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Effective Financial Planning – A foundation for steering your organization

By Kevin de Verteuil Director, Financial Management, KPMG Switzerland.

As a cornerstone for true business partnering, many CFOs (Chief Financial Officers) today are seeking to increase the value of financial planning and steering for the business. An effective planning and forecasting process, linked to the overall strategy and supported by the appropriate tools, can help to deliver more realistic and achievable forecasts with greater visibility into future operating performance of the company.

Common Issues

Many companies suffer from common issues which inhibit the effectiveness of the financial planning process. These can range across a broad spectrum, but often examples include:

- Poor technology and tools, leading to time consuming and costly processes which don`t provide financial insights early enough for management to act
- Limited understanding of the controllable drivers for the business, inhibiting companies from interpreting the right management actions to steer against the plan
- Financial planning measures not linked to the overall business strategy

But above all, an unclear vision or understanding of the purpose of plans and forecasts and what you want to achieve with them may be the largest pitfall. This is why it is important to understand the vision of your finance organization from a business partnering perspective, and to know how mature your financial planning processes are in helping to attain this vision.

Five categories of maturity

To achieve this understanding, it is best to think about the maturity of your financial planning capabilities and the vision for your target capabilities under the framework of a maturity model. Organizations typically fall into one of five categories of maturity:

1. Basic Planning:
Most organizations have advanced beyond this stage; however, many small companies (especially as start-ups) may only require basic planning. As the name suggests, the outcomes of the planning process are quite basic and an absolute minimum. Typical characteristics are:

- Operative 1-year planning focusing on financials (Profit & Loss, Balance Sheet)
- Planning process is characterized as time-consuming, manually intensive, and typically error-prone
- Data is collected in spreadsheet tools including simplified excel-based consolidation.

2. Guided Planning:
Companies performing at this maturity level often have long-term financial planning in place (1 to 3-year plans), and therefore, are attempting to link to at least some basic long/mid-term business steering. Data collection and processing will be typically facilitated in a central planning application, or a tool.

3. Integrated Planning:
The majority of companies see their financial planning capabilities at this level of maturity. The main characteristics include:

- An integrated financial plan (Balance Sheet, Profit & Loss, and Cash flow on the basis of year-end forecasts)
- Processes with a high degree of standardization and automated in a planning application
- A centralised controlling department is directing the financial planning process, with a role to challenge divisional plan submissions and perform analysis on the financial plan
- KPI and data structure are consistent with ‘Actuals’ reporting, to effectively measure and control performance against the plan.

4. Strategy-driven planning:
While the majority of companies see their financial planning capabilities at the ‘integrated planning’ level, most are aiming to attain the maturity of ‘strategy-driven planning’. This is mainly characterized by two instruments which reflect today`s trends:

- First, the conjunction of long-term planning with operative planning by using a driver based modelling approach enables better scenario and sensitivity analysis for steering business decisions
- Second, the implementation of a ‘rolling forecast’ provides for better real-time insight for a 1-year financial outlook.

Common view indicates that strategy-driven planning achieves most finance organization`s goals from a business partnering and financial steering perspective.

5. IT-Advanced Planning:
IT Advanced Planning is very rare, with only few leading edge organizations attaining or aiming to achieve this level of maturity. These organizations build further on strategy-driven planning and integrate all planning horizons including all individual relevant plans (such as sales, production) into a fully-integrated planning tool. For most organizations, this may not be worthy to implement from a cost perspective, but again it is important to understand what your finance organization is striving to achieve from a financial planning and steering perspective.

For more information, please contact us to learn how we can help you to improve the effectiveness of your financial planning process: Financial Management Services at KPMG

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Mercredi 19 Novembre 2014

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