Making the Case for Continuous Planning

CFOs tasked with budget presentations often find themselves explaining numbers and assumptions that are far out of date by the time they stand before key stakeholders.

Imagine all the CFOs whose freshly minted annual plans for 2020 looked great at first. “This plan is so accurate,” many might have thought, “it should come with spoiler warnings.”

But as we all know, 2020 had other plans in mind. The pandemic wreaked havoc on nearly every industry and business. Many businesses were forced to close physical locations, pivot to remote work, or scramble to deliver their services via digital channels. Others had to navigate supply chain disruptions, order cancelations, and lost customers. Still others saw equally dramatic, if positive, disruption. Retailers deemed essential (grocery and drug stores) saw revenues reach historic highs, while online merchants recorded record sales as consumers fled in-person shopping for the relative safety of ordering from home. Those upsurges required businesses to quickly scale their workforce, material orders, and operations.

And while the pandemic will be remembered for more than its share of business casualties, finance leaders may remember it for another kind of casualty: the annual plan. In its Q4 2020 CFO Signals report, Deloitte notes that only about 40% of CFOs said they expect to achieve 95% or more of their planned revenue for 2020 compared to their pre-pandemic expectations; on average CFOs expected to achieve 88% of their original plan, with expectations varying widely depending on the industry. With their businesses needing to react to new customer demands, quickly changing trends, and pandemic-imposed restrictions, these finance leaders likely realized early that they would need the ability to adapt their plans far more frequently if they hoped to accelerate their recovery.

Of course, the pandemic alone wasn’t the only disruptor. Nationwide protests, hurricanes, wildfires, unruly elections, trade wars, and even murder hornets all helped show just how much unexpected change can be packed into a single year. Add with change accelerating due to digital disruption, new technologies, and agile new competitors, it’s painfully evident that traditional annual planning has about as much use today as a plan that tries to forecast revenues 100 years from now.

Achieving the Promise of Continuous Planning

Compared to static, annual planning, a continuous planning process provides finance teams with both the insight and the ability they need to respond quickly and effectively to real-world market and operating conditions as they shift.

This is not a new idea: In their 2006 article for Harvard Business Review, Michael Mankins and Richard Steele described annual planning as “completely at odds with the way executives actually make important strategy decisions.” As a result, they noted that senior executives routinely “make the decisions that really shape their company’s strategy and determine its future—decisions about mergers and acquisitions, product launches, corporate restructurings, and the like—outside the planning process, typically in an ad hoc fashion, without rigorous analysis or productive debate. Critical decisions are made incorrectly or not at all.”

If continuous planning was an essential key to agility 15 years ago, imagine how crucial it is today. Perhaps this is why businesses everywhere are adopting the process, because a continuous planning environment, underpinned by a modern, cloud-based planning solution, allows finance leaders and their organizations to work with plans that are grounded in fresh actuals and operational data from throughout the business. This 360-degree view enables everyone to make decisions based on real-time data instead of using old information or assumptions that are no longer valid.

Rather than try to run a business using static forecasts, continuous planning is built around always-current rolling forecasts that ultimately increase business agility, allowing you to make smarter decisions about allocating resources throughout the year in response to new opportunities or challenges. Real-time data, combined with input from informed managers across the organization, can help you quickly pivot to take advantage of new information, mitigate risks, or make a timely market move on a previously unforeseen trend.

Insight on Demand

Any change can be intimidating at first. A finance leader accustomed to an annual planning process may be concerned that a continuous planning process is too reactive, too difficult to manage, or even too challenging to implement. But most finance executives find the shift to be easier than they expected. Kevin Kain, director of financial planning and operational analysis at ChristianaCare, oversaw his company execute the switch from annual to continuous planning in less than a week, even as the company was busy dealing with the fallout of COVID-19 on the company’s healthcare operations.

“Due to our philosophy of promoting innovation and adaptability, our team was able to pivot quickly despite the many unknowns at the start of the pandemic,” recalls Kain. “Our team had to be innovative, rapidly make decisions, and then ultimately understand the financial implications of those decisions. We quickly shifted our attention from an annual budgeting process to a monthly forecast at the local cost center location level. We also had to track all of our COVID-19 related expenses and all of our options for mitigation. We made the shift in four days.”

The agility didn’t end there. Kain says his team was then able to present to ChristianaCare’s finance executive board a series of what-if scenarios, including all state and federal government relief options, so they could plot their next move with confidence. “We walked through how we could safeguard our organization and set the board up to make tough decisions in the upcoming months,” he added.

With most businesses focused on recovery in 2021, continuous planning will be as essential as ever. The only sure bet is that more change is on the horizon. The urgent question now facing finance executives is how they plan to meet that change—and whether their current approach to planning will be agile enough for what’s coming.

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