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CFO Agenda

The integrated finance plan

Business planning comprises a number of individual and often interconnected plans that cover all areas of a business’s value chain. Marketing plans, sales plans, workforce & overhead plans, working capital and cash plans, to name a few, all play a part in the overall finance plan. Often, the process of pulling together this cross-functional information can be time consuming, require vast amounts of manual effort and have many error prone process points. Leading companies are adopting an integrated finance plan that pulls information from sales forecasts, product pricing and costing, HR systems and other operating systems to generate a finance plan based on operational facts and global assumptions. The advantage of the integrated approach is speed, accuracy, cross-functional accountability and a much more joined up planning process that everybody can trust.

The faster forecast

Being able to forecast quickly has a number of benefits – accuracy improves and the forecast is much more up-to-date. Leading organisations are forecasting by exception – applying changes to the most recent forecast and ‘updating the financials’ in a very short amount of time. Processes are more focused and collaborative across functions, with business people taking ownership for their area, leading to a forecast you can trust.

Planning using operational drivers

Driver-based planning capabilities lead to a more accurate, faster planning and forecasting process with a variance analysis that can break down into component variances such as price/rates, volumes and mix effects. Demand volumes can be loaded, price and promotion assumptions input and gross margin analysis is then calculated for all geographies and products. Using drivers to deliver the financials means that a) the business can amend operational drivers and this updates the financial forecast and b) the business has greater transparency of the underlying operational measures that drive profit.

Product profitability

Understanding true profitability of products and customers down to a more detailed level helps to understand how to drive up overall company margins and helps to control related costs.
There are often costs that are incurred ‘lower down the P&L’ that should be taken into account when understanding overall product or customer profitability. By having a view of true customer and product profit, controlling areas can reduce, increase or redistribute business activity to support high margin areas and take corrective action on lower margin activity. With this profit view, KPIs are introduced to ensure that certain lower limits are met in both planning and actual activity…. overall the organisation has a better view of what it is trying to achieve and how it must do that.

Business simulation

Being able to simulate possible outcomes allows a business to play out possible scenarios against margin, profit and cash targets. Companies use planning and simulation tools for business planning to set targets for the budget and forecasts. Finance Directors, Sales Directors and Supply Chain Directors are able to sit around the table and run ‘on the fly’ simulations of possible business scenarios. This is a process of collaboration of different business heads. Sales heads can build the sales picture within constraints recognised by supply chain heads and net sales, margin and profit measures analysed under finance heads.