We recently flagged up the potential value of balanced scorecards (BSC), especially when it comes to measuring your progress towards strategic goals. But what about your broader planning capabilities? Here’s how updating your planning, budgeting and forecasting methods can help you meet some of today’s biggest operational and strategic challenges.

In 2021, flexibility is a must

Currently, Nordic and Spanish ports are still grappling with the fallout from last month’s Suez Canal grounding. There are warnings that the emergence of new Covid-19 variants could jeopardise the UK’s return to normal. Meanwhile, in the run-up to the COP26 conference, governments are being urged to ramp up the pace and intensity of decarbonisation measures.

So how far might these three disparate events impact your business? Of course, they might all blow over without consequence. Or a ‘triple whammy’ could arrive: production lead times are suddenly in disarray, physical outlets are prevented from opening, and legislation is introduced that threatens your operating model.

Uncertainty, volatility, twists and turns are all now the norm. Against this backdrop, a rigid planning process becomes a business risk in itself. Decisions based on plans and budgets drawn up months previously can lead to expensive mistakes. If you attempt to hold your company to targets or budget limits based on out-of-date information, it becomes both frustrating to employees and counterproductive to performance.

To illustrate, here are some examples of how an injection of flexibility into your planning processes can be a real boost for business resilience.

Budgeting: time for a fresh look at ZBB?

The last 12 months has forced a doubling down on cost management to scrutinise expenses more closely than ever before. On the plus side, however, you may have discovered some valuable cost savings: eg by reducing your property portfolio or through the reduction in business travel.

The budgeting challenge is twofold. Most importantly, the budgeting process needs to be robust and accurate enough to ensure continued liquidity, while still ensuring funds are directed to the company’s strategic priorities. Secondly, you should aim to permanently capitalise on any tactical savings that have been identified.

The solution

• This may be an opportunity to move away from incremental budgeting towards a zero-based budgeting (ZBB) model. The zero base is effectively a clean slate for building a budget based solely on justified costs.
• More granular than traditional budgeting, ZBB supplies management with an accurate, enterprise-wide view. It can also encourage employees to adopt an owner-operator attitude towards company spending, spotting cost savings opportunities themselves.
• Traditionally, a ZBB process was a huge undertaking. It involved gathering vast amounts of data from across the business, with spreadsheets passed from person to person for adjustments, creating massive scope for error.
• The right planning and budgeting platform can eliminate the practical barriers to ZBB implementation. You get a single, reliable version of the budget across all functions, along with the ability to collaborate on budget creation without the risk of versioning errors. You can also leverage analytics to continuously screen and re-evaluate items of expenditure, to allocate resources to areas that deliver the most value.

Rolling forecasts

What is a realistic revenue projection for this year? As the outlook improves, we may be entering ‘revenge buying’ territory, whereby pent-up demand is unleashed. In many sectors however, the size and strength of any bounce-back may be very difficult to predict.

On the supply side, the last year has highlighted how sudden events affecting a relatively minor sub-tier can critically impact an entire chain.

With multiple variables in play, static forecasts can be rendered inaccurate from day one. Of course, you will still need an annual operating plan for things like mandatory reporting and anchoring the compensation budget. But day to day, how do you respond to volatility linked to the likes of customer preferences, exchange rates, supply outages and fuel prices?

The solution

• If you have not already done so, consider supplementing your budget with a rolling forecast. From a planning perspective, this gives you an up-to-date picture of likely future results based on real-time data.
• The right solution should enable you to adjust inputs on a granular basis (e.g. new currency rates, supplier price changes, workforce capacity reductions), and immediately see the impact of new inputs.
• This approach can also be used for scenario planning. Start with a sandboxed budget model pre-populated with base numbers. You then adjust your inputs to measure the impact of possible changes in circumstances that might be around the corner. You should be able to test unlimited scenarios quickly without the need for technical input.

New targets to meet

Last November, the Chancellor announced a roadmap for a new raft of climate-related financial disclosures. This includes details of board-level oversight of climate-related risks and opportunities. It also covers risk management: ie disclosure of how the company identifies, assesses and manages these risks, as well as disclosure of the metrics and targets used to assess them.

This is part of a wider trend, whereby regulators, customers, investors, suppliers and employees all expect organisations to define, measure and act on ESG goals. There’s a risk management perspective here, too. Forward-thinking organisations need to understand and monitor their own exposure to climate change risk, and adapt accordingly.

The solution

• For defining your objectives, setting targets and measuring progress, balanced scorecards and connected planning & analytics both have a potential role to play.
• Could Big Data enable you to measure what really matters? All of the monitors, trackers and similar ‘connected’ technologies increasingly in play within an organisation all generate potentially huge amounts of data. It can tell you a lot about how, where and why sustainability improvements might be made. One of your top priorities should be to capture this data, bring it together from disparate sources, and analyse it.

Build your own planning toolkit

From customised reports through to scenario planning, MHR Analytics specialises in helping organisations put together the optimum planning toolkit from across a range of world-leading technologies. To bring your processes up to scratch, speak to us today.