Although it can be easy to get caught up in your company’s long-term mission, it’s important not to lose sight of the day-to-day operations that must be executed to fulfill high-level goals. That’s why rigorous operational planning is an absolute necessity—the most successful organizations know how to transform strategy into action. Let’s take a look at how operational planning fits into your financial planning and analysis (FP&A) strategy and processes.
How FP&A Impacts Your Business
The FP&A team is the group within a company’s finance department that’s responsible for planning and budgeting, reporting and analysis, financial modeling, and forecasting. These functions allow the C-suite to evaluate the progress of the company’s strategic plans and investments and effectively communicate with external stakeholders.
In the modern business, FP&A goes beyond simple reporting and forecasting. It enables a business to optimize its future performance using analysis from both financial and operational data. These data-driven insights help connect the dots across multiple departments and divisions to guide strategic decisions. As a result, FP&A plays a key supporting role in both operational and strategic decision-making.
The importance of FP&A should not be overlooked. Without rigorous planning and analysis, your company will struggle to reach its full potential. According to the Institute of Management Accountants’ 2019 Statement on Management Accounting, “Few processes within the purview of a CFO have so much potential to create—or destroy—business value than FP&A.”
Why Operational Planning Matters
FP&A, no doubt, plays an important role. But even with the right strategy, your company must come up with tangible initiatives and match its budget to its priorities. Otherwise, your strategy will remain dead in the water.
FP&A can also get stuck in the reporting trap. There is often too much emphasis on quarterly or annual budgeting and forecasting and not enough focus on planning. Although reporting and forecasting financial results may help deliver insights, it’s not the same as building a plan. Ultimately, devising a clear, practical plan and then executing it will determine future success.
That’s why operational planning must be included in your FP&A strategy. Strategic planning outlines where your company is headed, but operational planning represents the road map for getting there. Once your company has settled on a high-level strategic goal, creating an operational plan will ensure your department does its part in achieving that goal.
How to Unite Operational Planning with Your FP&A
To provide a firm foundation for effective FP&A, your company must first develop a long-term strategic plan. Every company and industry has its approach to strategic planning. Commonly used methods include strength, weakness, opportunity, and threat (SWOT) analysis as well as gap analysis. No matter the approach you take, strategic planning should be rooted in your organization’s vision, mission, and core values.
But once your plan is in place, how do you ensure operations support your long-term goals? Successful organizations know how to transform their strategy into a tangible plan, devote the proper resources to that plan, connect operational performance with financial results, identify variances, and make the necessary course corrections. Here are a few principles to help you unite your FP&A strategy with operational planning and meet your company’s long-term goals.
1. Break down larger goals into specific financial and organizational targets
The easiest way to integrate finance with operations is to start from the beginning. With a long-term goal in mind (for example, expanding into a new market and growing sales by 60 percent), you should immediately break it down into smaller targets that cascade throughout your organization, from the C-suite to separate departments to individual teams. Although everyone can get behind a lofty goal, it’s easier for people to complete tangible projects for which they feel a sense of personal responsibility.
2. Make sure the budget supports your plan
Once you’ve identified specific initiatives and broken them down into short-term financial targets and operational projects, it’s time to think about your budget. One of the most common reasons that projects fail to reach their potential is a lack of resources. That’s because the strategic planning process is often disconnected from the budgeting process. Identify the resources—these could include both money and people—needed to execute operational initiatives to drive results and include them in the budget.
3. Foster a culture of accountability
After specific projects have been assigned, hold people accountable for delivering financial and organizational results by providing incentives such as bonuses. This way, being held accountable takes on a deeper meaning than simply being called out for failing to meet a goal or target. Ideally, performance measures should be aligned with those of the company’s key success drivers. They should also be easy to communicate and measure.
However, avoid using accountability as a means to assign blame and penalize employees who don’t meet their goals. Even if targets aren’t met, those held accountable are in the best position to help management understand what happened, why, and how to improve moving forward.
4. Carefully monitor progress
The most successful organizations have a clear understanding of how their operational projects will affect their financial results, and they carefully monitor progress. A monthly review can help you assess financial performance and should include project updates to ensure everything is on schedule.
5. Course-correct when necessary
So what do you do if everything isn’t going to plan? Many companies simply shift their expectations downward. But high-performing organizations are agile and proactive about getting back on track to meet their targets.
This is where FP&A needs to do more than just forecast. Even when the outlook isn’t positive, financial reporting should include information that’s actionable in the context of the company’s larger initiatives and project plans.
6. Use technology to enable your FP&A strategy
Modern financial planning software offers a powerful platform that allows FP&A teams to optimize the execution of their strategy planning. As we’ve seen, the FP&A process is rigorous and requires extensive operational planning. But thanks to automated and interconnected software solutions, your FP&A team can easily assess and monitor progress at every step. Moreover, technology that enables this process can free up FP&A professionals to focus on other value-added activities.
But not all technology is created equal. Look for solutions that can:
- Be implemented quickly and easily
- Support predictive analytics to anticipate important changes
- Support what-if analysis and scenario planning to model possible changes in your business
- Automate key planning tasks and minimize errors
- Support operational planning, financial planning, and people planning
- Scale as your organization grows or experiences seasonal fluctuations
- Provide extensive dashboard capabilities
With the right tech tool, your FP&A team can shorten its planning cycle while providing more accurate and deeper business insights.
Are You Ready to Kick Your Financial Planning into High Gear?
With effective FP&A informed by rigorous operational planning, your organization can consistently meet or exceed its targets and outperform its competitors. And the right technology can help empower your organization to maximize its performance.
Tidemark is a flexible platform that will accelerate your financial, operational, people, and profitability planning. For more information on how to kick your company’s financial planning into high gear, take a look at insightsoftware’s free e-guide on Continuous Planning.