult, businesses are expected to push past obstacles and prosper by growing.

But when finance views growth by focusing on size and scale, it’s too easy to miss other aspects of how companies evolve. It’s not just about getting bigger; it’s about getting better.

For most organizations, one area that can get better—a lot better—is how they plan. And for an increasing number of businesses, there has never been a better time to transform the processes that help you prepare for what’s next.

Annual planning process vs. Continuous Planning

You can stick with a traditional annual planning process—an often spreadsheet-based, manual task that produces plans, budgets, and forecasts that are outdated the moment they’re finalized. When you spend weeks to months building a plan that can’t keep up with the dynamic changes your organization faces, your time and effort is invested in a model that can’t guide your business forward, or help you quickly course correct. Clinging to the status quo may seem cost-effective in terms of actual expenditures, but the costs in time and labor, mistakes, and missed opportunities make static planning something your business can’t afford. Especially these days.

The better option is continuous planning. Designed for how businesses must operate today, continuous planning harnesses all the business-run financial and operational data into a single source of truth that informs plans, budgets, and forecasts with fresh actuals.

Continuous planning empowers companies to adjust budgets and forecasts on a constant basis, so they can pivot and react in real-time with the latest information. Now more than ever, businesses are being forced to shorten their window for assessing, re-forecasting, and making adjustments to their overall plan. The closer they can get to real-time when it comes to planning, the more strategic their decisions and competitive their actions. 

Three Common Obstacles to Continuous Planning

Many organizations face common (and frustrating) barriers impeding the path to continuous planning and increased business agility. An oft-cited survey of global business leaders helps shed light on what separates top performers from organizations that are falling behind. Survey results show that fewer than 1 in 5 executives said their approach to strategy and execution enables them to react with agility and speed to market shifts. 

What’s keeping the rest from planning continuously and operating with agility? Three key obstacles.  

  • Outdated technology or infrastructure. Legacy technologies can keep data siloed between departments and business units, preventing business users from the data they need to monitor the health of the company and quickly make informed decisions. 
  • Skill set deficiency. As planning goes companywide, organizations can perceive a need for additional training and expertise to navigate and get the most out of these tools. That’s a challenge when all you have is a planning environment designed solely for finance use. 
  • Existing processes and procedures. Organizational challenges, including rigid hierarchies and inflexible workflows, can stand in the way of implementing continuous planning processes in finance and beyond.

Continuous planning empowers companies to adjust budgets and forecasts on a constant basis, so they can pivot and react in real-time with the latest information.

Evolving to a Continuous Planning Process

To address these obstacles, transforming from static, annual planning to a continuous planning process requires change in at least one of three areas: technology, people, or processes. (And most likely, it’s a little of all three.)

  • Technology. It would not be possible to implement a continuous planning process using the static planning environment imposed by outdated legacy technology. Modern, cloud-based planning solutions can automate data collection across silos and make that data visible across your organization. That way, all departments can share a single source of truth and insight for planning and decision-making. 

When evaluating planning technology, look for solutions that provide the elasticity to scale as your organization grows—and as more users require more insight more often. In addition, make sure your solutions are platform-agnostic so that you don’t get stuck using disjointed, disparate systems that prevent sharing and collaboration. A leading solution will provide the flexibility you need to model virtually any what-if scenario as many times as needed, and with virtually no dimensional limits. It will also integrate intelligent automation such as machine learning so you can produce more accurate forecasts faster while identifying potential issues sooner. 

  • People. All the technology in the world won’t matter if you don’t have the right people with the right skills leveraging it at the right time. Extended planning and analysis (xP&A), or companywide planning, incorporates FP&A best practices across the organization, so everyone can engage in a continuous planning process. By establishing a culture of continuous planning, you not only take pressure off the finance team, but you’ll help other departments and lines of business make the most out of their budgets, forecasts, and plans. 
  • Processes. Technology can automate manual tasks such as data entry and consolidation, while building companywide skills can help you maximize your ability to continuously plan. By incorporating continuous planning as part of your standard workflows, you can ensure you’re using the same best practices across the company so everyone works as one. Finance leaders should establish and orchestrate repeatable planning, budgeting, and forecasting processes. This is how you can equip your entire organization to quickly adapt to market changes. 

Beginning Your Continuous Planning Journey

So where should you start: technology, people, or processes? The answer is different for every organization. Some might focus on their most urgent need or where they are the furthest behind, while others may wish to get a quick, easy win they can build from. 

Given the importance data plays, it may make sense to first focus on technology. This lets you create a single source of truth that can provide the intelligent data foundation you’ll need to engage people and create a continuous planning process, not only for finance but eventually for other teams such as sales, operations, and human resources. 

Keep in mind that you don’t have to start big. By starting small with a test use case or participant, you can build out your framework at a pace that feels comfortable while creating champions who can help you promote continuous planning across the organization when you’re ready to roll it out. The most important thing? Don’t wait.

Read the full blog post on the Workday blog.

More from our FP&A Done Right Series:

Professional Services Firms Need Future-Ready Forecasting

Enterprise Planning Helps Professional Services Firms Adapt to Changes

FP&A Done Right: Trends in Accounting and Finance

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FP&A Done Right: Trends in Accounting and Finance

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This is a blog post from our partner Workday Adaptive Planning. Philippa Lawrence, chief accounting officer and vice president at Workday, highlights some interesting trends emerging in finance and accounting. 

The past few years have given us a deep appreciation for how quickly the unexpected can upend our assumptions. And there’s no question that uncertainty—around everything from inflation and macroeconomic volatility to geopolitical tensions and regulatory shifts—has dominated discussions at organizations in all industries and regions.

Still, some emerging trends within the accounting field have gained such momentum in recent years that continued acceleration in 2023 seems all but certain. As accounting leaders look to the year ahead, here are three predictions about the seismic shifts reshaping the finance function—and why leaders would be wise to lean into these trends sooner rather than later. 

1. Your Technology Strategy Will Become Your Talent Strategy

Hiring and retaining talent is one of the top challenges CFOs will face, and understanding what employees want can help ease that challenge. For many, the answer is meaningful work, and CFOs know technology plays a role in this. A global survey of 260 CFOs found that nearly half (48%) plan to invest in technology to streamline finance tasks. Even more striking, nearly all (99%) of those making technology a priority agree that technology updates will become even more important for both attracting and retaining employees.

For finance and accounting teams, doing meaningful work is about doing more than manual data aggregation or managing clunky spreadsheets day in and day out. Technology can automate manual processes such as these, enabling staff to focus on more value-added work, such as identifying trends from the data to help the business understand the “why” behind the numbers. And this will become increasingly crucial in a talent market where skilled finance workers are at an all-time premium. According to Deloitte, 82.4% of public company hiring managers for finance and accounting report talent retention as a big challenge. Investing in technologies that automate core processes and streamline user experience will be paramount to building—and retaining—a skilled and agile finance team. 

2. The Journey to Zero-Day Close Will Drive Further Adoption of Accounting Automation Through Artificial Intelligence and Machine Learning

Traditionally, reconciling financial statements at the end of a reporting period—whether monthly, quarterly, or annually—has been a labor-intensive process that can take weeks to complete. But an arduous, lengthy close isn’t only a resource drain; it also slows the speed at which data can be analyzed and information gets into the hands of decision-makers. This is a critical vulnerability in today’s business environment of high uncertainty and rapid change, where actionable information is rapidly perishable.

But one of accounting’s most ambitious goals aims to change that: A zero-day close leverages intelligent automation and continuously available, up-to-date information to close the books at any time, dramatically accelerating the pace of internal reporting and data analysis. No wonder 86% of finance executives say they’ve set their sights on achieving a faster, real-time close by 2025, according to Gartner, with more than half of respondents already deploying investments such as general ledger technology and workflow automation.

While a zero-day close is the ultimate goal, every incremental step toward that goal—such as automating manual data entry for invoices or manual journal creation—drives day-to-day process improvements that truly advance the finance function. My team is currently on the journey to achieving a zero-day close. With the help of artificial intelligence (AI) and machine learning (ML) in our system, we’ve achieved nearly 100% billing accuracy and 100% automation of our cash flow, and the percentage of manual journal entries we now perform is incredibly low. When anomalies arise, they’re surfaced swiftly so we can address them well before they impact the close. 

3. Accounting Will Increasingly Act as a Value-Creation Partner to the Business

In an increasingly complex and interconnected business environment, C-suite leaders recognize that real-time, data-driven decision-making is more important than ever. And while accounting has traditionally been considered a numbers-only profession focused on historical data, technology and transformation have repositioned accounting at the center of strategic decision-making and value creation. For example, accounting leaders are playing a critical role in driving an organization’s environmental, social, and governance (ESG) strategy by leveraging technology to analyze data, surface insights, and influence ESG investment decisions.

Whether highlighting the financial implications of operational and strategic decisions, recognizing red flags and inefficiencies, or evaluating opportunities to reposition investments or improve performance, technology is empowering accounting teams to quickly discover real-time insights and analyze the drivers behind the data. Our value as accountants is increasingly demonstrated by our ability to share insights and collaborate with other business functions to ultimately guide strategic planning and decision-making.

The trends reshaping the accounting and finance professions aren’t wholly separate from the larger economic uncertainty and business volatility in which organizations operate today. In many ways, the urgent need for better adaptability and resilience has accelerated the profound shifts underway in how accounting works, contributes, and collaborates across the business. For those in accounting and finance, it looks to be an exhilarating and impactful year ahead. And we’re just getting started.

This article originally appeared in The Journal of Accountancy. ©2023 Association of International Certified Professional Accountants and was also published on the Workday blog.

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FP&A Done Right: Finance’s Role in ESG Reporting

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ESG (environmental, social, governance) reporting is a growing market. According to McKinsey, “ESG issues represent critical challenges for both boards and executive teams.” One question companies are facing is “who is responsible for ESG reporting?”

Some companies have – or will have – a Chief Sustainability Officer (CSO). Nike, Mastercard, P&G, Nissan and others have CSOs. As companies develop their ESG strategies, they need to find a “home” for ESG reporting. That “home” is often in the Office of Finance.

According to the CFO of a software company, “Sustainability is now a key consideration for the finance function. Sustainability work requires alignment with financial priorities such as ESG reporting, investor relations, capital management, carbon accounting, impact measurement, corporate development and even product development.”

Picture this: embedding sustainability metrics into the finance department. This approach brings the discipline and structure of financial management and reporting to those sustainability metrics. Companies can set key performance indicators (KPIs) for ESG scorecards, create ESG dashboards and more.

This approach makes a lot of sense. CFOs have a broad skill set. CFOs are experts at measuring, analyzing and reporting data. They understand the need to have a “single source of the truth,” accurate numbers, automation to reduce manual errors and the need for auditability and transparency.

More importantly, the SEC has proposed regulations that would require public companies to disclose extensive ESG information in SEC filings. CFOs, along with CEOs, will have to certify the accuracy of the data in the filing. This means that public companies will need to address ESG reporting with the same discipline they have with financial data. It needs to be accurate, complete and auditable.

According to EY, “There is increased pressure on corporates to improve their ESG reporting – from equity investors, insurers, lenders, bondholders and asset managers, as well as customers who all want more detail on ESG factors to assess the full impact of their decisions. Finance leaders should move quickly to meet stakeholders’ expectations and articulate a unique narrative of how they create long-term value.”

EY also states that enhanced ESG reporting is an opportunity for CFOs to “build the advanced analytics capability to extract insights from data and reboot the approach to FP&A to create more agile scenario planning capabilities.”

If you are a CFO of a public company, now is the time to develop an ESG reporting strategy.

Read more in our series on ESG reporting:

FP&A Done Right: ESG Reporting Tools

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FP&A Done Right: Financial Forecasting Processes that Guide Business Strategy

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This is a guest blog post from our partner Workday Adaptive Planning, outlining nine ways to plan in the changing world of finance.

Table of contents

To thrive in a competitive and global marketplace, you need exceptional financial forecasting processes and a finance team capable of orchestrating them.

Financial forecasting is a key part of business planning, using past company performance and current conditions or trends to predict what is going to happen in the future.

It helps organizations adapt to uncertainty based on predicted demand for products or services.

When financial forecasting is executed well, organizations can withstand economic disruptions, adapt to revenue and expense fluctuations, and change course when challenges or opportunities arise. Poor forecasting, on the other hand, can sabotage your business.

Read on, and discover the nine steps that you can take to orchestrate financial forecasting processes that truly guide business strategy.

Step 1: Define Your Terms

What is financial forecasting and where does it fit in with traditional budgeting and planning processes? Financial planning and analysis (FP&A) practitioners use these terms in different ways, so here are a couple of definitions to get on the same page:

Forecast vs. plan. A plan refers to an annual forecast prepared for the upcoming fiscal or calendar year. The term “forecast” is usually reserved for periodic exercises to adjust your plan to reflect actual performance.

Forecast vs. budget. A budget is a plan for how you’re going to spend specific amounts of money. While this is a vital piece of any forecast, it is just one piece of the puzzle. A complete forecast should also include projected revenue, assets, liabilities, and cash flow. Truly strategic planners will even take operational key performance indicators (KPIs) into account.

Step 2: Model Your Revenue

Before you can build a comprehensive financial forecast, you need to build an accurate business model. One way to do that is by modeling revenue. An effective revenue model should be able to answer questions such as, “Which investments are necessary to grow revenue by 25% next year?” Or, “If revenue remains flat, which programs should we cut to maintain profitability?” With the right model in place, you’ll have the flexibility to run scenarios and examine assumptions so you can answer these questions with confidence.

Revenue models will vary widely based on your industry and business model. For example, a manufacturer might consider variables such as capacity and utilization, while a law firm might look at client lists and billing rates. Whatever the nature of your business, the right model will help you get a better handle on revenue so you can drive your business forward.

Here are a few common considerations:

  • Get into the drivers. Challenge what you think you know. When modeling revenue, give yourself the flexibility to test and adjust your assumptions so you can gain fresh insights into untapped sources of revenue.
  • Start with the relationship between price and volume. Terms and formulas may differ from one industry to the next, but most models boil down to the relationship between price and volume, so that’s a good place to start when modeling revenue.
  • Consider tops down and bottoms up. Top-down financial forecasting and planning software models start with the big picture by focusing on high-level market trends, while bottom-up models are grounded in the operational details of your business. By taking both models into consideration, you can identify gaps in your current capabilities—and transform those gaps into opportunities.

Step 3: Model Your Expenses

In addition to the money coming in, your forecast will need to consider the money going out. Consider these key factors when modeling your expenses:

  • Personnel. This is likely your largest expense. If your organization is primarily salaried employees, you might forecast personnel expenses on a per-employee basis. If, however, you are a national retailer or restaurant chain with a large number of hourly employees, you may prefer to build a forecast based on shifts or roles.
  • Operating expenses (OPEX). Operating expenses are often tightly correlated with head count. Your expense model should reflect that.
  • Cost of goods sold (COGS). You will need to forecast all costs associated with the delivery of revenue—including labor, materials, and overhead.
  • Fixed vs. variable costs. Understanding what drives an expense is critical to getting the modeling right. A fixed cost (such as a data center) should be modeled on its own schedule, while a variable cost (such as raw materials and packaging) might be modeled according to a formula (e.g., as a percentage of total revenue).
  • Allocations. In some cases, you’ll want to spread costs across segments or cost centers. Distributing IT expenses across multiple departments, for example, may help you understand the “fully loaded cost” of these services. Begin by identifying a key metric as the basis of your distribution. For instance, some costs might be allocated per employee, while others might be allocated per square foot.

Step 4: Set Your Cadence

Once you’ve built your model, it’s important to define a cadence and a calendar. Financial forecasting is not a one-off exercise, but rather a practice to develop and refine over time.

Plan. Begin with an annual plan or budgeting process that integrates input from stakeholders across the business to set targets and define requirements. The models you’ve developed will help you translate these objectives into a financial and operational plan for the year.

Quarterly and monthly forecasts. Inevitably, your organization will drift from your forecast. When that happens, you will need to revisit your plan, assess your performance, and revise your expectations. This periodic reckoning should never come as a surprise, but rather as part of a continuous and dynamic planning process.

Find a forecast cadence that works for you. Sometimes these constraints are set externally. For example, you may be obligated to make periodic reports to shareholders or trustees. While some reforecasts may occur on an ad hoc basis, you should establish a consistent cadence, whether semiannually, quarterly, or monthly. Each reforecast is an opportunity to assess performance and revise assumptions about the future. These shouldn’t replace the annual plan, which will remain relevant for compensation and other targets. Your reforecasts will live alongside your original plan and represent your latest and best predictions of business performance.

Daily and weekly forecasts. In some cases, you may need to generate forecasts on a much more frequent basis. Retail, hospitality, and other highly seasonal businesses may engage in daily or weekly monitoring to reflect customer shopping patterns. Other businesses may choose to do a flash weekly forecast around sales or other operational KPIs to ensure that they remain on track.

Step 5: Forecast What Matters

A useful financial forecast should encompass more than just the strict general ledger chart of accounts. It should also model your underlying operational assumptions. For example, manufacturers might focus on plant uptime, yield, and bar codes, while nonprofits might look closely at grants and membership.

For some organizations, the income statement offers sufficient insight into financial performance. Others, however, will generate a balance sheet and cash flow statement in addition to an income statement. For capital-intensive businesses (such as banks with assets under management or telecom companies building network infrastructure), forecasting capital expenditures (CAPEX) in the balance sheet is critical.

In some cases, building out a full balance sheet for the future may not be worth the trouble, but an abbreviated set of metrics will be sufficient to forecast how net cash will change over time.

“Getting to cash”—and having an understanding of how your operations will impact your future cash position—is essential for smaller organizations without significant reserves, as well as companies looking to raise funds.

Step 6: Define Your Reporting Process

Once you construct a comprehensive model of your business and incorporate your insights into the financial forecasting process, you need to define a set of reports you want to use (both internally and externally). Your reports should provide an easy-to-understand view of company health. They should include more than just a balance-sheet view of your company’s finances, incorporating performance of operational KPIs and “packs” of data you can easily share with your board of directors and management teams.

An efficient reporting process isn’t just about the reports you generate. It’s about how you get there.

If you manage reports using only spreadsheets, then you’re familiar with the process of bringing together all your data sources, manually importing them into various spreadsheets, and emailing them for approval. And that doesn’t even include the ad hoc requests you receive by email or from people you pass in the hallway.

The key to getting everyone the reports they need, faster and more accurately, is automation. An automated platform simplifies the gathering, reconciliation, and extraction of your data. That alone can transform your reporting processes from a monthly hassle to a dynamic, ongoing driver of organizational change.

Step 7: Drive Collaboration

You’ve automated your reporting. You’ve established a regular cadence. And you’ve amazed your stakeholders with the insights you’ve shared. But if you’re still the gatekeeper of information, you may be missing out on a tremendous opportunity. When stakeholders are not directly involved in the planning process, they don’t feel a sense of ownership.

When data is accessible through self-service financial forecasting tools, people will be more likely to adopt a proactive approach to gathering critical finance data, and they’ll come to embrace your plan as their own.

Step 8: Pick Your Financial Forecasting Tools

To help you take these steps, you’ll need the right financial forecasting tools. While Excel is where most finance teams get started, it’s not built for scale. As organizations grow and data sources multiply, organizations must turn to a cloud finance solution that can:

  • Facilitate collaboration. Get everyone in your organization involved in the planning process by giving them access to real-time data so that business partners can take ownership of their numbers.
  • Enable multiple-scenario planning. Combine high-level, top-down growth- and margin-based models with detailed, bottom-up personnel rosters and schedules in a single platform so you can quickly reconcile differences and address gaps.
  • Provide a single source of truth. With a core set of operational and financial data that’s common across the company, you can align the organization and track your performance.
  • Automate reporting. With centralized reporting and automated data integration, you can eliminate the need to hunt for and manually aggregate data. That frees you to focus on analysis while providing stakeholders with the information they need to make better, faster decisions

Step 9: Learn More

Financial forecasting comes down to answering a few key questions. How well can you understand your company’s position in the context of the economic environment? How much insight can you get into what’s driving opportunity and risk? And perhaps most important of all, how ably can you communicate these insights to decision-makers throughout your organization? 

With the right financial forecasting software, you can have all those answers right at your fingertips—and you can help every team member feel that they’re part of the process.

This blog post was originally published on the Workday Adaptive Planning blog.

Read more FP&A Done Right posts:

FP&A Done Right: Accurate Forecasting = Insightful Decisions

FP&A Done Right: Continuous Planning Leads to Agile Businesses

FP&A Done Right: Dynamic Forecasting

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FP&A Done Right: ESG Reporting Tools

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There is a wide range of reasons why ESG (environmental, social, governance) reporting is an exploding market. One reason is that consumers care about ESG. PwC’s 2021 Consumer Intelligence Series survey reports that 91% of business leaders believe their company has a responsibility to act on ESG issues. Another is that the SEC is proposing rules that require SEC-registered companies to include “certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business.”

As such, the industry is expecting a standardization around ESG accounting – most likely coming this year.

What is ESG?

Gartner defines ESG as: “a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts. Examples of ESG data include the quantification of a company’s carbon emissions, water consumption or customer privacy breaches. Institutional investors, stock exchanges and boards increasingly use sustainability and social responsibility disclosure information to explore the relationship between a company’s management of ESG risk factors and its business performance.”

According to one study from Harvard University, “Throughout 2021, the importance of environmental, social and governance matters proved to be even greater than expected, with ESG becoming a key area of focus for a range of stakeholders, particularly in the board room.”

When you take all these data points together, you can safely conclude that many companies, not just public companies, will soon be tracking, measuring and reporting on ESG factors.

The ESG Market

One can look at the ESG market in several ways:

  • How much companies are investing in ESG practices
  • How much VCs and other sources of funding are investing in ESG reporting
  • How many established software vendors are easily adapting existing reporting solutions for ESG reporting

Earlier this spring Deloitte announced a $1 billion investment to expand its Sustainability & Climate practice. The practice “supports the firm’s clients in defining their strategies, embedding sustainability into their operations, meeting tax, disclosure and regulatory requirements, and accelerating their organizational and value chain transformation … [it] will span the firm’s advisory, assurance, audit, consulting, finance and tax services.

The global investor ESG software market is projected to expand at a CAGR of 15.8%, as a result of the emergence of new technologies, approaches, and players with a renewed focus on ESG integration driven by data. The market report cites a “growing emphasis on high quality, verifiable, and consistent data.”

The market is seeking software that provides KPIs, reporting platforms and other solutions that make it easier to collect, measure, analyze and report on ESG initiatives and programs.

Highlighting Select ESG Solutions

There are clear drivers indicating more and more US-based companies will be evaluating ESG software options. Other regions, such as Europe, are ahead of the US in this aspect. Take note – just because you haven’t heard of ESG implementations in the US yet, you will soon. It’s not a matter of if, but when.

Revelwood is not in the software space. We deliver solutions for the Office of Finance. The Office of Finance will be taking the lead on ESG software. We are here to help.

Over the next few months, we’ll take a look at the role of Finance in ESG and will highlight how our partners, IBM, Workday Adaptive Planning, BlackLine and more are approaching ESG. Stay tuned for blog posts on these partners!

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FP&A Done Right: The Value of Scenario Planning

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This is a guest blog post from our partner Workday Adaptive Planning, highlighting the value of scenario planning in modern finance.

Considering all that’s happened over the last year, the case for robust scenario planning has rarely been stronger. Scenario planning—the practice of establishing strategies for variables (possible futures) in key business factors—helps organizations thrive amid uncertainty. To put it simply, scenario planning arms finance with the ability to incorporate responses as changes happen.

Without the ability to adjust revenue and expense assumptions over time, model multiple scenarios simultaneously, or see the impacts of new markets, staffing changes, or regulations, companies won’t have the ability to weather whatever comes next—much less respond to changes in real time.

In a recent webinar by the Association for Financial Professionals, two panelists explored the value of scenario planning and management in modern finance.

“COVID-19 has been described as being the great accelerator and really has forced all of us to do some sort of scenario or contingency planning over the last year,” said Jack Alexander, a former CFO turned adviser, author, and coach. “And my hope is that finance and operating executives will utilize scenario planning broadly in the future and integrate those more into the key planning and management activities.”

Alexander described working with a client pre-pandemic that was facing two major uncertainties. “In this case, the company was unsure whether the economy would continue to expand or contract, and they also had a significant contract that was up for recompete. So they had basically four possible scenarios on a two-by-two matrix combining those two uncertainties,” he said. “And then I also encourage the development of a black swan scenario too—low-probability, high-impact events—and that sort of covers things including what happened with COVID.”

Kinnari Desai, vice president and head of corporate finance at Workday, described a multistep process for accelerating the scenario planning process.

Align leaders’ top priorities

First, organizations need to identify their top two or three priorities. “This could be top-line growth, margins, or cash flow, but it’s very important to be clear on those upfront,” Desai said. “We get perspectives from our executive team and align with them on what is important.”

It’s also critical to understand what is top of mind for business leaders, whether they’re in sales, services, G&A, technology, or other departments. “We need to ensure we have scenarios that are relevant cross-functionally and not only within finance,” she said. “This really helps us incorporate multiple perspectives and inputs into what is important, and we know where that knowledge belongs.”

Alexander echoed Desai’s process of speaking to the C-suite to understand competitive threats, market forces, and developing factors, as well as key personnel who have a view of such areas as critical raw materials and supply chains. “So it really has to be a broad participation across all functions,” he said.

Identify key drivers of sustained value creation

Another key step is to perform analyses to pinpoint the relevance of important factors and focus on the ones that matter. “How much could they influence the outcome? We also get an understanding of which variables and outcomes can be controlled in a short timespan versus ones that will take longer to pivot,” Desai said. “We do not try to optimize every variable but just focus on the ones that matter incrementally, and then we bring them all together in our scenarios.”

Bring in external data where relevant

Finance should develop a perspective that is informed by outside data. “It could be from industry, our peers, customers, economic data,” Desai said. “And at Workday, we use our software called Workday Prism Analytics, and that helps us marry this external data to our internal data, which informs our scenarios.”

Evaluate the frequency of scenario planning and adjust accordingly

“Not all variables, as we know, change on a similar cadence. Some need weekly attention, some monthly, or some even daily,” she said. “And our finance organization combines this power of scenario planning and continuous planning, which allows us to move in an agile fashion.”

Desai added that while there are many variables that impact the business, not all of them have a material impact. For her team, the top six variables garnered most of their attention. “And then we spent all our time understanding how they were going to shift,” she said. “Now, no one has a crystal ball, but the best we could do was to determine how those six variables would move. And those were the big rocks for us that were going to change our outcomes, not the 15 others.”

Three elements to enable agility

Alexander’s approach emphasizes three elements: vision, recognition, and response—all of which are aided by scenario planning and lead to better business agility.

“Even in terms of the vision, it helps because you’re going to be identifying critical assumptions, and you’re going to consider alternative outcomes other than the primary plan,” he said. “And if you combine that with business intelligence, external outlooks, a focus on customers and competitors, that really helps.”

As a year of uncertainty has shown, organizations better able to adapt to rapidly changing environments are often more optimally positioned to withstand crises or uncertainty. In order to build organizational resiliency, scenario planning performed correctly can help the enterprise identify its key business factors, take into account critical cross-functional needs, and create the agility necessary not only to survive, but to succeed.

This blog post was originally published on the Workday Adaptive Planning blog.

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