Financial planning in a time characterised by changes and uncertainty

We’re living in a world where uncertainty is the new normal. Recently displayed by the rapid return of inflation, disrupted supply chains, the war in Ukraine and all-time high energy costs. All this while megatrends such as digitisation and sustainability drive significant change in the environment in which businesses operate.

Danish Nobel Prize winner Niels Bohr once said: “Prediction is very difficult, especially about the future”. Every CFO knows this fact all too well. And the financial planning exercise only becomes more difficult when you also need to align it with business strategy, take into account savings targets and make room for shifting market demands.

But the budget season is here – and the board of directors requires to see a sound financial plan for the next financial year. So here we go (again); the “budget game” is kicked off. The good old Excel sheets are dusted off. Everyone is sandbagging – both on targets and savings. Politics are taking over common sense. The financial controller is trying to remember what we did last year. The CEO wants a detailed volume/mix analysis after each progress check-in. And so it continues – sometimes for months. At the centre of it all, the CFO and the finance team are tying everything together.

And finally, after a lot of hard work, everything is adding up perfectly. Checks and balances are done. Demand and supply are aligned. Savings have been identified. Revenue finally aligns with the delicate compromise and meets the expectations of both the CSO and the Board of Directors/Owners.

But then everything changes – a new big contract is lost or won, energy prices go through the roof, new investments are brought forward and instantly, the budget is outdated. New questions are asked. What does this mean for revenue? For the cost of goods sold? Can we do a quick refresh of the budget?

 

Start your financial planning process by asking yourself these questions

Many companies are tangled in a budget paradigm which can be very hard to change and/or improve. There are simply so many stakeholders and interests involved that it requires a lot of effort to change even small things in the budget process. So, maybe it is time to take a deeper look at your budget process and start asking some of the following questions:

  1. Are we trying to do too much at the same time?
  2. What is the purpose of our budget?
  3. Are we trying to solve target setting, resource planning and forecasting in one go? And by using one set of numbers?
  4. Are we doing the budget in too much detail? Does it need to be at the same detail level as the actuals?
  5. Do we have the right tools in place?
  6. Is the financial planning process understood in the business?
  7. Are our manuals and policies updated and easily accessible?

 

Our experience with financial planning

At Valcon, we support CFOs and finance managers to improve their financial processes and tools each day. We advise on how to take the financial planning process to the next level. And we challenge the traditional ways of thinking when it comes to financial planning.

We set up the steering model needed. We help you adapt your processes around financial planning. And we ensure that you have the systems in place and configured correctly to make the financial planning as dynamic as possible.

Recently, Valcon implemented beyond budgeting at a global biopharma company, which entailed a move from traditional budgeting to financial forecasting. Key outcomes included that the finance business partners were onboarded and served as ambassadors in the business. The business now experiences an agile and non-bureaucratic financial planning process without compromising having the financial outlook needed to steer the company.

In the second article of this series, we will dive deeper into the case of the global biopharma company and beyond budgeting as a concept. In the meantime, feel free to read some of our other blog posts regarding financial services such as “A working Molotov cocktail” or “Business process optimisation – why is it so important?

 

Isak Bastholm
E: [email protected]

Richard Thorsen
E: [email protected]