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Best practices for financial planning and analysis

In a Q&A, Dave Murray summarizes takeaways from a BPI Network survey that polled dozens of executives on their budgeting and forecasting challenges -- and how technology can help.

This year the Business Performance Innovation (BPI) Network set out to learn what finance executives are doing to help business units with financial planning and analysis. Its report, Predictability through planning agility: Best practices in collaborative budgeting and continuous business rebalancing, analyzes interviews with CFOs and other senior executives about their budgeting and forecasting challenges and best practices, and the role of such technologies as corporate performance management (CPM) software.

Dave Murray is director of thought leadership for the professional networking and research organization, which is based in San Jose, Calif. He talked about the study, which was sponsored by Host Analytics, a cloud CPM vendor.

What did the BPI Network set out to find?

Dave Murray: The BPI Network is dedicated to looking at new areas of innovation and change within businesses that are driving improved business performance, and financial planning and budgeting is a critical area of investigation. We wanted to speak to the need for more continuous planning for improved financial processes in a world that is becoming increasingly complex, global and uncertain, and what financial executives were doing to improve the predictability and agility of their planning processes.

How many companies did you talk to, and what kinds of questions did you ask them?

Murray: We talked to dozens of companies. Our questions centered on the challenges they were facing as a financial group within their companies and how financial planning, forecasting and budgeting was changing.

The organizations we talked to were striving for a much more continuous financial planning and forecasting process. Many of them were trying to get away from the manual, [Microsoft] Excel-based processes that they had used in the past [and] were turning to new systems and solutions.

[Their] focus was on getting a much clearer and more continuous understanding of what was going on in their businesses, creating much more alignment between the financial group and the business units, and in some cases doing away with the annual budgeting process as it has been known for many, many years, just because they had found it to be unresponsive to the business' needs.

What were the common characteristics of the more successful financial executives?

Murray: [They were moving] from an annual budget process that was very manually driven [and] Excel-based to a more continuous process in which they were continually analyzing. If they continued to have a budgeting process, they were revisiting it on a regular basis.

And [they were] going from a top-down to a bottom-up process. Much more of the information that went into the forecasting and planning process came from the business units and from within the organization, rather than the budget coming from the top down, so that they had much more current information.

It was moving from a disconnected to a more integrated process, where data was flowing into a single view of the company. The old budgeting process was: Each business unit, 18 months before the end of the fiscal year, was trying to decide what they needed and what the world would look like, and all that information was locked into spreadsheets -- [and was] hard to analyze, hard to review. The new budgeting process is a more integrated process where the organization provides new data on a continuous basis.

And then it was moving from budget driven to model driven: setting up a model for what they believed the business would look like and act like, understanding the key variations and drivers and indicators of business, and then constantly reviewing that model to see if it was changing.

The report uses the phrase 'collaborative budgeting.' Can you elaborate?

Murray: In collaborative budgeting, you have the business units more involved in the continuous-planning process, more able to access the financial group itself to get business insights and data that can really help them run their business. It's making the financial function much more part of the business units.

The executives we talked to said they were assigning people in finance to specific business units. They weren't just collecting data and reporting back on historicals. They were helping those business units understand how the business environment was changing, and what they could do to achieve better results.

Are there any anecdotes that are really good examples?

Murray: There's a writeup on Welch Allyn. This is a 100-year-old company that has been in what was a very stable and predictable kind of business -- medical devices and patient monitoring -- but the business has changed dramatically. Low-cost competitors from overseas are much more involved in the marketplace. Healthcare regulations are making it more challenging.

Consequently, they've found that the business has become far more difficult to predict on an annualized basis. And they had a real need to move into not only a long-term forecasting mode, but also a continuous update of what was actually going on with the business so they could react to changes in allocating costs and budgets to the right business lines and product lines.

How does the technology help?

Murray: A lot of the businesses that we talked to were moving off of Excel and onto cloud-based corporate performance management systems which allow for all those core, rote financial processes to be streamlined and automated, but also allow for this much more integrated, model-driven approach. [They also provide] access to data and the ability to manipulate and analyze financial data and share it across the organization.

What are some of the key best practices for people who want to emulate this?

Murray: It's about aligning the financial organization with the business units and with the business.

There are two approaches. One is having the financial group much more embedded in the different business units. Often there is an operations guy within each business unit that is the real connection between the financial group and the business unit.

[The other] is about moving away from annualized manual financial processes to something that is much more continuous, much more flexible in terms of understanding what's driving the business, where costs can be taken out of the business, where opportunities lie and resources should be focused. It's also about accessibility of data so these other things can happen.

There's a critical need for financial groups to move from simply reporting on performance and becoming valued business partners.

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