The Benefits of Continuous Planning: Is it Time to Make the Switch?
Effective financial planning and analysis (FP&A) plays a vital role in supporting the financial well-being of a company. This business function involves the use of various planning, forecasting, budgeting, and analytical processes.
In today's fast-paced business environment, it is crucial for FP&A teams to stay up-to-date with industry trends in order to keep the organization on track with its objectives.
A key aspect of successful FP&A is the selection of an appropriate planning strategy to ensure efficient execution of duties.
One preferred method that has been seen to be increasingly adopted by FP&A teams is continuous planning. With this proactive method, teams can quickly adjust their plans in response to changing market conditions and more effectively align with organizational goals. The continuous cycle of planning, monitoring, and adjusting enables greater agility and success for the team.
In this article, we will review the distinctions between periodic and continuous planning and reporting, as well as how to determine if it's time to switch to continuous planning for your organization.
Periodic vs. Continuous
The primary difference between periodic and continuous planning is the time frame involved.
In the past, periodic planning was often used by companies to create plans for a specific time period. This approach involved planning on a monthly, bi-monthly, or quarterly basis and was sufficient to meet business needs.
However, the pandemic and the current market conditions have led to increased uncertainty, requiring FP&A teams to reassess and improve their approach in order to remain competitive and successful. It is now more important than ever for FP&A teams to manage financial plans continuously, as these events' impact on the global economy has necessitated the regular revision and updating of financial plans.
The continuous planning approach allows companies to have better agility in various aspects of FP&A. By using rolling forecasts, you can respond to changing business conditions as they occur, optimizing financial results, improving agility, and ensuring accurate financial plans.
The Challenges of Periodic Planning
While periodic planning may be suitable for some companies, it can also present significant challenges that hinder growth. Here are some challenges that companies may encounter with periodic reporting, budgeting, and forecasting:
1) Slow Processes
Periodic planning can be slowed down by manual and time-consuming operations, making it difficult for FP&A teams to provide accurate insights quickly enough to support informed decision-making by finance leaders.
2) Operating in Silos
The heavy workload of manual tasks prevents FP&A team members from dedicating time to other activities. As a result, they are unable to ensure a seamless transition from FP&A to xP&A that would otherwise help create a planning culture across the departments.
3) Lack of business partnership
FP&A teams are focused solely on their core operations as the entire process is manual. A lot of time is spent on the identification and removal of errors from the data. Hence, they are unable to reduce the length of planning cycles.
The Power of Continuous Planning
The benefits of continuous planning extend beyond FP&A teams to every aspect of the business.
1) Compressed cycle times
Continuous planning helps to streamline FP&A tasks by automating routine and labor-intensive processes, resulting in shorter cycle times and faster planning and decision-making.
With more frequent decision-making across the business, this model increases the company's agility and ability to pivot when necessary.
Keeping up with constantly changing market conditions can be challenging without the right infrastructure in place, but continuous planning enables course correction, allowing FP&A teams to assist management in adjusting strategies, mitigating potential negative outcomes, and capitalizing on new opportunities. This puts them in a strong position to make informed decisions that are more likely to succeed.
2) Taking ownership of FP&A
Continuous planning offers FP&A teams the chance to expand their financial decision-making expertise into other areas of the company, such as revenue planning, OPEX planning, annual operating planning, workforce planning, and cash flow forecasting.
By taking ownership of the finance function, other business teams can more effectively contribute to the planning process. FP&A teams can provide unique plans, insights, and tailored data models for each business unit involved in data analysis and planning, enabling those units to make informed decisions more efficiently. These teams can then work towards achieving the organization's strategic objectives, enabling the FP&A team to play a key role in driving organizational growth.
Continuous planning serves as a unifying force that brings together data, context, and discussions.
Most experts agree that effective planning cannot occur in silos and requires the input and involvement of various stakeholders. However, silos can still exist as FP&A teams and other teams across the company often have different data needs, require different data analysis tools, and have different timelines. This can lead to a breakdown in communication.
Through continuous planning, FP&A teams can encourage inter-departmental collaboration and involve other business units in the decision-making process. This can facilitate the sharing of ideas, learning from one another, and understanding the impact of decisions. Gradually, these business units can make informed decisions driven by the transformation brought about by continuous planning.
How to Choose the Best Approach for Your Organization
It can be challenging to determine which planning approach is most suitable for your business needs - periodic or continuous.
Due to the rapid pace of market change, periodic planning is no longer sufficient for many FP&A teams. As a result, these teams are turning to continuous planning in order to be able to adapt to economic conditions more effectively.
It can be very problematic when companies rely too heavily on periodic planning, as laborious manual tasks such as collecting, analyzing and verifying financial data takes up excessive amounts of time.
Typically these tasks are done using spreadsheets which are also the preferred option for some finance teams, but they aren’t able to keep up with the speed of today's global markets. By automating routine tasks FP&A teams save time and stay relevant in the face of changing economies.
Investing in the necessary infrastructure to support continuous planning is essential. To remain competitive and responsive, it is important for companies to replace periodic planning with more agile, up-to-date processes that can accommodate changes in today's rapidly evolving markets.