Agile Financial Planning: A Guide for Finance and FP&A Teams

In 2001, amidst the rugged peaks and snow-dusted forests of the Wasatch Mountains in Utah, 17 software developers gathered together and drew up a document called The Agile Manifesto.

The document was created to help software development teams speed up their processes, create more efficient working models, and respond faster to change, but it had a larger impact. Since then, teams and companies have adopted these agile principles in countless other industries, including accounting, finance, and financial planning & analysis (FP&A).

To be considered agile, companies and teams need to be both stable and dynamic. Yet many finance teams still rely on outdated and manual forecasting and budgeting methods, which reduces the ability to be truly agile.

As the organization’s backbone, Finance must adopt an agile planning approach that includes processes and tools to maintain efficiency, facilitate growth, promote resilience, drive innovation, and unite the business through collaborative partnership.

By ensuring agility in FP&A processes, finance teams can help the organization reap the benefits of:

Increased Revenue

According to a study by Oracle, businesses supported by agile finance leaders are “more likely to report positive revenue growth (89% vs. 63%) and increasing profitability (95% vs. 70%).”

By performing a scenario analysis, for example, you and your team members can identify opportunities to innovate or grow revenue. Driver-based rolling forecasts can also be used to identify key business revenue drivers and allocate more resources toward them.

Faster Decision-Making

Agile approaches and technology give the business and Finance access to the data and insights they need to make better decisions and respond rapidly to changing business conditions. Faster decision-making through partnership between the business and Finance allows both teams to react faster together.

In fact, organizations that have agile finance teams are able to provide business leaders with the information they need to make on-time decisions 80% of the time.

Improved Processes

Leveraging automation and other digital technologies across the organization enables standardization and increases alignment with key business partners. In fact, a recent study from McKinsey & Company found that successful agile transformations have led to a 30% improvement in core operational processes.

Greater Business Resilience

The ability to respond to change enhances resilience by increasing preparedness and adaptability. An effect of the COVID-19 pandemic, for example, is that more companies are now able to react quickly to changes because the circumstances required agility.

To build an agile finance function, financial professionals should:

1. Support Cross-functional Collaboration

Success with agility requires cross-functional collaboration across multiple departments such as finance, marketing, operations, and human resources, and with external stakeholders.

For example, cross-functional collaboration is vital for the financial close because this process requires obtaining data, information, and knowledge from many stakeholders including accounting and other areas.

The key to cross-functional collaboration is moving away from traditional spreadsheets and investing in technology that enables collaboration, connection, and communication between Finance and the business.

The problem with relying on spreadsheets, which most finance teams do, is that they create data silos and impede collaboration between the business and other stakeholders. Since spreadsheets are a single file, only one person can access and edit the data at any given time, and changes are hard to track and consolidate.

“A big thing driving that collaboration is letting different stakeholders contribute directly.”

To lessen the time spent on manual reporting, the finance team at National DCP turned to Planful. The result was faster insights and more collaboration within the company.

“A big thing driving that collaboration is letting different stakeholders contribute directly. They’re not just telling you information, they’re actually inputting it themselves into Planful. They’re a lot more likely to then buy into the decisions we make together. That’s a very, very valuable result of this company-wide adoption of Planful,” said Michael Zambetti, Manager, Finance & Data Analytics at National DCP.

2. Perform Driver-based Rolling Forecasts

Rolling forecasts allow Finance to inform and guide the business by utilizing new information around costs, resources, and projects to adapt new insights into the future performance of the business.

Rolling forecasts are the gold standard for high performance FP&A teams. When it comes to agility, rolling forecasts are a better alternative to traditional static budgets that rely on set periods such as the fiscal year. This is because while static budgets create fixed forecasts, rolling forecasts allow your company to continuously reforecast 4 to 6 quarters out to reflect industry, economic, and business changes. With rolling forecasts, you can reduce risk and more optimally allocate resources in pursuit of your financial objectives.

A key technique you can use as part of your rolling forecast process is driver-based planning. The idea here is that instead of budgeting or forecasting every line in your revenue or expense budget, you instead identify key business and value drivers. Doing this enables you to create business plans and budgets based on the factors that are the most critical to driving success. Also, when completing a driver-based planning model, it’s important to focus on just a few of the most important business drivers. Knowing which business drivers are critical comes from Finance understanding the business by partnering tightly with the business.

Key business drivers vary based on the industry and company, but typical examples include market size and growth, market share, or the number of customers/subscribers. By connecting operational processes to the key drivers, you can focus your forecasting efforts on material factors, such as orders or sales reps, and see the impact that changes to processes will have on the overall budget or forecast.

Continual forecasting provides more accurate financial plans and increased agility and helps identify more opportunities to generate revenue for the business.

3. Conduct Scenario Analyses

“What-if” scenario planning, or simply scenario analysis, is the practice of using modeling capabilities to understand the potential aftermath of a variety of business circumstances.

Potential business-related scenarios can include changes to the industry, supply chain disruptions, product releases from competitors, or environmental events. This approach to planning helps your organization be better prepared for the future and to adapt to changing conditions.

For example, according to the Wall Street Journal, scenario planning helped “about 10% of companies, including Costco, increase earnings before interest and taxes at a compound annual growth rate of 17% on average during the 2007–09 recession, compared with zero growth for those that weren’t as proactive.”

The finance team at UniGroup used Planful’s what-if scenario analysis to realistically predict business results in 60 days and to assess the impact on earnings and cash.

Planful’s cloud FP&A platform can help you be an agent for agile finance transformation within the organization. Our platform has comprehensive solutions to help with scenario planning, building rolling forecasts, and integrating data from multiple sources. Combined, they help make financial planning, modeling, communication, and analysis truly a team sport in partnership with all business areas.

Sign up for a live demo to see why the Boston Red Sox and Bose also used Planful’s scenario planning to gamify their “what-if scenarios” to manage the impact of COVID-19 and make preparations for reopening.