Traditional budgeting processes relate to the following key pain points:

• Planning processes are manual and efficient tools are lacking. (e.g. heavy reliance on Excel)
• Companies often collect financial results, not performance drivers (e.g. the lack of sales and production volumes, prices, FTEs, etc.)
• The planning starts too early and takes too long (e.g. takes five months and is outdated in January)
• The budget is built in isolation (e.g. no alignment between financial, commercial, marketing, operational, and HR planning)
• Governance of the process is misaligned with incentives (e.g. suboptimal decision-making and disinterest)

Yoann Busigny, Director of Finance and Performance, explains how companies can shift towards a ‘more agile’ approach by changing the mindset around planning processes.

As a consequence, companies need to review their Planning Processes to embed:

• Event-driven cycles instead of just a scheduled calendar (e.g. Covid) 
• Directional, relative targets instead of absolute, cascaded targets (e.g. if the market goes down, market shares are more relevant)
• Common targets and rewards to beat the competition opposed to fixed performance contracts (e.g. don’t evaluate admin functions purely by cost savings, but incorporate targets towards common achievements such as sales targets)

Companies will have to adopt the rolling forecast. Instead of forecasting up until the end of the year, many organisations are starting the journey towards a 12- to 18-month rolling forecast. This will provide a better outlook for future business and financial performance beyond the typical year-end view.

In addition, it is particularly important to focus on materiality and volatility. Companies must focus on what matters, the major KPIs, instead of focusing on a lot of details. The ambition is to focus actionable insights.

A reliable forecast requires time and effort. Yoann provides more information about how the process can be automated and accelerated. 

Implementing a more automated forecast will only succeed if actual data is available and accurate. Data quality is the foundation that drives digital transformation. Standardised, high-quality data is becoming even more important given that data is the foundation for business insights and automation. Thanks to that qualitative foundation, automated forecasting (e.g. predictive, AI, ML models) will gradually begin to replace manual forecasting.

One of the biggest challenges is to convince the organisation of the quality and accuracy of the predictions.

Another hurdle to overcome is the fact that the various functions are working in silos. Historically, FP&A (Financial Planning & Analysis) solutions have been used by the finance department in isolation, disconnected, and not integrated or aligned with operational metrics. This was mainly due to technical limitations such as slow databases and a complex or even failing integration between systems and platforms.

A solution for this is an xP&A (Extended Planning & Analysis) approach. BoB (Best-of-breed) operational planning solutions, such as workforce, will remain popular but FP&A will begin to incorporate more of these functional capabilities as it evolves into xP&A. This will result in a platform-centric approach of supporting and integrating both financial and operational planning, and as a consequence, it will break down the traditional silos.

Yoann lists the benefits of Enterprise-Wide Business Planning:

The next challenge for companies moving to this extended planning is the organisational challenge to go for a new planning approach. Not only will the management processes change, but the roles and responsibilities and the way targets are set will also be adapted. 

• Instead of forecasting until the end of the year, many organisations are starting the journey towards Rolling Forecasting 
• Companies must focus on what matters, the 10 KPIs, instead of focusing on the details
• Predictive algorithms, Artificial Intelligence (AI), and Machine Learning are introduced or extended
• Quality of data is crucial to implement a more automated forecast
• Organisational challenges and governance must be addressed to ensure adoption

• Define strengths, improvement opportunities, and relevant use cases
• Align EBP vision company-wide 
• Involve key functions outside of Finance

• Prioritise use cases
• Phase your implementation
• Think about people, process, and technology
  

• Demonstrate new capabilities
• Validate value generation
• Success drives adoption and awareness within the organisation

• Refine pilots and scale their capabilities
• Incorporate lessons learned

• Engage leaders of key functions early in the process and repetitively. Enterprise-Wide Business Planning requires organisational alignment and sponsorship at the executive levels.