How do successful companies work with their financial planning in 2024? As financial forecasts have taken a central role in budgeting and forecasting in recent years, the demands on FP&A teams have increased significantly. Continue reading and learn 5 trends within financial planning 2024, how financial planning has changed over the last year, and how to improve your financial processes!
To help business controllers and CFOs simplify their work, we conduct an annual survey and compile it into the report The State of Corporate Financial Planning. Based on responses from over 150 participants, we have identified trends and important data points that provide insights on how companies succeed—and fail—with financial planning. Many trends continue from previous years, but there are some interesting changes that I will discuss here.
Five clear trends that we'll talk more about below:
The number of respondents who only budget and forecast for the current fiscal year has drastically decreased. Only working with the current year is the most common forecast horizon in companies with 100-500 employees, but overall, the share of respondents using this forecasting horizon has decreased from 66% to 45% over the past two years. Instead, we now see a clear increase in the group working with rolling forecasts (20%) and especially with dynamic forecast horizons (31%).
The dynamic forecast horizon, where you always plan for the current fiscal year plus the next year, or a number of dynamic quarters, has several major advantages:
This is a method that we at Planacy have used and recommended ourselves for a long time, partly due to the strengths that a dedicated system brings when working with longer horizons.
As mentioned above, the dynamic forecast horizon has increased in popularity compared to rolling methods. Many people in the industry talk about the advantages of working with rolling forecasts, but in the end, few businesses actually implement this method. This is something I believe is due to the difficulty of implementing such a model on an organisational level without it requiring too much time from those administering the process, and also because the advantages of the dynamic forecasting method becomes apparent when preparing for an implementation of rolling forecasts.
Only 21% work with forecasts and forecast scenarios on a monthly basis, but two out of three respondents say that they need to produce forecasts and scenarios much more often than before. It's evident that more and more people see the need to change their assumptions and update their forecasts more frequently today to always have current forecasts that indicate where the company is headed.
It’s important not to forget though, that the forecast does not in any way replace the budget or the financial targets for a given period. The forecast is still "just" a means to tell how the company is performing in relation to selected benchmarks and to give your organisation the opportunity to, if necessary, pivot the direction. Our report shows that more and more companies have implemented forecasts as a strategic management tool.
In order to create a process and culture where the financial forecast is a valuable strategic management tool, you need to be able to create different scenarios with small means, without requiring overtime for those involved. Half of the respondents in our report state that they produce several different scenarios today. Thus, they are creating better conditions for their business to be prepared for different alternative futures and to be able to make more well-founded decisions when facing changes. With this financial model, you can easily see the impact a decision has on the financial development, especially if you also work with a longer horizon where the entire financial forecast, i.e. both the income statement, balance sheet, and cash flow, are linked together and automatically updated.
Working with longer forecast horizons, increased frequency, and more scenarios undoubtedly creates a greater need to automate your work as much as possible. 72% of the respondents believe that the need to work with automation has increased over the last three years, and 76%. believe that the need to work with predictivity has increased over the last three years.
However, I claim that the need to work more automated has not increased. It has always been essential to automate your work to be able to create a more manageable financial process, and this is where a modern system plays an important role. Not only can a modern system reduce manual work tasks and automate the collection of data but it can also automate the creation of new forecasts and scenarios. A modern system also support both business controllers and the organisation in general with predictive forecast proposals based on historical development.
Like most respondents, I believe that financial management requires both engagement and accountability over the financial forecasts and goals. The single most important factor for creating engagement and accountability is to build a transparent model that the entire organisation understands – and for the organisation to understand it, it's imperative that you have a solid driver-based process adapted to your business (based on dimensions, concepts, and KPIs).
Today, nearly 40% feel that they have managed to implement a well-functioning driver-based process, compared to just over 20% two years ago. This significant increase is likely due to the increased usage of dedicated FP&A systems, but also better access to the right data, which results in better and better planning processes.
88% of those who have a driver-based process and also use a dedicated system for financial planning perceive their financial processes to be of high quality. However, if we look at all the respondents, less than 3 out of 5 feel their financial processes are of high quality.
Considering these numbers, it's a bit depressing that the biggest obstacle for those who have not succeeded in creating a driver-based process is usually lack of time. This means that they currently spend too much time on the work process itself to have the time to improve it, even though this means that they have to work on it more often.
The demands on those working with financial planning and analysis are not likely to decrease in the future, but rather the opposite. But at the same time, FP&A teams today have more tools available than ever to help them create more solid processes that drive engagement and accountability – which leads to higher quality.
As a business controller and CFO, you therefore need to embrace the opportunities at hand that can help you create a more value-creating process for strategic decision-making. Investing time in your process and considering how to improve your system, and how to work with automation, AI, and predictive models is not only necessary today, but ultimately inevitable.
Do you have questions, comments, or do you want to talk more about the future of financial planning and how to optimise the processes in your business? The Planacy team are experts in financial planning processes and we are happy to share tips, advice, and best practices—feel free to book a demo below!
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