Published first on http://www.afponline.org/ in November 2016.
About 20 finance executives weighed in on the role of financial planning and analysis (FP&A) in strategic and long-range planning during the latest meeting of the London FP&A Board Tuesday. The biggest takeaway? These two terms often get confused with one another but are by no means synonymous, the finance executives agreed.
Strategic vs. long-range planning
Larysa Melnychuk, FP&A, managing director or the International FP&A Board, began by asking the group how they view strategic planning and long-range planning. One practitioner replied that strategic planning is about reimagining strategies and making sure the organization is doing the right things. Long-range planning, in contrast, is planning around decisions that have a long-term impact—often longer than existing strategies.
“For example, we’re going to build a new factory,” the finance practitioner said. “It will take 18 months to two years to build, and this factory will have a life of, minimum, 15 years. So you have to have long-range planning—but that isn’t strategic. It’s just a big, long project.”
Of course, not all finance departments work that way. A finance executive for a global technology company said that her organization does not actually do a long-range plan. “We do strategic planning, because that’s where the company needs to go,” she said. “As a tech company, that’s part of how we want to be perceived by the market. Long-range planning uses a lot more financial modeling, and we can’t keep up with the numbers; it’s just too dynamic.”
These kinds of differences in the way that companies operate cause a lot of confusion over what strategic plans and long-range plans are, noted a third practitioner. The strategic plan for one organization could be longer than a long-range plan for another. “Some organizations only plan three years out, while others might look 20 years ahead,” he said.
Siva Shankar, a career interim finance, strategy and M&A director, led a presentation on his views on long-range planning. He explained how unexpected events led to the demise of two companies he once worked for, which ultimately led him to lose his faith in long-range planning. “I saw so much resource put into it, and it was very hit or miss despite very bright people and a lot of money thrown at it,” he said.
Shankar likened attempts at long-range planning to Donald Trump’s win in the U.S. presidential election. “Five years ago, nobody saw this coming, and this could potentially change the world,” he said.
He too has observed a lot of confusion in business about mid-term strategic planning and long-range planning, even though they are “absolutely” not the same. “With mid-term planning, there’s some amount of certainty,” he said. “You’re driving in the dark but you’ve got headlights and you’ve got a bit of a map. There won’t be a huge amount of changes.”
Long-range planning, however, is a very different animal. FP&A can look ahead about five years, but not much else. And as the Trump example proves, sometimes you can’t be even remotely certain of what’s coming in five years. “It’s just an unknown leap into the dark,” Shankar said. “The past can actually be quite dangerous in long-term planning because people think they’re really good at this or that, and they find out that the world has really changed.”
All in all, long-range planning really does not appear to be worth the effort. “Businesses put a lot of work into long-range planning,” he said. “They make a lot of assumptions, but nobody really knows. A huge amount of analytics and number crunching goes into this, but it’s just a finger in the air.”
Or, as Melnychuk put it after the presentation ended, “It looks like the conclusion is, long-range planning is dead.”