This article was originally published on OneStream.com by Whitney Gillespie
For financial analysts, planning for the future is always top of mind. Most analysts understand the importance of planning, budgeting, and forecasting. After all, those processes are the bread and butter of Financial Planning and Analysis (FP&A). Most planning processes, however, focus on a near-term horizon. Long-range planning (LRP) builds on budgeting, planning, and forecasting processes by focusing on longer-term financial goals and key initiatives that are 5-10 years or more in the future.
Leveraging an effective FP&A software solution to plan, track and achieve longer-term financial plans and goals is, therefore, key to an effective LRP process.
Why Long-Range Planning Matters
With all the volatility in markets and global economies due to the pandemic, it’s no wonder that looking ahead with an LRP process can feel daunting. Why? Well, getting a handle on what’s going to happen tomorrow or next week is tough enough, so understanding what might happen in 1-2 years – or in 5 years – seems nearly impossible.
And if the planning process is happening in offline spreadsheets – that’s an even bigger headache. Putting together a plan that truly represents a vision of the future requires inputs from across the organization, so having to combine various spreadsheets that lack data quality and consistency controls can make any planning process a tedious and time-consuming task.
Despite the above challenges, long-range planning is an important tool for mapping out not only the vision for the future but also the related goals and plans to execute on those goals. Capturing the inputs within FP&A software brings that vision of the future together into one long-range plan – one the entire organization can work toward achieving.
What Is Long-Range Planning?
Long-range planning typically spans a 5- to the 10-year period. The LRP process differs from not only the near-term budgeting and forecasting activities (e.g., rolling forecasts) that typically span a year, but also the mid-range strategic planning processes. Essentially, a long-range plan looks to align long-term goals with action plans to execute the strategic planning. Understanding the strategic direction of the organization helps FP&A craft a vision of the future, and vision forms the long-range plan.
Notably, beyond just Finance inputs, the long-range planning process requires inputs from many different stakeholders in the business. Here are a few examples:
- Operations: Makes strategic decisions about the overhead and personnel required to meet organizational goals.
- Supply Chain: Understands the costs and availability of the materials needed to execute the long-range plan, and makes decisions about alternative suppliers or potential supply disruptions in the future.
- Manufacturing: Look at equipment and machinery purchases, maintenance, and what needs to happen on the production floor to achieve the LRP vision.
For the long-range plan to be successful, those implementing it must understand not only what the plan incorporates as goals, outlooks, and financial impacts, but also how everything will be accomplished.
Key Elements in the Long-Range Planning Process
The ability to understand and align financial and operational goals will ultimately help craft a united vision for the future – one that spans across the organization. Here are just a few examples of useful components of the long-range plan:
- Mission Statement and Company Vision – What is the company’s mission? Understanding where the company currently stands compared to its longer-term mission and vision will inform future direction.
- SWOT Analysis – A strengths, weaknesses, opportunities, and threats (SWOT) analysis helps define current internal strengths and weaknesses in the business to better understand what can be improved as part of the long-range plan and what should be avoided. By focusing on both external opportunities and threats, FP&A teams can help drive a dialogue with key executives, one focused on key areas to consider outside the 4 walls of the organization.
- Sales and Operational Goals – Understanding both the sales and operational goals helps lend insight into the LRP to identify activities that help increase revenue, profits, and production rates to drive overall business performance.
How Financial Software Enables an Effective Long-Range Planning Process
One common pitfall of the traditional long-range planning process is the reliance on manual modeling in custom Excel spreadsheets – a headache to which any financial analyst can relate. Using spreadsheets means spending hours creating, distributing, collecting, and rolling-up complicated Excel models only to suffer from data inaccuracies, quality issues, and non-conformance problems. After all, without traceability to the data sources and what’s driving the data in the Excel file, there’s no authority in the numbers. And absolutely no one enjoys standing up and presenting numbers that just can’t be backed up.
Additionally, there’s an inability to adapt the plan as changes occur. In today’s volatile market conditions, reacting and adapting to change with speed and accuracy is critical to driving performance. Disjointed Excel models simply don’t allow for the type of on-the-fly, what-if modeling or changes that are so crucial to success in modern planning.
Instead, utilizing FP&A software for the long-range planning process has many benefits:
- Saves time in the planning process by providing access to all the data in one place. Providing all the key stakeholders with access to the same data eliminates offline spreadsheets and siloed processes that create more work to aggregate and validate the data.
- Opportunity to incorporate predictive analytics and machine learning to use internal/external insights and data to better understand future fluctuations and changes. Bringing in both internal data and external trends can layer in additional insights that guide future decision-making and future-proof the plan via the ability to sense fluctuations sooner.
- Provides detailed reporting and analytics that can help guide decision-making with a varied audience. Visualizing the data trends quickly with dashboards and reports that are easily and quickly updated enables better and quicker decision-making.
- Improves data quality and accuracy that redirects the time and effort spent from managing manual processes toward better strategic and tactical decision-making.
- Allows leaders to model what-if scenarios and make ad-hoc changes as the plan is executed. An important aspect of the long-range planning process is managing an ever-changing plan in a fast-paced business landscape. Managing that plan as conditions change and being able to dynamically update for the changes is crucial to long-term success.
Figure 1: Data visualizations enable faster insights and changes
All these improvements ultimately make long-range planning easier, quicker, and more accurate than a siloed planning process taking place in disjointed Excel spreadsheets. And that means less of a headache for the financial analysts tasked with putting the plan together. The improvements also allow leadership to focus more on strategy and execution – and less on worrying about the credibility of data or the reliability of Excel models.
FP&A teams must therefore use processes like LRP to help elevate Finance as a strategic business partner and earn that much-desired seat at the strategy table. And the first step of achieving those goals requires moving the Finance role past data aggregators and cleansers of complex and messy Excel spreadsheets. Leveraging effective software to do just that enables the transition into the next stage of Finance.
Long-range planning is an important piece of the financial planning scope – and one that informs tactical budgeting and forecasting cycles and strategic mid-range planning to drive towards future business performance. In the process, being able to leverage reliable and flexible FP&A software not only improves the quality of life for those tasked with putting together and executing the plan but also allows the organization to remain focused on strategic initiatives and the continued success of the business through uncertain times.
At OneStream, we refer to such effects as practicing Intelligent Finance.
To learn more about how your organization can take steps forward with long-range planning, click here to download our ebook on Intelligent Forecasting.