Robert Kugel's Analyst Perspectives

I like Louis Pasteur’s observation that “fortune favors the prepared mind.” So-called black swan events happen regularly and can have a very negative effect on a business. Of course, risk is inherent in any commercial undertaking; organizations don’t succeed by being overly cautious and reckless ones usually fail after awhile. Those that are consistently successful are ones that manage risk intelligently. That is, they correctly identify vulnerabilities, avoid the decisions and situations where risks outweigh the benefits, insure the risks that are economically insurable and quickly mitigate the impact of negative events. They are resilient in the face of change because they are adaptable.

Charles Darwin never said that evolution was the result of survival of the fittest. On the contrary, he observed: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” In the wake of the worldwide economic chaos spawned by the COVID-19 virus, now is an opportune moment to emphasize the value of business planning that promotes adaptability and agility. Companies that have the right training, methods and technology are better able to adapt to change quickly and with certainty. They usually are ones that routinely consider contingencies to anticipate how best to react to rapidly changing conditions.

More than a decade ago, I coined the term “integrated business planning” to describe a technology- and process-driven approach to planning in a business. Integrated business planning encompasses all the forward-looking activities in which companies routinely engage, including marketing, sales, customer, supply chain and workforce planning as well as budgeting. In our view, companies today can fundamentally change how they plan thanks to the maturation of information technology. Current systems can support better business planning as well as traditional budgeting in a single connected process. In addition, dedicated software can increase the business value of the time spent planning and budgeting by enabling all parts of the business to share their plans. It can substantially cut the time spent creating and updating plans. And it can allow senior executives to see a consolidated view of the plan and quickly explore alternatives and contingencies.

Planning, forecasting and budgeting are core competencies of the predictive finance organization. An application that supports integrated business planning can strengthen a corporation’s performance by enabling high-participation, collaborative, action-oriented planning built on short, frequent planning sprints. Our Next-Generation Business Planning benchmark research confirms that organizations using integrated planning technology have planning processes that work better: Two-thirds (66%) of those that directly link all planning information from business units report having a planning process that works well or very well, compared to 40% that copy planning data and just one-fourth that have little or no connection.

A corporate planning methodology built on integrated technology enables organizations to create more accurate plans because refinements are made at shorter intervals. Short planning cycles enable companies to achieve greater agility in responding to market or competitive changes. Planning across the entire organization in a coordinated fashion (rather than as individual functional silos) in an ongoing collaborative dialogue that brings together finance, line-of-business managers and executives delivers better results. And because it’s high-participation planning and not silo-based, companies can plan with greater accountability and coordination in their operations. This ongoing dialogue tracks current conditions as well as changes in objectives and priorities that are driven by markets and the business climate. Continuous planning promotes a forward-looking mindset that’s focused on performance improvement.

For all but the smallest organizations, it's not feasible to use desktop spreadsheets for any significant contingency planning or to consider the impact of a major change in any useful detail. The inherent technological limitations imposed by spreadsheets make continency planning too time consuming to be worthwhile. And when black swan events arise, organizations usually are too busy to map out alternative courses of action in any real detail if they have to repeatedly roll up a mass of spreadsheets.

Success in business requires competent execution built on planning that’s both thorough and agile. Time efficiency in planning cycles enables agility, especially in larger organizations where analysis paralysis can be fatal. Dedicated planning and budgeting software has been around for decades but still isn’t widely used. Our earlier research on this topic shows that two-thirds of larger organizations still use desktop spreadsheets for budgeting. Pulling together a budget and plan from a tangle of spreadsheets requires a great deal of effort. Furthermore, spreadsheets eliminate accountability because it’s hard to drill back down into the numbers to get to the underlying assumptions. Spreadsheets are rife with errors and disputes over what constitutes the “right” number often lengthen the process and undermine cooperation. Our recent Change in the Office of Finance benchmark research confirms that organizations using dedicated planning software report a better planning process: Two-thirds (66%) of companies that use dedicated software have a planning process that works well versus 36% that rely on desktop spreadsheets.

Planning is useful under all circumstances, but it is especially valuable in times like these. Competent management and execution are paramount for business success and organizations make both more effective through integrated business planning. The current chaos is a useful reminder of the value of high-participation, collaborative, action-oriented planning built on frequent short planning sprints. I urge heads of financial planning and analysis (FP&A) organizations, particularly those currently using spreadsheets, to switch to a dedicated planning software and adopt an integrated business planning approach. Now is the time to make the business case and gain support at senior executive levels for a change-management effort in planning and budgeting.

Regards,
Robert Kugel