FP&A Week: Breaking the Paradox
October 10-13, 2023
By Antoine Chabert, Product Manager at SAP
Finance professionals need to make their plans trusted and accurate by conducting a detailed analysis of the available data. But the data deluge challenges their ability to maximize efficiency. So, finance departments are exploring self-service predictive planning techniques to help automate and speed up the routine.
This article details the main benefits and drawbacks of predictive planning. It provides recommendations on where to start your journey and how to avoid the most common mistakes.
Predictive Planning brings an immediate benefit to the planning process. Based on past events, it can project the evolution of key financial indicators at scale, as illustrated in Figure 1. In case they do not use Predictive Planning, planners can only figure out the financial forecast from the manual analysis of past data, combined with business knowledge.
Figure 1: Predictive Planning Supports the Planning Process
The FP&A Trends Survey 2020 found tangible adoption potential for Predictive Planning, as illustrated by two survey highlights:
I think 2021 will be a breakthrough year for Predictive Planning.
Predictive Analytics is a technique for making predictions about future events, behaviours, and outcomes by using advanced analytics methods. Predictive Planning is the specific use of predictive analytics for planning purposes.
Forecasting in Financial Planning and Analysis (FP&A) terms means projecting the evolution of major financial key performance indicators (KPIs).
Predictive Planning can also quickly create forecasts of the most likely outcomes. For this, it requires historical data. This historical data corresponds to the evolution of these major financial KPIs. Organizations can apply Predictive Planning to every relevant business activity if they record historical data.
Finance departments have increased interest for predictive planning use cases. Several factors explain this:
Predictive Planning technology is ready for accurate and trusted FP&A use. At the same time, one should not think about it as a separate activity from planning. Predictive Planning is part of an end-to-end process where planners already need to prepare the data, schedule their activities, predict the forecasts, plan, visualize, and collaborate in teams to keep their plans up to date (see Figure 2).
Figure 2: Predictive Planning is part of the Planning Process
Predictive Planning is a powerful addition to the modern planner’s toolbox. It brings several business benefits:
Still, organizations should also be aware of potential predictive planning pitfalls and how to avoid them:
Applying Predictive Planning to your organization requires vision and thorough execution.
The vision is about transforming the processes in place. Select the processes with most business value and automation potential. It could be the expense forecasting process, the sales planning process etc.
Execution can start small, even as a proof of concept. All you need is historical data to prove the value. Later, you can evolve this to a rock-solid data foundation.
The end-users working with predictive planning techniques needs some skills:
Stakeholders and project leads need to share the value of Predictive Planning with the entire organization. They need to engage the planners and prove how Predictive Planning can help their work. Briefly, they need to tackle change management from the start.
The future of Planning is predictive planning.
Planning cycles are accelerating. Stakeholders expect high planning accuracy. Data is abundant. The technology is ready for prime time. Business users can leverage it for their own needs.
I predict that 2021 will be a breakthrough year for Predictive Planning. Organizations will embrace it and gain high benefit for their financial process. Do not wait - now is the time for you to experience Predictive Planning to help serve your financial use cases.
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