Robert Kugel's Analyst Perspectives

Artificial Intelligence and generative AI are beginning to change how enterprises do many things, especially planning and budgeting. This technology has the potential to significantly redefine the mission of the financial planning and analysis group. It will do so by substantially reducing the time spent on the purely mechanical aspects of day-to-day tasks. AI is also making it easier for executives and managers to rapidly forecast, plan and analyze to promote deeper situational awareness and facilitate better-informed decision-making. Rather than being the budget master, FP&A will provide planning services to those in line-of-business roles, becoming a planning center of excellence. Even though the AI hype cycle appears to be fading, it’s still clear that the unglamorous field of artificial intelligence applied to enterprise software will be the most consequential technology change in business computing since the 1990s. There are well-within-reach use cases for business-focused AI capabilities, especially in finance and accounting departments, including: Accelerating forecasting and planning while reducing bias Automating analytics production to enable more time for analysis and thought Providing task supervision to spot data and information input errors Adding recommendations to facilitate decision-making Automating commentary to enhance reporting I’ve written about the need for FP&A to use the recent advances in technology and data management to make planning and budgeting easier and faster for the rest of the enterprise. From an organization and management perspective, I think the key to taking full advantage of AI and GenAI technology is to refashion the group into a planning center of excellence. This organization would be responsible for supporting the planning activities of individual business units of an enterprise. The objective would be to create a better planning process that enables executives and managers to achieve the highest potential financial and operational performance. This may sound like FP&A’s mission today. The difference is in using advanced modeling and data management to make faster scenario planning possible, driven by actionable key performance measures that enable faster, well-informed decision cycles. FP&A groups can evolve into a planning center of excellence by spending less time on the mechanical work that now consumes a great deal of their effort. A side benefit of AI-enabled business applications is the increasing availability of useful, timely and consistent data for forecasting, planning, analysis and reporting. Providers of business planning software frequently include data stores that automate the ingestion of information from a range of systems of record (such as enterprise resource planning, customer relationship management, human capital management and supply chain management) as well as data from external sources that track economic and market data. Today, FP&A organizations perform much of this work manually. Eliminating the need for manual integration of data is important because our Analytics and Data Benchmark Research reveals that individuals spend a considerable portion of their time preparing data for analysis and reviewing it for quality and consistency issues, activities that are no longer necessary when a comprehensive data store is available. Having the software and data to automate manual tasks and assist in analytical work provides FP&A groups with the time and tools to transform into a center of excellence. Integrated business planning is a term I coined back in 2007 to describe a rapid, collaborative, high-participation process that brings together operational and financial planning using a planning software platform to connect the disparate planning activities that happen in an enterprise. Each business unit plans as appropriate but in a connected fashion that achieves better alignment with strategy and objectives and better coordination in executing the plan. ISG Software Research asserts that by 2027, one-fourth of FP&A organizations will implement this form of integrated business planning. The rationale for fundamentally changing planning and budgeting is as easy as ABC. FP&A organizations need to transform planning to be Action-oriented—enabling executives and managers to make better-informed decisions sooner on what to do next. It must be Business-centric, combining operational planning and financial budgeting. And it must be Company-wide, not siloed. A planning center of excellence in FP&A is the easiest and most practical way to make this happen. But where to start? The path from FP&A’s traditional role of administering an annual budget to driving actionable, continuous and integrated planning is best accomplished in a series of easily digested steps. A useful first step is to have a dedicated application to make planning and budgeting easier for the budget owner. Spreadsheet-based planning systems may be adequate for handling the money part of the process, but because of their technology limitations, they are far from ideal in planning the things (such as headcount, advertising campaigns, facilities and laptops) needed to run a business. Finance people think in terms of money, but line-of-business managers almost always think in terms of things. In a traditional budgeting process, these managers must create a financial budget, which they may arrive at with side calculations that translate their business plan into monetary terms, which is time-consuming. Moreover, because of the sole focus on money, budgets have limited value in managing business operations. Over the past few years, business planning software providers have made it somewhat easier for enterprises to incorporate things as well as their monetary impact by incorporating both sales and headcount planning functionality to streamline the budgeting process. Budget owners can forecast headcount plans and have the application translate them into budget line items using HR department assumptions about salaries, wages and benefits. This can save budget owners time and shorten planning cycles. Used effectively, it focuses budget discussions on why a specific staffing plan is necessary to achieve business objectives rather than negotiating a percentage change in the budget. In this respect, it supports a zero-based budgeting approach. This method also ensures consistency while providing the HR department a heads-up on a real-time, consolidated view of future hiring plans, enabling it to plan its talent acquisition accordingly. Similarly, the sales planning functionality can provide a useful integrated summary of current sales plans that link to an enterprise’s system. These projections can be readily updated at whatever frequency and level of detail are required, eliminating the challenge of having a budget that is routinely out of date on the revenue line. Moreover, for enterprises that generate a significant amount of deferred revenue from revenue recognition accounting, dedicated software makes it simpler to forecast cash flows and balances along with recognized revenue. The next important step is creating an enterprise planning and reporting database of record. A few years ago, I started using the term “data pantry,” somewhat tongue-in-cheek, to describe a method of data storage (and the technology and process blueprint for its construction) aligned with the concept of data mesh architecture but created for a specific set of users and use cases in business-focused software. It’s a pantry because all the data one needs is readily available and easily accessible, with labels that are immediately recognized and understood by the users of the application. In tech speak, this means the semantic layer is optimized for the intended audience. It is stocked with data gathered from multiple authoritative sources and available for immediate analysis, forecasting, planning and reporting. This does away with the need for analysts to repeatedly perform data extraction, enrichment or transformation motions from the required source systems, all but eliminating the substantial amount of time analysts and business users spend routinely on data preparation. Automating data transformation and aggregation also makes it practical to expand the scope of usable data for forecasting, planning, analysis and reporting by removing time constraints. Freeing up the considerable time FP&A members spend on mechanical tasks enables the organization to function as a planning center of excellence. Broadening accessible sources of data also enables analysts and other business users to focus on creating useful, insightful, complete and timely analyses, insights and reports related to how a business is performing. Many software providers already offer this type of data store even though none of them have (yet) called it a data pantry. ISG Software Research asserts that by 2027, almost all business-focused software providers will offer a data pantry to facilitate the integration of operational and financial data, making a broader set of actionable information available to support data-driven decision-making. A major practical benefit of using AI is putting predictive analytics within easy reach of any organization. Predictive analytics applies machine learning to statistical modeling and historical data to make predictions about future outcomes. By identifying patterns and trends in past data, predictive analytics helps businesses forecast future events, assess risks, and uncover opportunities. A data pantry is necessary to support the machine learning required for training artificial intelligence capabilities that are part of a business application, especially for business planning that combines financial and operational measures. This is because the authoritative sources of data necessary for training the system using machine learning exist both inside and outside of the application. Predictive AI will shortly be a common feature of dedicated business planning software. It already makes it possible to improve the accuracy of forecasts and enhance agility in responding to change by automating time series analysis to rapidly develop predictive models for more accurately forecasting revenue and costs as well as balance sheet items and cash flows. AI also continuously monitors model accuracy and relevance to signal when it’s necessary to retrain models as conditions evolve. This same analytical capability can identify factors useful for driver-based planning and forecasting, which facilitates the integration of operational and financial planning. With machine learning, a system can constantly monitor inputs and results to spot anomalies, inconsistencies, outliers, errors and omissions in data entry without specific programming. A well-trained AI-enabled system can suggest the next best step, options for the next step or a range of values to input that represents the best fit under the circumstances. The ultimate objective of these actions is to use technology to achieve an integrated planning process that supports rapid cycles built around short planning sprints – that is, continuous planning. Each part of the business models and plans the ways most relevant to how it operates. Data can be shared easily and continuously between business units and executives. Technology also enables rapid, high-participation planning—high participation to achieve accuracy and accountability. Technology allows for multi-dimensional modeling to support driver-based planning, which enables managers and executives to connect resources to results to achieve objectives. And planning that drives the creation of budgets to integrated financial planning—immediately seeing the impact of scenarios on the balance sheet and cash flows. Creating a planning center of excellence and redefining the mission of the FP&A organization can help transform planning, budgeting, analysis, reporting and performance reviews. Continuous planning makes these processes run faster and cut planning cycle times—the time it takes to do a scenario, an iteration or a full consolidated plan—from weeks or months to hours or a couple of days. It makes budgeting and planning easier for business owners by simplifying the process while using technology to gain accuracy and precision. Planning becomes more relevant to business owners and senior executives because the approach focuses on resources and outcomes, not just financials. This approach is more strategic and designed to help the entire leadership team manage the business more effectively. I recommend that finance executives and FP&A create an operational roadmap that outlines a planning center of excellence. This action can improve organizational performance and enable FP&A leaders to play a more strategic role. A center of excellence is a change-management device that provides senior executive-level endorsement of a more effective, action-oriented approach to planning. Enterprises can fundamentally improve how they plan, budget, analyze, communicate results and assess performance for the better. They can start to do so by using better technology. Dedicated software enables faster and more agile planning cycles as well as plans that are more accurate and business-focused. Regards, Robert Kugel

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