How does Swedish companies work with financial planning today, which current financial planning trends will impact the future for FP&A, and how can you make sure that you are on top of everything? This article gives you the tools needed to optimise your financial planning today – and develop future-proof processes.
Working within the FP&A function as a business controller is often quite demanding. The past few years have been very turbulent, and rapidly changing conditions the norm, which has led to business controllers experiencing an increased workload. At the same time, the finance function is often working with the same systems and according to the same methods as they always have been – sometimes by choice, and sometimes because they’re forced to. During the past couple of years, we’ve started seeing a shift in how the finance department work with budgeting, forecasting and planning, which is confirmed in our report The State of Corporate Financial Planning 2023. In this article, I’ll talk about current financial planning trends found in the report, and what I believe that the future will look like for FP&A.
According to ‘The State of Corporate Financial Planning’, a prominent trend is that companies (every third) spend more time on optimising their budget and forecast processes today than they did last year. Ultimately, this effort will lead to more companies creating processes that generates more value for the finance department, the organisation as a whole, and also for the financial management of the entire company. The finance department will also reduce manual and repetitive tasks and instead gain more systemised and automated processes. There are multiple reasons why companies start to invest more time into optimising their financial planning processes. One reason is demands set by the board and management to produce more frequent forecasts, and one is that many companies today have a problem with low engagement, which influences ownership within the organisation.
Read more about how to increase ownership within the organisation
If we look at the work frequency, we notice a clear trend here too. As many as 82% of the respondents in the previously mentioned report find that the need for a more frequently updated forecast has increased during the last three years. At the same time, 64% find that they spend more time than before on the same tasks. The conclusion that can be drawn from this is that companies need to make their processes more efficient to avoid drowning in work.
29% of the companies in our report produce rolling forecasts today, and 18% plan to start working with rolling forecasts in the near future. Though, it’s essential to highlight that rolling forecasts isn’t the most suitable method for all companies. According to ‘The State of Corporate Financial Planning’, another method leads to significantly higher engagement and quality – rolling forecasts with a dynamic horizon, with the current- plus fiscal year. So, even though the trend of working with rolling forecasting is strong, you should constantly challenge current trends to find the best method for your organisation.
Using a dedicated system for budgeting, forecasting and planning is another increasing trend. No one wants to be left behind when more and more companies are modernising and systemising their financial planning processes. Every third company with an ARR of over 10 million euro currently has a dedicated system for their financial planning. Half of these companies have implemented their system sometime during the last three years. Just below half of the companies who don’t have a system today have either started looking for a suitable alternative or have already planned on acquiring and implementing a system that can optimise more data-driven financial planning.
Those working with a system are able to work more parametrised with less effort, and at the same time get a result with higher quality. If this trend continues, the finance department is responsible for creating processes and methods that will save both their organisation and their own department from drowning in work.
68% of the respondents in our report find that the trend of automating the financial planning processes has increased during the last three years. Something that is especially interesting here, is that the companies that have already started to automate their work see a significantly higher need of continuing to automate it. To successfully automate your processes, you first and foremost need to implement a system that make it possible. With the right system, you can automate everything from creating new forecasts, scenarios, data retrieving and data validation to automatically calculated forecasting suggestions based on your current data. The goal is always to streamline the manual and increase the quality of the financial forecast.
In times of continued macroeconomic and cyclical uncertainty, both organisations and their financial department face more challenges than they otherwise would have. This creates an increased need to work with seamless scenario planning. Half of the companies participating in our study believe that the demand for working continuously with scenario planning has increased remarkably in the last year, which is a notable change from previous year’s study. Not too long ago, I wrote an article completely dedicated efficient scenario planning, where you can read about the 6 steps necessary for enabling scenario planning.
None of the previously mentioned trends will become less “trendy” during the year. Within FP&A we see a future where the financial forecast will become even more important and therefore, you’ll need a well-functioning strategic tool – a tool that creates engagement and ownership over the financial targets and forecasts. By working with systemisation and automation, you’ll reduce the workload, especially for FP&A, but also for those contributing with input. If you also complement this with predictive models, you’ll notably increase the quality of your work.
Companies will continue to work more frequently with their financial planning than they have before, and you will have to create streamlined processes where different parts of the organisation can give input quickly. Working driver-based is the key to creating a process that can be updated parameterised and also contribute to the entire organisation’s understanding of what drives costs, revenue, and cash flow.
As many as 61% of the respondents in our survey stated that the need for predictive models has increased during the last three years. At the same time, we’re only in the beginning of this journey, and few companies have started implementing more predictively calculated forecasts, even though the system to make this possible is becoming increasingly accessible.
The purpose of using predictive forecasting proposals will differ from company to company depending on their individual goals. A common goal though, is to use the forecast suggestions as a starting point or in comparison to a more classic bottom-up or top-down model. Organisations often have a clear view of which strategic goals they want to achieve and with predictive models, you can get an even better overview of what needs to be done to reach those goals. This will in turn generate a better foundation for constructive discussion, and you can then decide which activities you’ll need to do in order to achieve or outperform your goals. At the same time, increased clarity also leads to more established forecasts and financial goals within the organisation.
A forecasting process with predictive features will work as a better decision-making tool than a forecasting process without predictive features. If you’d like to read more about how to start implementing predictive planning in your organisation, I recommend my colleague and CPO’s article on the subject. You’ll find it here.
5 Tips to Successfully Implement Predictive Planning in Your Forecasting Process!
Would you like to continue discussing how you can future proof your forecast? Contact me or one of my colleagues today. If you’d like to read more about how successful companies work with financial planning, data about current trends and the future of financial planning, I recommend downloading ‘The State of Corporate Financial Planning’.
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