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FP&A Done Right: How to Rejuvenate your Budgeting Process

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This is a guest blog post from our partner Workday Adaptive Planning, offering three steps to take to disrupt your out-of-date budgeting process.

Disruptive technology is a popular term. No matter how long companies have been in business, many claim that their technology, platform, or business will completely disrupt whatever industry it’s in.

That’s all well and good. But what most organizations should disrupt are their budgeting processes. Here are five ways to refresh your approach to budgeting as you head into annual planning season.

Step 1. Stop relying solely on spreadsheets

Many companies still rely on spreadsheets to do budgeting and planning, and finance departments struggle to compile multiple spreadsheets and consolidate data across the company. Even worse, most spreadsheets contain serious errors, often due to broken links and data integrity issues. Plus, they don’t easily scale, and they’re not secure.

Spreadsheets are great personal productivity tools for ad hoc analysis. But when you have more than one person using them, they become a barrier to collaboration and efficient workflows. Some people spend an enormous amount of time—12 to 18 hours each month—on “spreadsheet maintenance”: updating, revising, consolidating, auditing, and correcting frequently used spreadsheets.

That time sink keeps finance away from more valuable pursuits, such as strategic analysis. And, a Workday Adaptive Planning survey found that 63% of CFOs report lack of time for analysis—primarily due to lengthy data gathering and reconciliation tasks—as a top inhibitor to being a more strategic CFO.

Solution: Automate your budgeting process and make it accessible to business partners at any time, from any location. Look for a dedicated, cloud-based planning and forecasting tool that encourages collaboration, rather than impeding it. Provide a central repository and all users can work from a single version of the truth, so you know your data is right, 100% of the time.

Step 2. Replace multiple budget iterations with continuous planning

We’re all too familiar with the typical budget process. Managers come up with a budget and send it up the food chain to the executive suite. That version gets rejected and sent back. Managers revise their budgets again. And again. And again. It becomes an exercise in gamesmanship and negotiation.

Meanwhile, everyone is budgeting to the “wall,” which is usually the end of the year. By the time the annual budgeting exercise is completed, market conditions have changed and the assumptions are out of date.

Solution: Use a continual planning process to manage funds and raise visibility into future market conditions. Use scenario and what-if planning to model how your plan might adapt to changes in the market. (This is especially important for multiyear projects or budget assumptions that carry over the end of your fiscal year.) The result? Finance helps sail the ship, instead of standing at the back of the boat.

Step 3. Focus on drivers, not detail

Many organizations try to budget at the chart of accounts level, and technology enables them. They add lots of detail, down to the penny, and get caught up in minutiae, thinking that good corporate budgeting is about being precise. But there are only two things you guarantee when you add detail to a budget or plan: You create a lot more work for everyone, and you create more opportunities for errors.

Solution: Focus on significant business drivers like risk, profit, and working capital. Remember the 80/20 rule: If you have 100 or more business drivers, you’ll likely spend 80% of your time gathering data and only 20% on analysis. Drop the number of drivers to 20 or fewer, and that equation flips: Data gathering may take up 20% of your time, freeing the other 80% for analysis.

Step 4. Don’t use the budget to control costs

Some organizations fear that without a budget, costs will spin out of control, so they use the finance department as a club. Some CFOs even punish people for overspending. But this attitude creates some serious problems. Managers won’t exceed their budgets, but they won’t spend any less either because they feel entitled to the funds they worked so hard to negotiate—and they know that next year’s budgets will be based on this year’s spending.

And that freezes flexibility. A budget that’s set in stone once a year can’t shift in response to changing demand, which stresses existing resources and causes service levels to deteriorate.

Solution: Shift to a dynamic resource allocation that works from the latest set of assumptions so that you can respond quickly and flexibly to changes in the economy and your industry. Instead of asking “Do I have the budget for this?” encourage employees to ask, “Is this really necessary? Is it the right thing to do? Does it support my strategy?

Step 5. Tie bonuses to relative performance, not budgets

When you link bonuses and compensation to budgets—rewarding managers when they hit their target numbers—you can bring out unproductive behaviors. Managers set targets they can easily reach—or give guidance below what they know could be achieved—to ensure their bonus. They act conservatively instead of trying to optimize the organization or take advantage of market opportunities.

You may have a good market position that works for a while, but over time, if you’re not running as fast as your market will allow, competitors will overtake you and you’ll find yourself in a much weaker position. Even worse, this lack of transparency creates a game of liar’s poker. You risk destroying the ethical foundation of your company.

Solution: Shift to a system that rewards relative performance instead of meeting fixed targets. Tie bonuses to outcomes—what value employees delivered in the environment they were in. Evaluate how you did compared to the opportunity you had, and your competitors.

Also, if you refocus your budgets on a few key growth drivers, as suggested earlier, it will make it easier to refocus your performance and rewards systems from short-term earnings to long-term growth drivers.

Disrupt has several synonyms: disturb, upset, interrupt, and unsettle, to name a few. All of these words imply radical change—and that can scare people. But disrupting your budgeting process doesn’t have to be scary. Cloud-based planning systems are flexible, easy to use, and quick to deploy, while offering powerful features to manage workflow and encourage managers to collaborate in the planning process.

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

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FP&A Done Right: 3 Pitfalls to Avoid with Rolling Forecasts

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This is a guest blog post from our partner Workday Adaptive Planning, detailing three mistakes you don’t want to make with your rolling forecasts.

It’s not just meteorologists who can get forecasting wrong. If FP&A pros don’t take a thoughtful approach to establishing rolling forecasts, they can hit some unexpected stormy weather along the way. When that occurs, you run the risk of forecasts ending up, well, not being forecasts at all. They morph into updated versions of the annual budget as opposed to dynamic tools for creating visibility into the opportunities and challenges on the horizon.

Here are three pitfalls to avoid as you work to get the most strategic value out of forecasting and generate buy-in and momentum with your leadership team and business partners.

Pitfall #1: Don’t use the year-end as the stopping point

Let’s start with a driving analogy. Rolling forecasts should act like your headlights, providing steady and consistent visibility for what lies ahead. Too often, however, rolling forecasts become simply budget updates—which end up being the equivalent of driving so fast that the visibility provided by your headlights becomes increasingly limited.

The most common way organizations fall into this trap is by using the end of the year as a stopping point for forecasting. That may work in the first quarter, but by mid-year your forecast faces a hard stop in six months. And, of course, by the end of the third quarter you have a forecast that offers only three months of visibility.

When you’re forecasting with year-end being the stopping point, you’re just engaged in the process of determining if you are going to hit the year-end numbers that were established in the annual budget process.

The trouble with this approach is that it often encourages business partners to provide numbers and projections that are focused on “hitting the year-end numbers” as opposed to what is actually occurring in the business. With true rolling forecasts that don’t have an established endpoint you encourage transparency, because the focus is on assessing what is truly happening in your business and the market so you can plan and react accordingly. Not only that, but you can also generate a consistent long-range view to aid in better decision-making.

Pitfall #2: Know the difference between forecasts and targets

Forecast and targets are sometimes viewed as interchangeable. They’re not. In the simplest terms, a target is where you want to go, while the forecast continually tracks where you’re headed. In the ideal world, forecasts lead neatly toward your target. In the real world, a forecast represents the ever-changing dynamics of your business and the marketplace.

If you start viewing forecasts and targets interchangeably, you run the risk of facing mounting pressure to adjust the forecast to hit the target—regardless of other factors that might be cause for a course correction—or making decisions that help assure the target is still in your crosshairs.

If you separate forecast and target, you can then have much more robust conversations about what the business is doing to make the adjustments needed to where you want to go. That gives you a much richer, more robust planning conversation than you’d have otherwise. If you keep the definitions straight in your mind, you’ll avoid this pitfall, and really get to the heart of what you’re really planning to do and the risks you’re trying to run.

Making this distinction helps unleash the power of rolling forecasts. You can emphasize that the long-term focus is on the target, but that the nimbleness of a rolling forecast helps assure you will ultimately hit that target.

Pitfall #3: Don’t throw in the kitchen sink

With forecasts, it’s often best to keep it simple. The biggest problem often is that FP&A teams include too much information, thinking that, by putting more and more detail into the forecast, they can really nail it down.

In reality, adding too much detail leads to two pervasive problems that ultimately can undermine your forecasting success. First, it requires much more work for your FP&A team and business partners. Second, handling more data and information increases the chances that your forecasts will miss the mark or be error prone.

For example, the more drivers you include, the more things you must look at, the less time you have for analysis. So if you have hundreds of drivers, you’ve got to spend hours and hours—80% or more of your time—gathering up the data, leaving precious little time to do any real analysis.”

Some experts recommend the 80-20 rule: Aim to spend 80% of your forecasting time on analysis and generating insights, and 20% on collecting data. The only way to effectively do that is to simplify and only rely on the key drivers and data points that will 

This is a guest blog post from our partner Workday Adaptive Planning, detailing three mistakes you don’t want to make with your rolling forecasts.

It’s not just meteorologists who can get forecasting wrong. If FP&A pros don’t take a thoughtful approach to establishing rolling forecasts, they can hit some unexpected stormy weather along the way. When that occurs, you run the risk of forecasts ending up, well, not being forecasts at all. They morph into updated versions of the annual budget as opposed to dynamic tools for creating visibility into the opportunities and challenges on the horizon.

Here are three pitfalls to avoid as you work to get the most strategic value out of forecasting and generate buy-in and momentum with your leadership team and business partners.

Pitfall #1: Don’t use the year-end as the stopping point

Let’s start with a driving analogy. Rolling forecasts should act like your headlights, providing steady and consistent visibility for what lies ahead. Too often, however, rolling forecasts become simply budget updates—which end up being the equivalent of driving so fast that the visibility provided by your headlights becomes increasingly limited.

The most common way organizations fall into this trap is by using the end of the year as a stopping point for forecasting. That may work in the first quarter, but by mid-year your forecast faces a hard stop in six months. And, of course, by the end of the third quarter you have a forecast that offers only three months of visibility.

When you’re forecasting with year-end being the stopping point, you’re just engaged in the process of determining if you are going to hit the year-end numbers that were established in the annual budget process.

The trouble with this approach is that it often encourages business partners to provide numbers and projections that are focused on “hitting the year-end numbers” as opposed to what is actually occurring in the business. With true rolling forecasts that don’t have an established endpoint you encourage transparency, because the focus is on assessing what is truly happening in your business and the market so you can plan and react accordingly. Not only that, but you can also generate a consistent long-range view to aid in better decision-making.

Pitfall #2: Know the difference between forecasts and targets

Forecast and targets are sometimes viewed as interchangeable. They’re not. In the simplest terms, a target is where you want to go, while the forecast continually tracks where you’re headed. In the ideal world, forecasts lead neatly toward your target. In the real world, a forecast represents the ever-changing dynamics of your business and the marketplace.

If you start viewing forecasts and targets interchangeably, you run the risk of facing mounting pressure to adjust the forecast to hit the target—regardless of other factors that might be cause for a course correction—or making decisions that help assure the target is still in your crosshairs.

If you separate forecast and target, you can then have much more robust conversations about what the business is doing to make the adjustments needed to where you want to go. That gives you a much richer, more robust planning conversation than you’d have otherwise. If you keep the definitions straight in your mind, you’ll avoid this pitfall, and really get to the heart of what you’re really planning to do and the risks you’re trying to run.

Making this distinction helps unleash the power of rolling forecasts. You can emphasize that the long-term focus is on the target, but that the nimbleness of a rolling forecast helps assure you will ultimately hit that target.

Pitfall #3: Don’t throw in the kitchen sink

With forecasts, it’s often best to keep it simple. The biggest problem often is that FP&A teams include too much information, thinking that, by putting more and more detail into the forecast, they can really nail it down.

In reality, adding too much detail leads to two pervasive problems that ultimately can undermine your forecasting success. First, it requires much more work for your FP&A team and business partners. Second, handling more data and information increases the chances that your forecasts will miss the mark or be error prone.

For example, the more drivers you include, the more things you must look at, the less time you have for analysis. So if you have hundreds of drivers, you’ve got to spend hours and hours—80% or more of your time—gathering up the data, leaving precious little time to do any real analysis.”

Some experts recommend the 80-20 rule: Aim to spend 80% of your forecasting time on analysis and generating insights, and 20% on collecting data. The only way to effectively do that is to simplify and only rely on the key drivers and data points that will provide clean and accessible forecasts.

The end result will be rolling forecasts that you can readily create and update—and that your business partners can easily understand.

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

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Workday Adaptive Planning Tips & Tricks: Common Questions Asked During Training

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My next five Workday Adaptive Planning Tips & Tricks posts will explore the most-frequently asked questions during my Workday Adaptive Planning training classes. In each tip/trick article I will present the question, the reason it is being asked and my well-rehearsed response.

I have been associated with and instructing Adaptive Planning students for seven years. More than 1,000 clients, partners, employees or independent consultants have attended classes I present, which include Introduction to Adaptive Planning and Reporting, Introduction to OfficeConnect and Refresher training sessions. Our students attend these classes virtually, in-person at Adaptive Live or while working at Adaptive, or at Microtek offices nation-wide. There are many questions asked by students – some as basic as “where is the save button” (very common question actually…!) however I am zeroing on the key/important questions that I receive and respond to. This article’s most-common asked question is:

Q: What is the difference between an attribute and a dimension?

A. The key difference is that a dimension when in use holds data while an attribute is a tag for reporting and sorting data already in the database.

The example of a dimension I always present is for a company which has a GL Account string as follows: Company-Department-Account-Customer-Product. When entering a revenue line item the GL Account string may be Company 1, Department Sales, Account Revenue, Customer X and Product Y as follows: 1-Sales-Revenue-X-Y. For a telephone expense entry for their accounting department: Company 1, Department Accounting, Account Telephone Expense, and Customer and Product are “0” as in non-applicable for this specific entry. Customer and Product in this example are the perfect definition/application of the Dimension – holds data when in use however not always applicable.

Examples of attributes (used on Levels, Accounts and Dimensions) that I present are: Customer Dimension with each individual customer “tagged” with the “Type” of customer they are – with Customer Type being the Dimension Attribute and the Attribute “values” being the type themselves.

Common questions asked during Workday Adaptive Training
Common questions asked during Workday Adaptive Training

The previous image indicates that the Customer Dimension Internet Sales is tagged with Customer Type “Web-based” as well as Customer Dimension Attribute “Sales Manager” with the value Matthew North.

A client’s level structure can also be designed with a Level Attribute “Region” and each level is then tagged with the specific Region Level-Attribute value.

Common questions asked during Workday Adaptive Training
Common questions asked during Workday Adaptive Training

An example of an Account Attribute (Applicable to GL and Custom Accounts) is a company which has to report to their accounting auditors with “Income” as the GL Account name, however for internal reporting it is referred to as “Revenue.” An Account Attribute “Name” can be applied to the “Revenue” (official name of the account in Adaptive) with the alternate “Income” tagged as the attribute value option on the Revenue GL Account.

The 6 rules of “Attributes”:

  1. The attributes will never “hold” data – however are extremely valuable for report-sorting and formula creation requirements.
  2. Attributes are not required.
  3. There can be multiple attributes applied to the Level/Account/Dimension – the example of Dimension Customer with two attributes as displayed previously
  4. When an attribute is applied/tagged to a parent/summary Level (for example) all the parents will inherit the parent’s attribute value and cannot be changed. When the attribute is tagged to a specific Level (for example) and the parent does not have an attribute tag, the child’s attribute can be changed.
  5. Only one value can be applied for a single attribute tag.
  6. When not in use, the attribute will be blank.

In summary, the differences between Dimensions and Attributes are many. Each has unique and important functionality in the instance and each requires thought and evaluation prior to developing the instance.

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? 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: Attributes, Accounts, Dimensions, Levels – What’s the Difference?

Workday Adaptive Planning Tips & Tricks: More on Accounts, Levels & Attributes

Workday Adaptive Planning Tips & Tricks: The Formula Assistant – How To, Where & Why

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What Does Revelwood Do?

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When you think of consumer companies, you might only think of them in terms of their flagship product or service. Coca-Cola sells soft drinks. McDonald’s sells hamburgers. Uber provides ride shares for people. Those companies actually do more than just what they are known for: Coca-Cola also offers Dasani, VitaminWater, Honest Kids, Gold Peak iced tea and more. McDonald’s is also known for its Filet-O-Fish and has now entered the competitive fried chicken market. In addition to offering ride shares, Uber’s services include food and goods delivery.

Many Revelwood clients think of us as their partner of choice to design and implement Office of Finance solutions based on IBM Planning Analytics and Workday Adaptive Planning. Like those consumer brands I mentioned, we do much more than that. We’ve recently added BlackLine to our best-of-breed portfolio and are looking forward to adding more world-class solutions for the Office of Finance.

We also deliver Customer Care solutions for managing and maintaining your Office of Finance systems.

Hear what our CEO, Ken Wolf, has to say about what Revelwood does and how we are enabling organizations to disrupt their companies, industries and the world.

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Planning in Workday Adaptive Planning

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In this demonstration, we explain how to do Planning in Workday Adaptive Planning. Workday Adaptive Planning is used by companies of all sizes, across all industries, for annual budgeting, monthly forecasting, what-if scenario planning and more.

Watch this video to learn how to do common planning activities, as well as to see some of Adaptive Planning’s most popular features.

As we look at a typical expense sheet, you’ll see:

  • The importance of color coding in Adaptive Planning
  • How to do forecasting, including 3+9 forecasting
  • Different ways you can display your data
  • Shortcuts for entering data
  • Options for to using the breakback method
  • Cell-level audit trail features
  • Model Sheets
  • Cube Sheets
  • Planning directly in a dashboard
  • How to do what-if scenarios

Revelwood has many video demonstrations of Workday Adaptive Planning. Check out our Quick Takes on Workday Adaptive Planning or check back for the next expanded demonstration of Adaptive Planning.

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Workday Adaptive Planning CFO Indicator Survey 2020: The Path to Finance Digital Transformation

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Workday Adaptive Planning’s CFO Indicator Survey 2020: Finance Digital Transformation defines digital transformation as “the implementation and use of digital technologies such as the cloud, machine learning and augmented analytics, for finance processes to improve efficacy, insight and agility.”

The Case for Finance Transformation

What are the benefits of financial transformation? According to the report, there is a “direct link between finance digital transformation and agile business practices, swift decision-making and more efficient reporting, planning and financial close.” In other words, finance transformation makes it easier and faster to make more informed strategic decisions. It automates manual processes while reducing human error. Interestingly, the survey found that:

  • 54% of CFOs that have implemented many or some finance digital transformation initiatives consistently perform better in efficacy, confidence and agility
  • 34% of CFOs plan to prioritize finance digital transformation within one year
  • Lack of budget and proving ROI are rarely significant issues.
Graphic courtesy of Workday Adaptive Planning

Challenges for Finance Transformation

The two significant challenges CFO face when embarking a finance transformation are a technology skills gap and internal resistance to change. The report states, “It is within the CFO’s power to directly address these challenges.” The question is how?

Here are four steps CFOs can take to reduce or eliminate the technology skills gap:

  1. Determine the technology skills they need for today and for the future
  2. Understand how those new technology work and the knowledge they require
  3. Work with HR to develop a plan to acquire these skills
  4. Plan for a balance between recruitment and reskilling

Download Workday Adaptive Planning’s CFO Indicator Survey 2020 to learn more on addressing the second challenge: internal resistance to change.

Wherever you – or your CFO – are in your organization’s finance transformation, the CFO Indicator Survey 2020 has a vast amount of helpful data to inform your process.

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Workday Adaptive Planning Tips & Tricks: Where Did My Parameters Go?

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Did you ever wonder where did your parameter go after you added it to a report in Workday Adaptive Planning? This post will help you find your parameters.

A parameter is helpful in matrix reports and can be used to filter your data for a specific interaction. Any report element can be added as a parameter in matrix reports. See the example below.

You can add “Timespan” as a parameter by Modified Report – Drag the Timespan element and drop it in the Parameters section. Then run the report.

Workday Adaptive Planning Tips & Tricks: Parameters

After you run the report, you will not see the Timespan parameter right away. This is because a report will only show two parameters at time. You can click on the “Change Parameters” icon and it will bring you to all parameters. The orders of the parameters in the modify report mode will define the orders of the parameters displayed in the report.

Adaptive Planning Tips & Tricks: Parameters

Workday Adaptive Planning Tips: Parameters

Incorporating parameters into your Workday Adaptive Planning reports make them more useful and user-friendly.

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? 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: Save Personal Views on Sheets with Dashboard

Workday Adaptive Planning Tips & Tricks: Interactive Dashboards – Dynamic Planning with Embedded Sheets

Workday Adaptive Planning Tips & Tricks: Override Formulas in Sheets

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FP&A Done Right: Volatile Business Conditions Require Agile Planning

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This is a guest blog post from our partner Workday Adaptive Planning, explaining how to lay the groundwork for business agility.

Manual, spreadsheet-based planning may have worked well enough in a more predictable age. But today? Not so much. Volatile conditions demand a smarter approach to financial planning and analysis (FP&A), and more and more finance professionals are discovering that legacy planning processes don’t let you go there.

It’s not that spreadsheets aren’t great—we love them. But, let’s face it, spreadsheets break down if you’re trying to rely on them systematically to gather data from across the organization, roll up departmental plans, or do complex, collaborative planning.

Even traditional market forces have proven challenging to companies relying on old-world technologies and approaches. 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 a modern approach to planning.

Why old-world planning is a disadvantage

The 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 planning can be stark. Legacy planning tools are typically bogged down by versioning headaches and siloed, instantly perishable data. In contrast, modern, strategic planning models allow teams to broaden planning data beyond finance, pulling in real-time operational and transactional data fromERP,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 a new way to plan.

1. 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.

2. 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 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 a modern, or 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, 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.

3. Expand across the business

As noted above, there’s a strong case for beginning the rollout of your new 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 modern, company-wide planning.

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.

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. 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.

The bottom line

It’s never been easier to define the main driver of business success. It comes down to how fast your business can identify and proactively respond to change. But if your business is mired in static planning —characterized by long planning cycles, immediately obsolete plans, siloed efforts, and hard-to-find errors—it won’t be operating with maximum speed or agility.

This is doubly true in today’s fast-paced, data-driven world. Businesses hampered by outdated planning processes are often left scrambling to react to changes while more agile competitors outpace, outperform, and outmaneuver them.

Wherever you are on your planning maturity journey, the tasks here will help you expand and accelerate business agility by:

  • Creating a new kind of planning mechanism that’s distributed, inclusive, and optimized for your strategic objectives.
  • Empowering finance to continuously deliver insights that help the business course-correct. To power better, faster decision-making in ever-shorter cycles based on rolling forecasts and real-time (and eventually, predictive) data.

The truth is, building a continuous one-to-one alignment between your strategic vision and your operational reality isn’t easy. It’s something very few businesses can claim. You won’t get there overnight and you will face hurdles.

But it only takes a few small steps in the right direction before momentum starts to build. Before long, those steps will amount to a giant leap forward and significant competitive advantage as business agility accelerates exponentially.

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

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FP&A Done Right: Accurate Forecasting = Insightful Decisions

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This is a guest blog post from our partner Workday Adaptive Planning, explaining how great financial forecasts can guide business strategy.

If 2020 taught CFOs anything, it’s that they need well-executed financial forecasts and models from their FP&A team. Accurate forecasts help finance leaders make insightful, data-driven decisions, allowing their organizations to prepare for market conditions and trends, adapt to revenue and expense fluctuations, and execute strategic action plans.

So, if you’re interested in creating more accurate and reliable forecasts that can warn finance leaders when they need to make major changes, read on. You’ll learn how to create the kind of financial forecasts that guide business strategy.

Build an accurate business model

Before you can build a comprehensive financial forecast, you need to construct a well-designed business model. One way to do that is by modeling revenue. An effective revenue model should be able to answer questions like, “Which investments and actions 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.

The purpose of revenue models is to forecast the sales volume and mix of products and standard service line offerings. They will vary widely based on your industry and business model. For example, a manufacturer might consider variables like 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.

Consider the money going out

In addition to the dollars coming in, your financial forecast will need to consider the money going out—expenses. 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 work shifts or job roles.
  • Operating expenses. These are often tightly correlated with headcount. Your expense model should reflect that.
  • Cost of goods sold. You will need to forecast all costs associated with the delivery of revenue—including labor, materials, and overhead.
  • Fixed versus 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 in a way that it is not impacted by changes in revenue volume, 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).
  • Overhead cost allocations. In some cases, you’ll want to trace and assign costs across segments or cost centers and possibly further to products, standard service lines, and ultimately to customers. Distributing IT expenses across multiple departments, for example, may help you understand the “fully loaded cost” of IT’s services to its various internal users. Begin by identifying “drivers” as the basis of your expense distribution. For instance, some overhead costs might be based on the number of customer orders or, for manufacturers, based on the number of material moves or machine setups. “Drivers” reflect the consumption view for how outputs consume expenses with a cause-and-effect relationship. (Activity-based costing is often used for this calculation.)

Get rolling with rolling forecasts

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

By implementing a rolling financial forecast approach, you can revisit and update customer demand forecasts continuously based on actual data and performance to allow on-the-go course-correction as conditions and context change. Continuous forecasting helps you answer critical questions such as, “How are we doing against our plan?” and, “How should we adapt our plans and actions going forward?”

While some reforecasts may occur on an ad hoc basis, you should establish a consistent frequency cadence, whether semiannually, quarterly, or monthly. Each reforecast is an opportunity to assess performance and revise assumptions about the future. Your reforecasts can live alongside your original plan (and in some cases your annual fiscal budget) and represent your latest and best predictions of business performance and planned outcomes.

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 the product or service offering sales volume and mix or on other operational key performance indicators (KPIs) to ensure they remain on track.

Define your reporting process

Once you construct a comprehensive model of your business and incorporate your insights and assumptions into your financial forecasting process, you need to define a set of reports to be used (both internally and externally). Your reports should provide an easy-to-understand view of company health. They should include more than just a financial income statement and balance sheet view plus a pro forma net cash flow of your company’s finances. They should incorporate the monitoring of performance of both strategic KPIs and operational process-based performance indicators that 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 also 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 around for approval. And that doesn’t even include the ad hoc requests you receive by email or from people passing you 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, extraction, and validation of your data. That alone can transform your reporting processes from a monthly hassle to a dynamic, ongoing influencer of organizational change.

Drive collaboration

So, you’ve automated your reporting. You’ve established a regular frequency 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.

Choose the right modern planning software

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 business partners can take ownership of the numbers that they will likely be held accountable for.
  • Enable multiple what-if scenario planning. Combine high-level, top-down growth- and profit 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 with the executive team’s strategy and monitor the organization’s performance in executing the strategy.
  • Automate reporting. With centralized reporting and automated data integration, you can eliminate the need to hunt for and manually aggregate data. That frees up more time to focus on analysis while providing stakeholders with the information they need to make better, faster decisions.

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 display into what’s driving opportunity and risk and causing problems? And perhaps most important of all, how ably can you communicate these insights to decision-makers throughout your organization? With the right financial forecasting tools, you can have all those answers right at your fingertips—and you can help every team member feel part of the process.

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

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