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January 26, 2021

Modern FP&A Forecasting, Budgeting, and Planning Pitfalls - Part 1: Integration & Automation

by Ryan Turpyn

January is in full swing. We’ve celebrated holidays, the fresh start of a new year, and jotted down a few personal goals and resolutions for the upcoming year. But how do we ensure we reach these goals and stick to our resolutions? Despite our best intentions, we’ll never achieve new heights without unbiased critical self-reflection. Reviewing our successes, challenges, and failures of the past year provide the foundation of our self-critique. Are we applying this same formula to our corporate processes? 

For many of us, January means coming up for air and taking a deep breath after completing our annual budgeting process and before we begin forecasting. But it’s also a great time to review our processes and performance from the past year. What worked? What didn’t? How accurate were we? 

Avoid these Common FP&A Forecasting, Budgeting, and Planning Pitfalls: 

  • Lack of integration and automation 
  • Lack of buy-in and input from budget owners 
  • Inability to quickly aggregate, report, and dashboard 
  • Not consistently applying business rules 
  • Not managing global assumptions and what-ifs 
  • Lack of accountability in comparing/identifying changes in plans 
  • Not leveraging plans in decision making 

Pitfall 

Good planning practices are a balance of accuracy and time. An inaccurate or poorly conceived plan isn’t helpful in making business decisions. But neither is a hyper-accurate plan that takes too long to complete and takes time away from revenue generating activities. While there’s certainly truth in Benjamin Franklin’s old adage, “By failing to prepare, you are preparing to fail,” we need to remember why we go through these planning exercises. 

What makes a forecast, budget, or plan the “best?” If you said accuracy, you’d be wrong. The best plan is one that provides a business with actionable options in the face of dynamic market conditions. Take this past year for example, no one could have predicted a global pandemic and the impact it would have on supply chains, consumer demands, and employee work-life balance. I assure you, not one company’s forecast came to fruition this year, not even with huge error bars. Most companies' annual forecasts were worthless by mid-March. Companies who had the most success this past year were able to pivot and adapt to changes quickly. They didn’t necessarily have the most accurate plans, they had most responsive planning process. The goal of corporate forecasting isn’t to have the most accurate forecast, it's to add value to the bottom line. 

Pivot 

People are crucial to the forecasting process. Their input and experience are irreplaceable. But their time needs to be respected and used efficiently. A good planning process uses people's time effectively. The Finance, Planning, and Analysis (FP&A) team should be focused on operations support by providing useful analytical tools to their project management team and their CFO’s office. Those responsible for budgetary inputs should have frictionless tools available for them to enter and evaluate data. Too often we see FP&A teams’ time being wasted on tasks such as extracting actuals from their accounting system; updating forecasts with structural components like new hires and new projects; and managing attributes like indirect rates, salaries, or PLCs. 

The first two ways to improve your forecasting process: 

  1. Integrate: If there’s data you need from an existing system, you need to connect your planning system to the source data. There shouldn’t be a need for manual intervention when it comes to getting data out of one system and into another. 
  2. Automate: Integration should be automated, either via a schedule, routine, trigger event, or at the very least, distilled down to a single button for the FP&A team to click when the time is right. 

Time is the most crucial resource at your company’s disposal. By successfully integrating your planning system with Costpoint and subsequently automating these tasks, you'll efficiently use your FP&A folks' time. By providing them more time, you enable them to put the A back in FP&A. 

Sign up and get part two where we discuss "How a lack of buy-in and input from budget owners can hinder your planning process" delivered directly to your inbox before it goes live on our blog. 

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Final thoughts:

You’ve embraced continuous planning. You’ve reviewed your processes and discovered the pitfalls you need to avoid and how to avoid them. Now, what?! Join our subject matter expert Ryan Turpyn as he guides you on how to use your continuous planning process to keep an eye on your indirect rates! Register for Planning Pools: Jump into the Deep End with Kinetek Performance Planning.

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