In today's fast-paced business landscape there are unprecedented events, unpredictable economic conditions, new industry trends, legislative changes, and technological breakthroughs. This is why agility has become an essential characteristic for finance teams looking to stay competitive.
One way they can seamlessly pivot is by using continuous planning. This is a very innovative method that can be used when planning ahead. But what exactly is it, and how does it differ from more traditional planning frameworks in finance?
In this blog, we'll explore why CFOs must be agile and the limitations of using outdated planning strategies. We’ll also look at the benefits of continuous planning, the impact it has on the wider business, and how technology can facilitate this approach.
What is continuous planning?
Continuous planning is a strategy used by finance departments to constantly revise their plans based on changes that occur in the market (and their own organisation). The purpose of this is to ensure the plans remain relevant and in line with changing objectives.
A lot of this approach involves regularly measuring financial performance against KPIs and then changing tactics accordingly to make sure targets are being hit. It also involves using analysis of likely scenarios and other forecasting techniques to identify everchanging risks and opportunities as they emerge. This way the appropriate actions can be taken in a timely manner.
Continuous planning demands strong attention to detail around data analysis and a deep understanding of internal/conditions. It also requires effective communication and collaboration between a range of departments and stakeholders, so that the finance team’s plans are aligned with wider business goals.
When using this approach, finance teams can respond much quicker to changes, making informed decisions that boost financial performance. Whereas traditional planning within finance has the following limitations:
- Lack of scope – Traditional planning typically focuses on short-term financial goals and does not consider the longer-term outlook. This often results in missed opportunities around growth and innovation.
- Time-consuming – It can also require a large time investment, with long-winded manual reviews and approvals. This will likely coincide with slow decision-making and inefficient business operations too.
- Minimal flexibility – This outdated approach is, by definition, inflexible. This means it doesn’t allow businesses to react to big changes in an agile manner.
- Poor visibility – Having a fixed plan ensures assumptions are being made using historical data. As a result, employees perhaps won’t have visibility of current financial data, and forecasts will ultimately be inaccurate.
- Incohesive decision-making – This static planning can often be siloed too, with individual departments creating their own plans and budgets. This can lead to conflicting priorities and a lack of cohesion across organisational decisions.
Why CFOs need to be more agile
As we already touched upon, CFOs today must be agile due to factors like rapidly changing market conditions. If they don’t adjust their strategies in line with these developments, they will ultimately struggle to be competitive.
The current business environment is rife with uncertainty as a result of aspects like political instability, economic volatility, and natural disasters. CFOs therefore need to be proactive and make strategic decisions that assist their organisation's long-term financial viability.
Technology is disrupting business models and financial practices too. They must stay on top of these innovations to find better ways of working, and to avoid being left behind as competitors accelerate their improvement plans.
As businesses also become more global, CFOs will have to navigate complex regulatory frameworks, as well as a range of time-zones and cultural norms. To mitigate risks effectively in an international environment, they’ll have to pivot quickly.
Overcoming traditional planning frameworks
There are many barriers that can get in the way of shedding traditional planning frameworks. But finance leaders can take the following steps to overcome these:
- Implement agile processes – This includes breaking down large projects into more manageable tasks and incorporating feedback to change plans flexibly.
- Use modelling and data analytics – With modelling, finance teams can develop forecasts more accurately and map out a range of potential scenarios. This allows them to be ready for a whole host of outcomes.
- Embrace an innovative culture – Finance teams should move away from a traditional focus on budgeting and cost control, shifting to a more strategic and creative way of working. They should be collaborative too, working closely with other departments to support their projects through financial planning.
- Invest in technology – Technology can help finance teams to overcome outdated planning methods by automating repetitive tasks, providing real time data, and enabling cross-departmental collaboration through integrated activities. As a result, finance teams can enjoy greater efficiency and support smarter planning across the organisation.
How can continuous planning benefit the finance function?
Continuous planning is heavily linked to continuous accounting, which is a method used by modern finance departments to monitor performance in the moment (rather than waiting for monthly/yearly reporting periods to assess this). It’s also associated with the forward-facing finance philosophy.
This group of contemporary practices are intended to make finance teams more dynamic and future-focused, rather than simply being a back-office function that always look backwards. Some of the other benefits of this approach include:
Improved accuracy
Continuous planning allows finance departments to make more accurate financial forecasts by incorporating real time data and making updates as soon as they happen.
More effective risk management
It helps finance teams to identify potential risks as soon as they surface. They can then counteract these risks with informed and educated business strategies.
Faster decision-making
This way of planning also ensures those in finance can make quicker decisions, as they’re always one step ahead, and have greater clarity of what is on the horizon.
Increased agility
It allows them to be more agile in the face of customer behaviour shifts and supply chain disruptions (which would otherwise be detrimental if not responded to immediately).
More impactful collaboration
Continuous planning fosters more proactive collaboration across the likes of operations, finance, sales, and marketing, with enhanced communication, coordination, and awareness around what is coming down the line from a financial perspective.
Greater transparency
It also improves transparency for key stakeholders thanks to more up-to-date financial projections which the finance team can share.
The impact of an agile finance function
An agile finance function can complete more accurate financial reporting, which they can then pass to key decision-makers in a timely manner. They can fulfil obligations like budgeting and forecasting to a much higher quality, making sensible decisions that boost profitability off the back of this.
Agile finance departments will often use technology and automation to streamline processes, reducing the time and effort required to complete tasks. This helps with avoiding costly mistakes which is a crucial for maintaining financial stability during times of economic uncertainty.
Leverage continuous planning for success
Cloud technology can facilitate an agile finance function and continuous planning within businesses, providing a scalable and flexible infrastructure for financial processes and data management. Cloud financial management enables real time access to data, allowing finance teams to quickly analyse information and then use the insights gained to drive strategy.
This technology allows businesses to scale their operations and resources, ensuring they can easily take the appropriate actions related to growth or downsizing, without the strain that would normally accompany such adjustments.
Cloud-based accounting software automates many of the manual tasks associated with bookkeeping and other day-to-day finance tasks, freeing up employees for more detailed analysis and planning.
It enables integration between all finance function processes, creating a better sense of cohesion and a more complete financial picture. The Cloud is more secure and compliant than traditional methods too, as providers will often provide protection and updates as part of a Software-as-a-Service model. And this method is more cost-effective, as there’s no need to worry about maintaining an onsite IT infrastructure.
If you’re looking to gain the advantages enjoyed when leveraging continuous planning, be sure to read more about our Advanced Financials Cloud finance system.