Financial Planning Forecasts FP&A OneStream Planning and Analysis xP&A

The Value of Unifying Annual Planning with Operational Planning

This article first appeared on by Jaime Marijuán Castro

Have you ever gone through an annual planning cycle feeling comfortable enough with the information at hand to call the shots?  Did you have the chance to discuss every detailed operational planning assumption and build consensus with all stakeholders? Could you trust the forecasts provided?

No doubt, annual planning and budgeting cycles are tough and mostly unfair.  But why?

At the core of any annual planning process, data collection and segmentation are pervasive challenges. Information doesn’t flow at speed or with the accuracy needed to provide good insights. All too often, leadership often compromises with just a top-down approach using overly simplistic segmentation criteria and neglecting the richness of information from a bottom-up planning practice, only because true bottom-up planning is difficult to scale and execute consistently.  Sound familiar?

In growth industries with immature markets, a top-down only approach may be acceptable.  But in mature and cyclical industries with fierce competition and tight margins, failing to apply a bottom-up approach for planning can set the wrong course for the year.  Even worse, that failure adds risk to executing the company’s strategic plans. Enriching the annual operating plan (AOP) with granular operational planning can help achieve better strategic plans and improve financial results.

Contextualizing Annual Planning

The dramatic pace of market dynamics is forging new ways to elevate the annual planning and budgeting work.  Having a top-down approach based on last year’s attainment + growth target is insufficient, at least for any organization looking to thrive in current market conditions. Instead, bringing context to financial targets, budgets and plans is the key to success.

Achieving this success requires incorporating a bottom-up approach.  In such an approach, the annual financial plan is developed with inputs from the demand, sales and supply-chain planning processes.

Indeed, this ground-up planning method provides rich background.  Here are a few examples of the details provided:

  • Sellers contribute with buying intent knowledge from customers
  • Marketing informs about market dynamics (e.g., product performance, customer intent and competition)
  • Demand planners inform plans with demand predictions that may affect volumes and price.
  • Supply chain teams inform plans about resources needed to succeed in the annual plan (e.g., materials, equipment and workforce)

With all these useful insights, the number isn’t just a number – it instead takes on meaning.

But unifying annual planning with other detailed plans is not an easy endeavor, and many organizations fail.  Why is annual planning so difficult to implement then?

Because it relies on manual tasks and depends on many players.  And these conditions mean annual planning can hardly be done well and on time during the planning window.  Here are a few other reasons bottom-up operational planning process can be challenging:

  • Inadequate data handling and business intelligence tools. Spreadsheets are still used widely for planning and budgeting because the systems in place can’t cope with the task of unifying plans.  This is neither scalable nor reliable.
  • Limited collaboration. The fast pace in today’s business environment leaves little time to think outside the 4 walls of a function or business unit, discouraging open dialogue among teams.  Further, each functional area has its own jargon and idiosyncrasies, adding burden to any collaboration.
  • Unwillingness to align. Different and sometimes contradictory KPIs and objectives bring organizational bias to forecasting, thwarting any attempt to increase accuracy, because each department will forecast higher or lower for protection (see Table 1).
Table 1. Examples of bias in forecasting and planning
  Higher forecast Lower forecast
 Sales To ensure enough product is available  To overachieve quota
 Marketing To get more funding for advertising and campaigns
 Manufacturing and Supply Chain To secure stock and CapEx and workforce investments
Misaligned goals and KPIs can bring nuisance to planning and forecasting

Steps to Unify Annual Planning with Operational and Commercial Planning

Organizations that incorporate demand, sales and supply data into the annual planning cycle have more chances to increase revenue, market share, profits and cash flow.  Why?  Because operational planning directly impacts strategic targets.  At the same time, it enriches the annual planning and budgeting processes by connecting the target figures with realistic and committable initiatives and projects – e.g., to expand sales in a new market, launch a new product earlier to capture a forecasted demand trend, prioritize constrained raw materials to product B because it’s more profitable and so on.

In other words, the operational planning adds context and that drives motivation and performance.  When KPIs are aligned to the financial objectives, the organization can expect higher growth rates in revenue and market share, better use of cash and more.

For organizations evaluating their annual operational planning process, here are a few key considerations to create a more unified approach:

  • Start high level and then get into the details. Finance must start by aligning strategic and annual plans, then work down to lower planning levels.  Then Finance team must consider unifying with one planning realm at the time – for example, beginning with demand planning – and then incorporating the other functional areas, such as sales, marketing, supply, etc.
  • Align operational and financial KPI’s. Suppose that a target for the year is to improve days sales outstanding (DSO), but the order-to-cash organization focuses mainly on revenue driven KPIs (e.g., On-Time In-Full) and doesn’t consider invoice timeliness and accuracy as KPIs. That focus may lead to increased outstanding debt.  So getting all teams aligned to the same KPIs is crucial.
  • Move away from spreadsheets. Spreadsheets prevent speed and agility in the annual planning process.  Further, spreadsheets bring risks to the process by making it extremely difficult to manage version control and prevent manual handling errors.  The good news is that there are technology solutions (see Figure 1) capable of providing both the granularity required to handle bottom-up tasks together with the dimensionality and flexibility needed to roll up numbers in the context of complex organizational constructs – all while maintaining the highest financial data quality
  • Lead behavioral change. The Office of Finance needs to drive behavioral change to eliminate organizational bias.  How?  Finance needs to orchestrate and drive the conversation forward, understand the different perspectives (learn what matters, translate jargon and connect KPIs) and educate on how bias can impact financial and business performance.  The Finance organization must ultimately facilitate a collaborative process and provide the necessary tools and technology to unify the planning and budgeting activities.

Figure 1: Aligning Operational Plans with Annual Plan in one place. For more information, visit the solution brief.



Unifying annual with operational planning is a good way to provide the business background required to support the annual financial targets and strategic goals.  Unified planning also drives transformation from the Office of Finance, takes a holistic approach and works the details from there to align operational and financial indicators and targets.  Dealing with data collection, transformation and data handling is crucial to successfully tie in all the plans and needs to be prioritized.

The best way to implement these crucial steps is by leveraging one platform – such as OneStream’s Intelligent Finance Platform – that solves the problem of data collection and segmentation by unifying the different planning workstreams with financial consolidation for actuals.  Why?  Because having just one place to perform all this planning activity brings agility, alignment, and governance, making it easier to improve financial results.


Learn More

To learn more, download our whitepaper titled “Unify Connected Planning or Face the Hidden Costs” here.