Why do experts believe flexibility is the only future for planning?
If 89% of companies say the ability to predict today important events is low or impossible, is there any point in planning? Maybe not if you’re not doing it flexibly.
We all know planning and forecasting face ‘unprecedented’ challenges, but is there a more fundamental problem with FP&A at play? It’s a question experts and decision-makers are asking themselves, along with: Is our approach still up to date? Is our technology still fit for purpose? Is there a better way?
Financial planning and forecasting viewed with suspicion
In a study conducted by industry the Business Application Research Center (BARC), The Future of Planning, they found that 95% of organizations cited issues around the planning and forecasting process. But can planning be this ineffectual? And if so, why do we spend so much time doing it?
The reality is that traditional budgeting methods are not allowing organizations to keep up with the fast pace of change. But it’s not all bad new; as done differently, planning can work. But it’s going to take some changes. Welcome to the world of flexible planning.
So let’s take a look at:
- Why traditional planning is failing organizations
- The fallout from failing planning
- How flexible planning is different
- How you can make your planning more flexible
Why traditional planning is failing organizations
It turns out, as markets become more and more dynamic and complex, more traditional and static budgeting is becoming less effective. They are struggling to keep up because these models rely on a level of stability and certainty that is increasingly absent from today’s world.
Because of this, BARC found that traditional, long-term forecasting no longer works, and more than 80 percent of organizations agree that quick forecasts are the only reliable alternative to traditional elaborate budgeting in the future. Meaning organizations will need to rely on more flexible continuous planning.
Under these dynamic conditions, regularly updating forecasts and projections lets you quickly interpret signals from the market and understand their impact before they happen. Isn’t this kind of the purpose of planning and forecasting?
The fallout from failing planning
One of the most significant issues that this is causing is distrust. As planning becomes increasingly inaccurate, people are less inclined to trust it.
Planning and forecasting have always been viewed with suspicion in many organizations. It takes too long, ties up too many resources, produces high costs and the quality of the results does not reflect the effort involved.
This, according to BARC, is the opinion of many critics. And they are not wrong. What is more, this erosion in planning’s usefulness and reliability could be highly damaging to an organization’s future if not addressed soon.
However, this problem also suggests a solution. If the issue of forecasting today takes too long, costs too much, and is inaccurate, then you know what needs fixing, why, and possibly how.
But for forecasts to produce results quickly at short notice and provide relevant and timely insights for management, you’re going to need to change your FP&A tools and processes. That’s a big deal, and right now, most organizations are a long way from getting there, with many of them unaware that change is even necessary.
In fact, right now, BARC says,
[F]our out of ten companies update their forecasts at least once a month, and for leaders it is even more than six out of ten. This is not feasible with a ‘more of the same’ approach, so the pressure for substantial adjustments is correspondingly high.
They may be right.
How flexible planning is different
So if traditional planning doesn’t work, and no one’s ready to plan differently, should we stop? Simple answer, no. As BARC states in the survey,
The importance of planning for agile corporate management has increased as a result of the pandemic.
The reality is, planning and forecasting are probably more important than ever before. The faster things change, the faster you need to respond. The companies who realize this are already taking action.
Many companies are investing in better data management and fully integrating all their data sources. The integrations and automations these new tools bring let them respond to situations faster, often in real-time as they unfold. This is the power of a flexible approach to planning.
How can you make your planning more flexible?
These organizations invest in new processes and technologies to make this happen, doing away with static and outdated working methods. These new tools connect data, remove obstacles and let you adapt and adjust absolutely everything instantly.
The ability to perform FP&A at such speed makes the difference. Not to the challenge as they are unpredictable, but to the response. The fact is, all the organizations BARC spoke to are probably right; in such a fast-moving world, predicting what will happen is unrealistic. But it’s how you respond that matters.
You can’t plan for everything, but you can be ready for anything. These tools don’t spot challenges, but they give you the ability to find the solutions to them fast enough for it to matter. That makes flexible planning one of your most powerful tools in a changing world.
To find out how they do this, read BARC’s full report on The Future of Planning here. They guide you through how modern tools let you plan for tomorrow, covering the importance of agile corporate management, the challenges you face, and the actions you can take to tackle them.
