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FP&A Done Right: Five Tips for Budgeting in the Age of COVID

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This is a guest blog post from our partner Workday Adaptive Planning, written by Gary Cokins. Cokins explains why traditional budgeting is not a fit for the volatility, complexity and uncertain times businesses face today.

The pandemic is causing boards of directors and C-suite executives to take a new look at net cash flow. Traditional budgeting is simply too slow and too rigid to keep up with the rapidly changing business environment caused by COVID-19. There is too much volatility, complexity, and uncertainty right now.

Gone are the days when budgets could be one-and-done—tied to a fixed point in time and too inflexible to adjust to quickly changing business opportunities and challenges. In today’s world, a startup can be up and running and profitable in three months and disrupt its competitors. Consider Uber and Airbnb as examples. If your company takes nearly as long to create an annual budget, which is typically out-of-date a few months later, it will be extremely difficult to fight off the upstarts or keep up with your established competitors.

The solution? A flexible and continuous budgeting and forecasting process, often referred to as a rolling financial forecast, that helps you anticipate change and focus on outcomes rather than outputs and that is derived from the drivers to determine planned spending.

Here are five tips to modernize your budget process:

1. Just say no to one-and-done

Now more than ever, December’s fiscal year-end numbers often bear little resemblance to July’s realities—meaning budgets and forecasts must become more streamlined, accurate, and responsive. Annual budgeting won’t go away, but spending weeks and months processing data and reconciling spreadsheets that are out of date soon after the consolidated master budget is published doesn’t cut it anymore.

Modern budget solution:

  • Increase the frequency of budgets and forecasts to reflect shifting business conditions
  • Make decisions and plans based on data-backed insights rather than old and stale information
  • Change how resources, employees, and assets are allocated throughout the year and how the budget incorporates real-time opportunities and challenges

2. Focus on business drivers, not cost centers

Traditional budgeting focuses on allocating resources to cost centers, but business objectives (projects, products, and service lines) result from end-to-end cross-functional processes across the org chart. So if you determine the level of resources and spend based on forecast demand, then budgets and rolling forecasts can reflect performance that is company-wide rather than specific to a cost-center department.

Modern budget solution:

  • Enable organization-wide access to reports and data, allowing everyone to have visibility into the enterprise’s performance, including into individual departments
  • Review forecasts against budgets to eliminate confusion among competing departments
  • Provide real-time information for the needed insights to support better decision-making at all levels of the organization
  • Use drivers to determine the level of needed capacity (i.e., types and numbers of employees) to match your supply of capacity with demand

3. Create rolling financial forecasts

More than ever, fluctuating market conditions make accurate forecasts of future demand load (e.g., customer orders and sales) extremely challenging. Rolling financial forecasts help manage investments or financing determined by cash flow. They provide visibility into business performance using time horizons that reflect the speed of your business.

Modern budget solution:

  • Generate rolling financial forecasts that accommodate real-time shifts in market conditions
  • Enable self-service reporting so everyone in the organization can measure their performance against company-wide KPIs
  • Help everyone in the organization understand the downstream effects of their resource allocation decisions

4. Look forward, not back

Most budgets and forecasts are outdated before you push “publish” or soon after. And some factors are impossible to take into account (natural disasters, pandemics, broken supply chains, work stoppages). The rearview-mirror orientation of traditional budgeting (e.g., last year’s actuals create this year’s budgets) often results in increased “actuals” as managers exhibit “use-it-or-lose-it” behavior by spending needlessly to attain their prior fiscal year budget. Traditional budgets can’t keep up with the speed of modern business. One needs to look forward through the windshield.

Modern budget solution:

  • Respond faster to shifts in market conditions with real-time access to financials
  • Adjust outdated budgets and forecasts as change occurs
  • Move leadership discussions toward insight, planning, and action, rather than using the budget as a cost control mechanism to punish those with unfavorable cost variances

5. Use the right tools for the job

Creating a budget process that keeps up with the pace of today’s business requires a comprehensive, collaborative, and continuous planning platform—one that gives you robust, accessible reporting and modeling capabilities; dashboards with indicators and their targets that provide visibility into overall company performance; and automated tools that streamline budgeting and forecasting processes.

Modern budget solution:

  • Enable comprehensive planning that aligns the actions and priorities of everyone across the organization around common KPIs
  • Create opportunities for collaboration by giving everyone access to the data they need and deserve
  • Adjust and update budgets and forecasts on a continuous basis so you can navigate volatile market conditions in real time

Don’t let traditional budgeting lock you into outdated assumptions and fixed targets. Those outdated targets handcuff managers when the organization changes directions. Some managers view the fiscal year budget as a “contract” that they will not deviate from to minimize unfavorable variances from their allotted cost center budget expenses. This short-term focus jeopardizes the longer-term view. The modern FP&A professional knows the truth: Aligning budgets and rolling financial forecasts with comprehensive plans lays the groundwork for proactive rather than reactive planning—a significant strategic advantage in today’s highly competitive environment.

This blog post was originally published by Workday Adaptive Planning and appeared here.

Read more guest blog posts from Workday Adaptive Planning:

FP&A Done Right: Three Driver-Based Budgeting Tips for CFOs When Change is Imminent

FP&A Done Right: Three Words for a COVID-19 World – “Flexible Budget Variance”

FP&A Done Right: Planning for What’s Next in Uncertain Times

Home » Workday Adaptive Planning » Page 13

Workday Adaptive Planning Tips & Tricks: CAPEX Planning – Your Tool for Growth

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CAPEX (capital expenditures) planning is a key feature in Workday Adaptive Planning and gives the Office of Finance and senior executives greater visibility into the company’s financial risk, while also providing a tool for measuring corporate growth. Before we go into the specifics of CAPEX in Adaptive Planning, let’s take a step back and get an understanding of CAPEX.

Capital Expenditures: Overview

Capital expenditures are expenditures within a company that are not expensed on the income statement. They are considered to be investments into the company. Companies with higher capital expenditures are said to be investing more heavily into the future of their organizations.

CAPEX to Operating Cash Ratio

The CAPEX to operating cash ratio analyzes a company’s ability to acquire long term assets using cash flows. In other words, it indicates how much of a company’s cash flows is going towards capital expenditures. It is a great tool for measuring a company’s emphasis on growth. A higher CAPEX to operating cash ratio is an indicator of high growth in a company. A company whose ratio is too high could be taking on too much financial risk. While it is beneficial to invest in CAPEX, overspending in this area can compromise a company’s ability to pay off debts or cover other operating expenses. It is vital for the Office of Finance to have accurate, up to date visibility into CAPEX data in order to assess the company’s level of risk and make appropriate adjustments.

CAPEX and Depreciation

Depreciation is important to consider for asset management, especially for companies who are putting a lot of money towards their assets in the form of capital expenditures. A company must consider how their CAPEX depreciates when looking at their assets. This is a helpful tool to consider:

CAPEX > Depreciation → Growing assets

CAPEX < Depreciation → Shrinking assets

Accumulated depreciation of capital expenditures is indicated on the Balance Sheet, so it is important to consider how this impacts the net income of the company. Depreciation reduces the taxable income of a company, which is impactful especially for companies in a high growth phase who are investing heavily in capital. In addition to the CAPEX to operating cash ratio, depreciation can also be considered when analyzing a company’s growth.

Capex Planning in Workday Adaptive Planning

In addition to having a basic balance sheet and a P&L sheet, you should create a CAPEX sheet in Adaptive Planning. The CAPEX sheet offers a more specific look at capital expenditures than the balance sheet and the P&L sheet, allowing for more targeted analysis. Generating a CAPEX sheet also allows you to drill into expenses and depreciation for budgeting and forecasting purposes on a more granular level.

CAPEX Planning in Workday Adaptive Planning

In conjunction with the balance sheet, the CAPEX sheet is important for budgeting cash and analyzing capital investments. In Adaptive Planning, the CAPEX model consists of calculated accounts in a modeled sheet. These calculated accounts include capital values and their coinciding depreciation accounts. Each modeled account is performing the same calculation based on the asset class selected by the user. Asset class is a text selector column based on the categories of capital expenditures that are specific to your business. Companies vary greatly in the ways that they calculate capital value and depreciation, but all businesses can benefit from CAPEX planning.

How to do CAPEX planning in Workday Adaptive Planning

Adding a CAPEX sheet to your Adaptive Planning implementation gives you a powerful tool for understanding the investments in your company. When you can analyze this data at a granular level, you can better assess if your company has too much financial risk, or if you are invested at an appropriate level.

The team at Revelwood has been recognized by Workday Adaptive Planning for our thought leadership in the space, commitment to our Workday Adaptive Planning practice, and our rapid achievements of milestones. Visit Revelwood’s Knowledge Center for our Workday Adaptive Planning Tips & Tricks or sign up here to get our Workday Adaptive Planning Tips & Tricks delivered directly to your inbox. Not sure where to start with Workday Adaptive Planning? Our team here at Revelwood can help! Contact us info@revelwood.com for more information.

Read more Workday Adaptive Planning Tips & Tricks:

Workday Adaptive Planning Tips & Tricks: Override Formulas in Sheets

Workday Adaptive Planning Tips & Tricks: Templates

Workday Adaptive Planning Tips & Tricks: Alternate Time Tree

Home » Workday Adaptive Planning » Page 13

Workday Adaptive Planning Tips & Tricks: Override Formulas in Sheets

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If you want to write a formula in an account in Workday Adaptive Planning, but still want to give your team the ability to override the formula and enter different data, you can use Shared Formulas to achieve that.

The Shared Formulas function of Adaptive Planning allows users to write level-specific and version-specific formulas for GL and custom accounts. Below is a screenshot of the Shared Formula page in Adaptive.

Workday Adaptive Planning: Override Formula

First, you will select the version, account, and levels that you want to write the formula. Then, you will write the formula in the “Set formula” box. Before you save the formula, you can choose to reserve/remove the user edits in the account if any. If you reserve the user edits, the formula will not override cells that already have data and only perform the formula in the cells that are blank on sheets.

Workday Adaptive Planning: How to override formulas in sheets

You can use the “Import Shared Formulas” function to import/update the formulas in multiple accounts and levels at a time.

Overrding formulas in Workday Adaptive Planning

Unlike Master Formulas, shared formula values are not locked in sheets. You can override the formula with different data directly in a sheet cell. In the example below, I overridden the formula for account 1110 Petty Cash in Mar 2019 with a different number.

Workday Adaptive Planning Tips: Override Formulas in Sheets
Workday Adaptive Planning Tricks: Override formulas in sheets

The team at Revelwood has been recognized by Workday Adaptive Planning for our thought leadership in the space, commitment to our Workday Adaptive Planning practice, and our rapid achievements of milestones. Visit Revelwood’s Knowledge Center for our Workday Adaptive Planning Tips & Tricks or sign up here to get our Workday Adaptive Planning Tips & Tricks delivered directly to your inbox. Not sure where to start with Workday Adaptive Planning? Our team here at Revelwood can help! Contact us info@revelwood.com for more information.

Read more Workday Adaptive Planning Tips & Tricks:

Workday Adaptive Planning Tips & Tricks: Templates

Workday Adaptive Planning Tips & Tricks: Trigger for a Cube Calculated Account

Workday Adaptive Planning Tips & Tricks: Alternate Time Tree

Home » Workday Adaptive Planning » Page 13

FP&A Done Right: To Recover from Economic Shock, Are CFOs Envisioning Enough Scenarios?

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This is a guest blog post from our partner Adaptive Insights, written by Bob Hansen. Hansen explains the why scenario modeling is imperative when facing disruption.

Three out of four finance executives recently acknowledged that the planning processes their companies have in place do not equip them to respond quickly to major economic and geopolitical disruption.

Published in November of last year, the survey results could hardly have been more timely. Just a few weeks later, a virus would emerge in Wuhan, China, that would touch off a global pandemic, sending shocks through virtually every business.

Few could possibly have predicted how this event could have sent recently minted plans and forecasts for 2020 into trash bins everywhere. But even before the SARS-CoV-2 outbreak, CFOs and other execs were keenly aware that business conditions were unpredictable. They were equally aware of the hurdles keeping them from the adaptability and agility needed to outmaneuver and pivot around unforeseen obstacles. The same 75% of survey respondents who said their planning processes left them vulnerable also reported that outdated legacy planning systems, siloed planning processes with limited collaboration, and a lack of relevant workforce skills were keeping them from embracing the one thing their business needed to weather the storms of disruption: agility.

If ever there was a time to marshal all the tools and technology available to help organizations meet the needs of persistent, significant change, that time is now. And as businesses figure out how to recover from the initial shocks brought by the pandemic, gaining a clearer picture of what the future could hold may well be priceless.

CFOs have known this all along

A look back shows that finance executives have long recognized the importance of agility—and the need to plan for the unexpected. A 2016 global survey found that 67% of CFOs respondents said they were concerned about economic uncertainty in their region. Those worries turned out to be prescient. Soon would come tumultuous trade wars and other global impacts, culminating eventually in an unprecedented global pandemic impacting public health, transportation, critical supply chains, and more.

Indeed, forces like digital transformation, automation, and globalization have made agility a business imperative. Though change is a constant, it continues to accelerate.

Now, with so much uncertainty in front of us, agility is more important than ever.

Scenario planning: The reality check every business needs

Back in 2016, CFOs were asked how they could add the most strategic value when managing through an economic or business contraction. Nearly half (48%) said planning for multiple scenarios could help reduce risk by allowing their organizations to respond and course-correct when conditions change.

Since then, scenario planning has become an even more critical capability for finance and beyond. For businesses, it’s helpful to understand that scenario planning isn’t about modeling the likely effects of a specific disruption, such as a pandemic. Why? Because a disrupted supply chain could result from any number of causes: a natural disaster, a fuel crisis, a regional currency crash, political unrest, a pandemic—the list is virtually endless. So it’s important to instead build scenarios based on the likely impacts and model around those. Running what-if scenarios involving possibilities like cost cutting or changes in demand helps to prepare a series of contingency plans to address the financial, operational, and cash flow impacts that could result from specific disruptions.

And companies are doing this now more than ever before. For example, one higher education institution is running scenarios around the loss of room and board revenue, the possibility of fewer returning students, and the expenses associated with remote online learning. Another example is a healthcare organization that has used multidimensional, driver-based modeling capabilities to make course corrections while managing changes in patient volumes, increased government regulations, and a decline in insurance reimbursement.

Regardless of the industry or use case, multiple scenario planning empowers organizations to isolate their drivers, model according to how those drivers might be impacted, and sharpen their foresight to know what their future selves might need to do. It’s a reality check for a reality that hasn’t yet happened.

Scenario planning beyond the bottom line

How are these companies able to conjure up a crystal ball and peer into a mix of their possible futures? They do it through active planning.

Unlike its manual, siloed, episodic, static predecessor, active planning is comprehensive, continuous, and collaborative. Active planning processes are fueled by real-time data, powerful automation, and advanced technologies like machine learning to help planners throughout the business model what-if scenarios with virtually no limits—while iterating multiple scenarios rapidly to identify the most likely outcomes and most effective actions. The most advanced platforms even help you identify erroneous predictions, so you can have more confidence in the scenarios you model. Meanwhile, monitoring results helps you to identify trends and patterns that could further refine your scenario model.

By incorporating financial and nonfinancial inputs that might be impacted by economic disruptions into your active planning model, you can draw more parallels between drivers and better understand how one affects the other. Your responding game plan will also be more comprehensive, encompassing multiple departments for swifter execution and more precise pivots. This includes financial, workforce, and salesplanning.

Are you exploring enough what-ifs?

The right platform will allow CFOs and their teams to model any number of scenarios—and modeling enough of them could mean the difference between success and failure. Just be sure these scenarios are anchored around your key business drivers so that you avoid wandering off into low-value explorations that tie up valuable resources to game out extremely unlikely events.

But do assess a wide range of outcomes, including best case, worst case, and most likely. Generating a 360-degree view of potential outcomes helps you and your organizational leaders make better decisions. And developing strong internal communications to distribute and disseminate scenarios quickly and with the right people allows you to stay on top of changing conditions and quickly shift gears.

To jump-start the what-if scenario modeling process, ask questions that will help you fully explore the possibilities of a business interruption, price war, revenue slide, or any other scenario worth planning for:

  • What do financial hits like deferred revenue or default payments do to revenue forecasts? How will they affect demand planning for things like potential location closures or inventory imbalances?
  • How will you balance your short-term workforce needs against the long-term needs of the business?
  • Is there a shortage of a certain skill set that’s currently high in demand and lacking in your area? How can you source people with those skills?
  • What if you forgo hiring until the next quarter or even the quarter after that?
  • What happens if you need to reduce employee pay or staff levels?
  • How will you adjust your goals or quotes, and what does the ripple effect of that look like throughout the sales department?
  • What if your sales pipeline freezes or shrinks?
  • How can you adjust for potential reduction of sales resources, and how will that impact bookings, productivity, and costs?
  • How will seasonality affect already disrupted cash flow?

You’re not a fortuneteller, but you can be better prepared

You may not be able to predict the next pandemic, the next recession, or the latest technological advancement that sends shockwaves through your industry. But if you model enough of the most critical what-if scenarios, you can meet disruption with agility. And that may be the most valuable outcome of all.

This blog post was originally published by Adaptive Insights.

Home » Workday Adaptive Planning » Page 13

FP&A Done Right: How CFOs Can Lead in Today’s Challenging Environment

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This is a guest blog post from our partner Workday Adaptive Planning, written by Steve Dunne. It is the second in a series looking at macro trends in the economy. This post explains how the CFO can play a strategic role in today’s uncertain business environment.

Even before the COVID-19 pandemic, businesses were facing a plethora of social, economic, and technological challenges, as discussed in the first article of this series. Yet change and uncertainty—while sometimes painful—can create new opportunities, as long as people and organizations have the agility to leverage change for the better.

This is particularly true for the finance function. CFOs must be prepared for both short-term and long-term uncertainty to fully understand and mitigate risk for their organization. This requires a fundamental shift: To become the strategic guide the business needs, finance leaders and their teams must embrace and accept continuous change as part of the new normal.

But how? Below are five key areas for finance leaders to explore in order to guide their businesses through persistent change.

Planning, Liquidity, and Risk Management Are Key to Finance Agility

During uncertain times, it’s difficult to forecast specific revenue and expense targets with any degree of accuracy. Businesses must be able to model rapidly changing conditions, and this demands organizational agility. Uncertainty heightens the need for more dynamic business planning based on a range of scenarios rather than traditional quarterly or annual planning cycles.

Having the ability to conduct more dynamic business planning means organizations can respond to changes and course correct to better understand the impact on top-line revenue and bottom-line expenses. For example, are customers paying on time? What are the implications of a percentage of those customers not settling invoices? Which supplier contracts need to be renegotiated based on changes in demand?

Discussing her own experience of business planning during COVID-19, Workday Senior Director of Corporate Finance Kinnari Desai says, “We were able to leverage actuals data from Workday Financial Management into our forecasts. This enabled us to see the resulting impact on the P&L and cash flow right away. All in all, we were able to speed up the process and operate 50% faster versus using spreadsheets.”

Similarly, during tough times finance functions are also well placed to help business leaders forecast cash and liquidity and identify risks with greater speed and accuracy. Many organizations have multiple sources of cash and creating a complete picture of their overall cash position and liquidity can be challenging without the right tools.

Keep Stakeholders Informed and Aligned with Key Insights

The need to make insights more accessible across an organization is heightened during times of uncertainty, and it doesn’t help when data is trapped in departmental silos or locked away in different tools and requiring time-consuming integrations. Workday research shows that over half of respondents we surveyed believe access to data within their organization is somewhat accessible but remains outdated and siloed within functional teams.

Businesses should have access to financial, workforce, and operational data together, as a single source, to answer fundamental stakeholder questions. Other C-suite leaders are increasingly looking for deeper insights from a wider range of data sources to help them make better decisions. For finance, this means having the ability to share credible insights with the wider business and, more importantly, encouraging these stakeholders to take action based on this data.

For example, finance needs to provide the business with better insights into working capital to better understand minimum cash and liquidity requirements. While the primary focus for most companies is on growing the top line while carefully managing the bottom line, this can lead businesses to take for granted routine but critical back-office activities, such as paying bills and turning receivables into cash.

Thomas Willman, principal, finance advisory global practice leader at The Hackett Group, told me, “Finance organizations must take advantage of opportunities to extend payables while still taking care of their most strategic suppliers. They must also share these insights with the wider business. It will be imperative for CFOs to put a sound plan in place to preserve cash and liberate cash that is tied up in working capital.”

Similarly, executives are looking for insights from finance on how they should manage investor expectations during periods of persistent change. This includes thoughtful and proactive communication and risk mitigation planning in advance of regularly scheduled earnings reports.

CFO Efficacy: Report from Any Location

The COVID-19 outbreak changed the rules completely in terms of how and where businesses operate. With employees now working from home, many finance functions had to consider new ways to keep delivering critical services, such as closing the books. This raised questions for finance leaders around the processes and controls required to support a remote close and the risks associated with performing “finance-as-usual” tasks outside the walls of the business.

The need for finance to embrace more efficient, dynamic ways of working pre-dates the global pandemic, yet it is now proving to be a significant catalyst for transformation. For finance, that means embracing automation and emerging technologies, such as machine learning, that can be applied to key processes. CFOs have long since been looking to reduce the time spent on processes such as closes, consolidations, reporting, and payroll—what’s happened in 2020 has now made this an imperative.

The Hackett Group’s Willman explains, “Finance has had to transform in so many ways in 2020. What hasn’t changed is that all of this work still has to be done; what has changed is that it has to be done away from the office. Finance professionals are exploring things such as machine learning and how it can identify patterns and make recommendations that previously would have required manual intervention.”

In addition, compliance and audit don’t suddenly stop during times of crises. Finance is still required to provide effective controls to enable auditing—even if it has to be done remotely. When discussing the company’s remote close, Philippa Lawrence, chief accounting officer at Workday, says, “We asked our internal audit team to review some of the more important and impactful controls to confirm they were operating as they should. Financial controls need to operate the same remotely as they would during any quarter-end close.”

Understand Skills and Opportunity for the Future of Finance

More than half of respondents to a global Workday survey said they planned to reskill at least 50% of their workforce by 2024 to contend with the changing world of work. Today, how will the plethora of macro-challenges to global business further intensify this conversation? How will the emergence of machine learning and other data-driven technologies influence how business leaders—including the CFO—reskill or upskill talent for their organization?

We are at the crossroads of a technology and people transformation. Finance has traditionally been stuck in the role of gatekeeper, intrinsically bound to manual transaction processing and tied to systems that prevent it from becoming a strategic guide to the business. Now, with the global appetite for automation and the technological capability in place, finance should seek to transform.

And this should be viewed as an opportunity for finance, rather than a threat from the rise of the robots, as long as AI is used in a way that continues to put people first. A poll of 375 executives by MIT Technology Review Insights revealed that “pandemic preparedness will speed up AI deployment and accelerate the pace of AI innovation in high-risk job categories, causing both ‘job-positive’ and ‘job-negative’ effects.”

Finance is well-placed to cast aside legacy technology challenges and develop the skills of its existing workforce to benefit from emerging technologies. Now may be the optimal time to drive this transformation.

Collaborate and Communicate to Build Trust and Integrity

According to Deloitte, in the article “COVID-19: Maintaining Customer Loyalty and Trust During Times of Uncertainty,” consumers—whether purchasing for themselves or for their organization—increasingly want to buy from companies that demonstrate integrity in how they treat their employees, their customers, and the environment. These consumers seek trust, honesty, transparency, equality, and a better overall experience.

Blake Morgan, author and customer experience futurist, wrote in Forbes, “An amazing customer experience is one of the biggest competitive advantages a company can have. Instead of competing on price, more than two-thirds of companies now compete mostly on the basis of customer experience.” And, based on Edelman’s analysis of stock prices in 2018, high-trust companies beat the rest of their sector by 5% on average.

For businesses, this is often about making bold internal changes and committing to operating differently. It’s about being open and transparent, as well as being able to pivot and adapt to meet customers’ changing needs. Finance has its own part in this journey toward trust and transparency by delivering real-time data from a variety of sources and delivering these insights to the rest of the organization to drive collaboration and better decision-making.

Large businesses are being asked by stakeholders to stop merely promising to put purpose over profit, and instead make trust an organic value ingrained within their organization. This requires the right technology and processes to enable these businesses to track and analyze the data, then deliver it — whether financial, legal, or compliance—to key constituents in order to be held accountable.

Focusing on the right areas will be absolutely key for finance leaders as the world starts to spin again. Making agility a priority, while arming the organization with the right insights to make better decisions and understanding how finance will deliver what the business needs — potentially from any location — will also be paramount. All of these factors exist alongside a heightened need for brand trust and transparency — something which the finance function will play a key role in delivering.

This blog post was originally published by Workday Adaptive Planning and appeared here.

Read more guest blog posts from Workday Adaptive Planning:

FP&A Done Right: 3 Steps to Help you Plan for What’s Coming

FP&A Done Right: Reforecasting in a COVID-19 World – Best Practices you can Implement Now

FP&A Done Right: FP&A Tips for Scenario Modeling During COVID-19

Home » Workday Adaptive Planning » Page 13

FP&A Done Right: 3 Steps to Help you Plan for What’s Coming

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This is a guest blog post from our partner Workday Adaptive Planning, written by Bob Hansen. Read it to learn why static planning no longer works and how to make your business agile.

Throughout the world, businesses of every size are feeling firsthand the impacts of instability. In a time of uncertainty, surviving and thriving comes down to how promptly your business can identify disruptive changes and proactively respond to them.

That’s not so easy when your business is mired in static planning—characterized by long planning cycles, immediately obsolete plans, siloed efforts, and hard-to-find errors. Manual, spreadsheet-based planning, budgeting, and forecasting may have worked well enough in a more predictable age. But as we’re discovering that age is long gone.

Even traditional market forces have proven challenging. Technological advances, ever-increasing customer expectations, and smarter, data-driven decision-making put pressure on finance teams to find new ways to operate with agility.

But how do you plan in a way that allows you to respond to such events, from the predictable to the unlikely?

The answer begins — and ends — with active planning.

Why static planning is a disadvantage

The static, traditional planning models finance teams relied on for decades aren’t just a questionable choice in times of disruption—they can leave your business at a grave disadvantage. Businesses hampered by outdated planning processes are often left scrambling to react to changes while more agile competitors outpace, outperform, and outmaneuver them. Look around you: The companies that are performing well at this minute have pivoted—sometimes substantially—in a matter of weeks, sometimes days. Their business agility has become their defining attribute for success.

It’s safe to conclude that many of these agile businesses aren’t weighed down by manual, episodic, and siloed planning. Rather, they’ve likely embraced a more modern approach to planning—planning that’s collaborative, comprehensive, and continuous. These businesses consistently minimize risk, maximize performance, and create competitive advantages because their planning empowers greater business agility.

The difference between static and modern—or active—planning can be stark. Legacy planning tools are typically bogged down by versioning headaches and siloed, instantly perishable data. In contrast, active planning models allow teams to broaden planning data beyond finance, pulling in real-time operational and transactional data from ERP, HCM, and other slices of the enterprise stack—all to make better, data-driven decisions quickly.

Laying the groundwork for business agility

As many companies recognized even before the current crisis, agility is a business imperative—and this more modern approach to planning is the key to achieving it. These three milestones will get you started on your journey to achieving an active planning model.

I. Assess the status quo

Before you map out where you’re going, you need to understand where you are. Take inventory of the current state of your company, more specifically the business planning obstacles keeping you from implementing a more modern and streamlined planning environment. More than likely, these obstacles will pertain to people, processes, or technology, or some combination thereof.

Assessing where you are means getting granular.

  • What do your current business planning processes look like?
  • How long does it take you to create a budget? A forecast? An annual plan?
  • Where are opportunities for improvement?
  • Who are your planning stakeholders?
  • What technology do you have in place, and how well is it serving you?
  • What data challenges need attention?
  • What are the bottlenecks?
  • What could be automated that isn’t?
  • Are there any opportunities for automated data integration?
  • What are you lacking in workforce planning?

Answering questions like these will help you get a clear sense of what you’re working with and where you can improve.

II. Get organizational alignment

Being a change agent is no easy task. That’s why you’ll need to recruit a savvy senior-level advocate to help champion active planning as a worthy and necessary cause. Along with your senior advisor, you’ll need a task force representative of other departments outside of finance, including operations, sales, and HR. Don’t forget to include IT to help you navigate technology needs and coordinate various data sources.

The next move is to align these key people with the business agility cause you’re championing.

How? Build a business case.

You can do this by quantifying the impact that the organization’s current status quo has on the company. What are manual processes and bottlenecks costing your business in time and money? What opportunities are passing you by? Conversely, what would those measurement strategies and KPI models look like if you implemented an active planning model? Try to unearth more nuanced ROI measures—for instance, how cutting budget time in half could give your people more time to run critical what-if scenarios—to really drive home the meaningful change that a modern agility planning model would bring.

Once your team is in place and your pain points recognized and quantified, you can map out a plan for your initial project. Consider focusing your initial effort on a function within finance so you’ll have control over the rollout. Develop a multi-phased plan that clearly communicates goals (both for implementing active planning and for this inaugural project), a concise and actionable plan, and the key metrics for your KPI model. The ability to effectively communicate the why behind this initiative will help secure any executive buy-in you need for the how. A comprehensive and well-thought out plan will go a long way toward achieving that.

III. Expand across the business

As noted above, there’s a strong case for beginning the rollout of your active planning model in finance and focusing on low-hanging fruit to bring early and easy wins. You’re motoring along, mapping projects, tracking and communicating progress, analyzing KPI reports, and making necessary tweaks. Once a rhythm and familiarity are in place, broaden your scope beyond finance. Initiate planning projects that engage HR, sales, or marketing. This is where you begin to extend the use and impact of active planning company wide.

The key in this phase is to strengthen cross-departmental communication and collaboration. Don’t fall into the trap of relying on your technology or tools to do the heavy lifting. It will be easier to realize and maintain success with regular stakeholder one-on-ones, identifying lessons learned along the way, uncovering opportunities for more ingenuity and improvement, and communicating success and congratulations when they’re warranted.

Doing this will help elevate the role of finance to a strategic force within your organization by orchestrating planning throughout the business. Finance will no longer be known primarily for gathering budget numbers and issuing reports. Instead, your business will look to finance to drive the change and innovation needed to not only weather times of uncertainty, but to thrive in them.

Map your way forward

These three pillars lay the groundwork for creating a more agile planning environment—one that will help you plan for what’s coming, whatever that may be. But since it’s merely a foundation, you’ll want to build on it. Stay tuned for additional insights that can help you derive even greater value from your modern planning environment.

Because the only thing certain about the future is that it will reward business agility. With this foundation and the insights we’ll share in subsequent blogs, you’ll be much better equipped to map your way forward into that tomorrow.

This blog post was originally published by Adaptive Insights and appeared on the Adaptive Insights blog.

Read more guest blog posts from Workday Adaptive Planning:

FP&A Done Right: Reforecasting in a COVID-19 World — Best Practices You Can Implement Now

FP&A Done Right: What FP&A Must do Differently to Make Planning a Success

FP&A Done Right: Modernize your Budget Process to Anticipate Change

Home » Workday Adaptive Planning » Page 13

FP&A Done Right: Reforecasting in a COVID-19 World – Best Practices you Can Implement Now

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This is a guest blog post from our partner Adaptive Insights, written by Bob Hansen. The article shares insights from Workday’s internal finance leaders on how they are adjusting to the impact of COVID-19.

COVID-19 has hit the entire world with unprecedented disruption, and you are no doubt feeling it in your plans and forecasts. Ironically, just as you likely completed your 2020 revenue, headcount, hiring, opex, and capex forecasts, COVID-19 rendered them moot.

In a recent webinar, we asked finance professionals where they’re focusing their attention in terms of scenario planning and reforecasting. More than a third of attendees (34%) are interested in planning for the top line to accommodate unexpected changes in sales or demand. Nearly one in three (31%) want to better understand and game out their cash position. Nearly a quarter (22%) are focused on how to plan for workforce factors like headcount, hiring, capacity, and utilization. For 13%, the priority is determining a way forward for opex, capex, and discretionary expenses.

Taken as a whole, these concerns paint a picture of businesses working hard to anticipate what the future holds when they realize many of their prior assumptions no longer apply.

So where to go from here? How can you chart a new course when time is of the essence and the waters are murky? The good news is that Workday Adaptive Planning can help.

The need for more granularity and flexibility

As we’ve been helping customers adapt and respond to the current climate, we’re seeing an increased need for two things across the board: more granular forecasts and a finer time horizon.

These two dominant asks point to the demand for business agility. As Kinnari Desai, senior director of FP&A at Workday, points out, “Flexibility and the ability to react quickly are the two most important things.”

For CFOs and their teams, navigating an uncertain future requires up-to-the-minute, data-driven forecasting that can be done monthly, weekly, or even daily. With the COVID-19 pandemic sending waves of disruption throughout every aspect of an operation, businesses need a real-time view into their cash flow to make the right decisions in the moment.

At Workday, our team of finance professionals has gathered timely and actionable tips for dealing with revenue shocks and workforce and capacity planning when income is hard to predict, and strategies for emerging from this pandemic in a position of strength.

Focus on 3 elements of driver-based top-line modeling

Along with the right attitude, a flexible planning environment, and a good dose of business agility, it’s vital to boil down your most important business drivers and optimize your plan to those key drivers.

When implementing driver-based top-line modeling, Desai says to focus on three key elements.

  1. Align around the metrics that matter. Query your senior managers across the business on which metric or metrics are the most important in these times so you know what to optimize for when you run what-if scenarios.
  2. Identify your largest business drivers. Focus on adjusting those levers to realize the largest financial impact (rather than trying to optimize for every single lever).
  3. Home in on the top two to three meaningful scenarios. By now, you probably have a sense of the impact the pandemic has made on your business, so focus your energy and recommendations on the three most likely or meaningful scenarios. Don’t waste your time, cycles, and sanity spinning 10 or more scenarios that are only slightly different from one another. Iterate and refine the scenarios that will matter the most.

You can use Workday Adaptive Planning to tee up your top-line model without a lot of versioning headaches, number crunching or toggling between spreadsheets. Top-line modeling also helps ensure you and your leadership are marching toward the same goal—something that’s never been more crucial.

Understand the value of the common data model

As these changes impact your data model, as you encounter unforeseen expenses, and as you face the prospect of making critical decisions on an accelerated timeline, the true value of a common data model becomes clear. “At Workday, our common data model really helps us,” explains Desai. “At the end of the day, having the same data model being used in your planning system and your ERP system (and if it’s one and the same, that’s even better) is very important to react quickly and understand the data. I can’t emphasize enough the value of the common data model when you need to know what’s really happening in the business right now.”

Working from a single source of truth, notes Desai, you can better explore data, understand the source of that data, and identify viable, numbers-backed opportunities. Say you’re exploring the idea of moving all your new hires out by a quarter. Historically, that may have been done on a quick Excel workup or even a back-of-the-envelope calculation, with decisions based on a glance at the actual data. But neither of those comes close to what anyone would legitimately describe as “data-driven.” With Workday Adaptive Planning and a common data model, we’re seeing customers forecast quickly, adjust variables in real time, and identify the right moment for taking specific action.

From our own experience at Workday, we realized that to move quickly, we had to iterate multiple times. And we realized that revenue, headcount, and cash flow are all driver-based. A single source of truth is making those iterations easier because those drivers are always accurately represented.

Another key advantage: The platform also helps you isolate and measure the impact of specific variables, instead of the detail just disappearing in a never-ending stream of formulas and sheets. For example, many companies now face (hopefully) one-time expenses like supporting a remote workforce. (We created a special “COVID-19” project code so we could track these one-off expenses, like the relief package Workday provided its employees, separate from typical ongoing business expenses.) Operating on a common data model helps you trace the impact of that expense and present true business-related actuals-to-forecast variance.

Keep management in a forecasting feedback loop

Especially in a time like this, the most valuable role of FP&A is to provide expert insight and well-modeled scenarios to senior management early on so they can make informed decisions on issues like expense reduction, hiring, workforce deployment, customer payment options, and more. The faster they can understand and digest those scenarios and the data, the better suited your organization will be to see the other side of this with minimal lasting damage.

This new pace will most likely not let up anytime soon, so now more than ever, you need to utilize Workday Adaptive Planning to ensure your models, plans, and forecasts reflect the latest expectations and data. You have to be able to make changes on the fly and be ready with an answer when you’re asked, rather than spending the next two to three days calculating it.

So to help ensure your leadership is up to speed, turn to our platform to:

  • Build your Active Dashboard to showcase the top business drivers for quick reference and fast, high-level adjustments
  • Drill down into a specific number, or into specific areas of the company to better help understand relationships and correlations across departments or business units. Top-line numbers don’t always provide the insights you need, but discovering what’s behind the numbers can help you see, say, where that opex increase is really coming from
  • Automate as much as you reasonably can, including ingesting data instead of copying and pasting into reports, to free yourself of the manual minutiae and save time to serve as the strategic force you are

How quickly can you get Workday Adaptive Planning up and running?

This is a question we’re hearing frequently these days as FP&A professionals realize their spreadsheets and legacy planning systems have left them at a disadvantage—and they’re looking for something that will give them greater agility fast.

Depending on what you want with your initial build, getting up and running could take as little as a couple of weeks. As with anything, the timeline depends on a variety of considerations.

  • Workday Adaptive Planning is vendor-agnostic and easily integrated with most any other system. You’re going to want to pipe in any data source you’re currently using that’s valuable to your plan
  • There’s no real limit to the amount of data you can sync with Workday Adaptive Planning. Just determine what makes sense for your business—and if your need is urgent, decide what data is critical now and what can wait for later
  • Workday Adaptive Planning lets you plan as far into the future as you like. This is a significant differentiator from some tools like Salesforce, which allow you to forecast relatively near term or the quarterly pipeline but remains a transactional element. With Workday, you can look past the near term
  • If you’re still dependent on external files for your planning, no worries. OfficeConnect is a helpful add-on that lets you interact with live numbers in your Excel, PowerPoint, and Word documents

Change is always a constant. Yet unprecedented changes such as those we’re seeing today require more insight and support. That’s why we’ll be rolling out more webinars and education for you to learn how to get the most from Workday Adaptive Planning—and keep your business agile and responsive in these uncertain times.

This blog post was originally published by Adaptive Insights and appeared here.

Read more blog posts from our partner Adaptive Insights:

FP&A Done Right: Tips for Scenario Modeling During COVID-19

FP&A Done Right: What Must FP&A Do Differently to Make Planning a Success

FP&A Done Right: 3 Words for a COVID-19 World — “Flexible Budget Variance”

Home » Workday Adaptive Planning » Page 13

FP&A Done Right: FP&A Tips for Scenario Modeling During COVID-19

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This is a guest blog post from our partner Adaptive Insights, written by Steve Dunne. It is a unique Q&A with Kinnari Desai, Workday’s senior director of corporate finance, on how Workday responded to the FP&A impact of COVID-19.

Kinnari Desai, Workday’s senior director of corporate finance, has deep insight into scenario modeling and how Workday approached this following the outbreak of COVID-19. We spoke with her to get more best practices and tips for financial planning and analysis (FP&A) teams.

How did Workday have to adapt its business planning process following the start of the crisis?

We were coming off the back of our annual planning cycle and thanking our teams for their efforts in delivering “Plan A.” Then of course, everything changed with COVID-19. We had to spring right back into action, modelling scenarios in an environment that was so new—and seemingly changing hour by hour.

I believe that in an uncertain environment like this, it’s very important the FP&A team aligns with the leadership team, understands the context of what’s happening, and looks at a small number of relevant scenarios. It can be easy to get carried away producing several scenarios, but the goal is to provide the leadership with a range of likely outcomes and provide data, in a simple way, that would enable decision making.

In these situations, I’d imagine speed is of the essence, but you have to get it right if scenario modeling data is going to be valuable to your business leadership?

I do think it’s important to execute quickly, but in order to achieve our objectives, we had to be thoughtful in our approach.

As a business, you have to agree on your priorities. Are you going to focus on top-line growth, cash, the impact of employee relief programs, hiring pauses, and so on? Then you should consider the impact of those on the P&L and cash flow.

The next big thing is getting input from the business. While we are always in lock-step with our business partners since we can’t model in a vacuum, it’s more important than ever to meet with the operational business leaders, gather their perspectives, and understand what’s top-of-mind for them. You should be meeting with leaders multiple times to quickly narrow down focus areas that are a priority for them, such as support for employees, availability of equipment, and hiring direction.

From there, how do you start thinking about how you’ll use scenario modeling to drive decision making and elements such as forecasting?

In our case we had to adapt our scenario modeling frequency to help us make decisions faster. This impacts things like forecasting —we could no longer rely entirely on a monthly forecast process, so we adjusted the process slightly. This has led our FP&A team to a more continuous approach to planning, versus point-in-time or quarterly updates.

There are areas like revenue and cash that we are visiting on a weekly or even a daily basis. Then there are other areas that we may not review daily, but look at more frequently than before. We also discussed as a team that at times, the level of guidance we can give to other internal teams may not be as detailed or defined as it has historically been, since the situation is constantly evolving. As a result, we all need to remain agile.

Last but not least, we also identified drivers of large spend, and cost levers that can be pulled should the need arise.

Technology obviously plays a key part in enabling scenario modeling. Can you tell us a bit about how you used Workday Adaptive Planning to drive the whole process?

Part of our job is to provide a sense of calm amidst chaos, and the Workday tools and data model enabled us to do just that. We spun up different versions in Workday Adaptive Planning, and adjusted the drivers like new business and renewal rates for revenue. For expenses, for example, we tweaked the timing of hiring, and the related impact on other expenses like benefits and employee relations costs were updated right away since they are based on timing of hire.

We were able to leverage actuals data from Workday Financial Management into our forecasts. This enabled us to see the resulting impact on the P&L and cash flow right away. All in all, we were able to speed up the process and operate 50% faster versus using spreadsheets. And the ability to use one data model and driver-based forecasting was very valuable.

What is the magic number when it comes to scenario modeling?

We modeled three different scenarios, and I think that’s a good number to work with during a fluid situation like this. I strongly recommend for my friends and colleagues in FP&A that they don’t drive themselves crazy doing 15 different scenarios! We don’t know everything yet, and spinning up more scenarios isn’t necessarily going to provide the answers.

We aligned on three possibilities and reasoned why these are important. This allowed us to focus on what matters, keeping it manageable so important decisions can be made without data overload.

What would your advice be to other FP&A professionals looking at ways to improve their business planning models today?

I’d start with “over-communicate.” I really can’t emphasize enough the importance of communication. We’ve moved to a remote, digital world, so hallway conversations are no longer a possibility. We needed to ensure emails are not misinterpreted, so we checked in via Slack or had quick Zoom calls. We provided financial guidelines on how to operate in the near term and why these are key.

For publishing updated forecasts to finance, accounting, and lines of business, we heavily leveraged our management reporting capability in Workday. Keeping these stakeholders informed on the approach and current thinking, even when all decisions have not been made yet, goes a long way.

Educate the business as well as accounting. In a changing environment, accounting also needs to be informed of the latest plan so they know what to expect (actuals) relative to the plan. This helps them as they prepare for and move through a remote close —with confidence and in concert with FP&A. The business will also need guidance to understand the latest plan and take action accordingly. Keep an eye on the fundamentals of the business, and take this as an opportunity to rethink some of the processes and outputs.

And lastly, remain agile. As the market continues to shift, we will need to remain flexible so that we can continue to pivot as needed. This is not a one-time shift in light of COVID-19, but a new and more agile way of operating that will allow finance to continuously adapt to change.

This blog post was originally published by Adaptive Insights and appeared here.

Read more guest posts from Adaptive Insights:

FP&A Done Right: 3 Words for a COVID-19 World –“Flexible Budget Variance”

FP&A Done Right: What FP&A Must Do Differently to Make Planning a Success

FP&A Done Right: Modernize your Budget Process to Anticipate Change

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FP&A Done Right: 3 Words for a COVID-19 World – “Flexible Budget Variance”

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This is a guest blog post from our partner Adaptive Insights, written by Bob Hansen. It is part of a series of blogs from Adaptive Insights designed to help customers weather the storm brought by the COVID-19 pandemic.

With the COVID-19 pandemic shredding budget forecasts and presenting FP&A professionals with actuals that are nowhere close to original expectations, now is the perfect time to get acquainted with a certain term: “Flexible budget variance.”

Sure, flexible budget variance might sound wonky. But now more than ever, it’s an essential tool for modern FP&A teams. Here’s why.

Flexible budgeting not only helps you stay current with the challenges and opportunities that surface throughout the year, but it can be a lifeline when your business is rocked by revenue shocks, drops in demand, workforce shifts, and whatever else a global event can toss your way. By updating budgets to reflect those changes, you can quickly course correct to improve efficiency or enhance performance.

What is a flexible budget variance?

Flexible budget variances are the differences between line items on actual financial statements and those that are on flexible budgets. Since the actual activity level is not available before the accounting period closes, flexible budgets can only be prepared at the end of the period. At that point, flexible budget variances can be useful in identifying any shortcomings or deviations in actual performance during a given period.

Though powerful anytime, you can imagine how useful this capability would be now, with so much disruption to normal course of business activity. And it’s a safe bet that business planning and budgeting overall will be subject to rapid and ongoing course correction for months to come.

Flexible budget variance is also beneficial during the planning stage at the beginning of the accounting period. By adjusting project budgets to a series of possible activity levels, Finance creates data that helps anticipate the impact of changes in activity levels on revenues and costs. This helps you make more informed decisions if (or when) adjustments are needed.

Taking a flexible approach to budgeting typically doesn’t mean you get a free pass when it comes to more traditional, static budgeting. In fact, the static budget is essential for establishing a baseline to measure performance and results and ultimately for calculating the variances that do occur throughout the year.

Save time by using the tools you have

The task of calculating, analyzing, and then clearly communicating budget variances and their implications can be a time-consuming task under any circumstances, and particularly stressful in times of disruption. But certain capabilities in Workday Adaptive Planning make it easier.

For instance, Workday Adaptive Planning’s data visualization software can speed much of that process. And when conditions change quickly, speed is a distinct advantage.

Even so, it’s important to keep in mind that not all line items in a budget can be flexible. For example, your company has many expenses that are likely fixed for the entire year, such as rent or contractual obligations.

Yet other expenses have considerable chance of varying to one degree or another. For instance, staffing projections may be dependent on an expected long-term contract being finalized, or economic stresses cause you to extend payment deadlines or loosen return policies. No matter what, flexibility serves you at the moment you need it—and pays dividends down the line.

Gain meaningful insights

Meanwhile, flexible budget variance analysis offers the ability to derive meaningful insights throughout the year, allowing for improved planning and budgeting for the future. The power and potential of flexible budgets are further fueled by technology platforms such as those offered by Workday that provide drill-down capabilities so you can quickly identify and analyze variances.

You can also use Workday Adaptive Planning to create a variance report that highlights the changes in dashboards, offering a range of visual options for presenting the numbers within highly accessible context.

And by relying on more timely and relevant budget numbers, you can use flexible budgets to provide senior executives and line of business managers with dynamic guidance on spending, investments, or where cost controls might be necessary based on the situation your business faces as days, weeks, and months progress.

You’ll get through this chaos by leveraging the benefits of flexible budget variance capabilities within Workday Adaptive Planning, you even might get through it in a stronger position than your competitors.

This blog post was originally published by Adaptive Insights.

Read more FP&A Done Right posts:

FP&A Done Right: The Office of Finance in the COVID-19 Economy

FP&A Done Right: Modernize your Budget Process to Anticipate Change

FP&A Done Right: A Future Without Spreadsheets?

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