Error message

Image resize threshold of 10 remote images has been reached. Please use fewer remote images.

Planning and Forecasting

Data Driven Planning: The 7 Key FP&A Models

by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"

In this article, I want to make the case for data driven planning to describe the 7 key FP&A models that every organisation needs to plan, resource and monitor business performance.

From a planning and review perspective, there are 7 key things that management needs to know about its business processes, each of which can be assessed in a range of analytical models:

  • How efficient and effective are the organisation’s business processes? (Operational Activity Model)
  • What trends are ‘hidden’ in the detail? (Detailed History Model)
  • What long-range targets should be set given where the market is heading? (Target Setting Model)
  • Where is the organisation heading if it continues with its current business model? (Detailed Forecast Model)
  • What could be done differently to better meet long-range targets and how much would it cost? (Strategy Improvement Model)
  • What choices/risks do management face and what would be the impact on corporate goals? (Scenario / Optimization Model)
  • How much funding is required to implement the plan and where will it come from? (Cash / Funding Model)

The models that answer each of these questions have different content, structures and are used by different people at different times.  However none can be omitted or ignored, and all need to operate as a single, data-driven management system.

The Purpose of Planning and Why It Often Fails

by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"

 

Most people will agree that planning is a vital activity for every corporate body.  It is often carried out according to a management calendar.  Long-range and resource planning tends to take place on an annual basis, forecasting tends to be quarterly, while reporting is monthly driven.  This timetable of planning events was established back in the 1920’s where James McKinsey described budgeting as a way of setting standards of performance and a means of coordinating activities between departments.  There’s nothing wrong with this concept of planning, but today’s business is very different from that of 100 years ago.

With the advent of the Internet and e-commerce, physical boundaries have been removed making it relatively easy for competitors to enter new markets with new products in a fraction of the time it took in the past.

Different Planning Methods for FP&A

by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"

 

Planning involves many kinds of methods that help managers make decisions. It goes without saying that any planning system must be able to handle both financial and KPI information, it must be able to model the different business structures (products, departments, customer groupings) and possess good reporting and charting capabilities. It should also be able to report data from both a financial viewpoint as well as a strategy view through dashboards and strategy maps, as well as be multi-user that allows secure access to people with different roles.

We will look at the different methods an organization can use to set direction. 

 

Evolving FP&A: What are the Key Planning Activities?

by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"

Believe it or not, organizations do not collapse if they don’t have a plan or a budget! If a business is already established then two things will impact future results, irrespective of what is planned:

Organic growth. The momentum of current activities will continue to generate costs and sales. The value of these is fairly easy to forecast in the immediate future but as time goes on the upper and lower limits could be diverse.

Dynamic FP&A: The Role of Planning

by Michael Coveney, co-author of "Budgeting, Planning, and Forecasting in Uncertain Times"

We live in an unpredictable world where the future is uncertain. If it was then we would all make a fortune by making strategic ‘bets’ on certain outcomes – we would know what products and services to back, what level of stock and staffing to have, and when and where to market our capabilities for maximum effect.

But the world is not like that. When we use the word ‘unpredictable’ or ‘volatile’, what we are really saying is that the mechanisms we use for predicting the future are inaccurate. Things happen that we either didn’t foresee, or that impacted differently from what we expected. Most of these ‘things’ are typically external and beyond our control. For example, a competitor changing their price, a company introducing a disruptive technology, the impact of natural events such as the weather, a change in government policy, a significant change in the local economy, or a combination of any of these. However, senior executives are expected to navigate their organizations through all of these challenges. They are charged with ensuring that limited resources are allocated to the right products and services for maximum return. That the organization is moving towards long-term strategic goals and to provide a reasoned explanation as to when, where and how it expects to get there.

Pages