How To Speed Up Your Planning Process

This article is written in collaboration with ValQ, winner of the innovation award at the Financial Modeling Summit 2020. You can learn how ValQ can speed up your planning process by visiting their website or requesting a product demonstration here.

Together with ValQ I will host a webinar on 24 September at 5 PM CEST / 11 AM EST we will discuss next practices in planning. You can sign up for the webinar here.

Last week we released the first of ten articles in the collaboration on my other channel “Trends in Finance and Accounting”. Go read “Ten Challenges Facing FP&A In 2021” and sign up to the newsletter to avoid missing out on future articles. 

We live in times of great uncertainty, yet it seems most companies will stick with the same planning process as they used last year. That seems like a paradox as clearly the output failed almost on 1 January 2020. Are there better ways of doing it? Absolutely! And if you are too tied to your current process you can even try to run experiments on the side and see what gives you the better numbers. We will explore that further in this article. 

When we have limited information available the best we can do is to make assumptions. We should ask ourselves. 

“What must be true for our current plan to be a good plan?” 

Document those key assumptions and establish a confidence interval for each of the assumptions. This will form your base, high, and low case. You can then start to track the actual development in the assumptions. If one of them moves beyond your confidence interval it should trigger a conversation around taking action. That is how simple your planning process could be! 

From assumptions to driver-based planning 

Most companies need more than just high-level assumptions. They also need a P&L, balance sheet and cash flow. However, this too does not need to be a bottom-up process. In simple terms, you should be able to link your assumptions to business drivers that in turn leads to your financials. Let us look at an example. 

You need to know how many units of a certain product will be sold. You know the current market size and your market share. What assumptions do you need to make? Market growth and change in market share. 

Then you need to know the price at which your product is sold. You know your current pricing model and the variables that go into it such as production cost and margins. All you now need to do is make assumptions about how these variables will change and perhaps add one for competitive pressure. 

Now you have your volume and price so total revenue is done. You can build similar simple models for other items in the P&L, balance sheet and cash flow. Once the model is built you can go back to tracking the assumptions. 

Maybe this sounds too simplified as companies tend to want more details. They would like to know things like geographical splits and customer splits of revenue. There might also be interdependencies between all the variables etc. Likely you will never get to 95-100% accuracy using such a simple driver-based model, however, ask yourself what it is you are losing? Probably not too much. 

This is how you increase speed and agility 

What you do get though is a much faster planning process where you have established clear guidelines of when to act. Most often your assumptions will even be leading indicators meaning that you will be prompted to act long before the results show up in the P&L. 

You will need distinct modeling capabilities to create such an assumptions-driven model as well as establishing a low and high case. Moreover, you will need the capability to model with ease the impact of changed assumptions on your business to establish a low and high case. 

Once you have a working model you will not only have a faster process, but you will also be much more agile in responding to what is happening in your market and business. After all, this is the competitive advantage that we as FP&A professionals must strive towards giving our companies. What changes are you making to your planning model this planning season? If no changes at all how come? We want to understand the barriers to change so we can start addressing them!

Please see below for previous articles in my collaboration with ValQ.

Ten Challenges Facing FP&A In 2021

You can read a lot more articles about FP&A, Business Partnering, and Finance Transformation below. It all start's with “Introducing The Finance Transformation Nine Box” where you set the ambition for your transformation. You should join the Finance Business Partner Forum which is part of Business Partnering Institute's online community where we will continue to discuss this topic and you can click here to follow me on Twitter.

8 Changes For FP&A To Make To Transform Strategy (part of a ten-articles series about FP&As involvement in the strategy process)

An Open Letter To The CFO: Are You Ready To Transform FP&A?

The Future of FP&A – Two Ways To Take the Reins

How To Create Value Through Business Partnering

Everyone Can Adopt A Business Partnering Mindset (part of a six-article series about FP&A Business Partnering)

From Business Partner To Working Within The Business (part of an article series where I interview finance professionals about their careers in FP&A and Business Partnering)

Is Your Product Optimized For Value Creation? (part of a toolbox series where we look at what tools FP&A professionals should leverage to drive value creation)

How Business Partners Turn Analysis To Insight (part of case study series where I interview business partners about how they drive value creation using real cases)

What Defines A Finance Master?

The New Career Path For Finance Professionals

How Finance People Can Be More Successful

The CFOs Roadmap To Transforming Finance

How To Become A Finance Business Partner

Financial Analyst vs. Finance Business Partner

You’re A Finance Business Partner, Now What?

Building A Team Of Finance Business Partners

Anders Liu-Lindberg is the co-founder, COO (Chief Operating Officer), and CMO (Chief Marketing Officer) at Business Partnering Institute and owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 8,500 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner” and a long-time Finance Blogger on LinkedIn with 47.500+ followers.