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Planning, Budgeting and Forecasting (PBF) form an essential three-step process in detailing the short and long term goals that will steer organisations and determine future performance.
Planning – outlines the company’s financial direction and its expectations for the next few years. Budgeting – documents how the plan will be executed month to month, specifying expenditures and revenue. Forecasting – uses accumulated historical data and insights to predict financial outcomes for future months or years.
So, given the enduring strength of these fundamental principles, why does PBF need to change? And how can PBF agility support the wider organisation’s new and improved ways of working? These questions also contribute to the main question posed in our first article ‘How agile is your business’.
When considering the “why” we look to present day market changes, technology advances and the number of organisations constantly seeking to evolve. Adapting to this rapid pace, and the already evolving agile organisational functions, requires Finance functions to respond and move toward agile PBF methodologies.
The “how” will be elaborated on, but it starts with ‘tribes’ and the pursuit of ‘agile’. Most organisations are already moving toward an agile state, focusing on creating value within project based units or tribes by using agile practices such as iterative sprints and daily scrums. It is an environment where 12 monthly planning and budgeting views are no longer suitable and, in this context, shorter iterative 3-month views may help finance teams become more nimble and responsive, while increasing their value within the ‘tribe’.
This is more than a mindset, such flexibility needs to be ‘engineered in’ to the current processes. However, in order to fast track and efficiently provide this ‘engineered in’ flexibility, it is crucial to have ‘top down’ buy-in met with a ‘bottom-up’ approach to agile-working.
There are many new tools available for advancing Planning, Budgeting and Forecasting, many of which are cloud based (software as a service (SAAS). It is important, however, to see these as enablers and not ‘creators’. Getting caught-up in increased data and new tool complexity without understanding what information drives commercial value is a serious trap. Structure, strategy and people should be assessed through an agile lens as a starting point.
This is reverberated by Bankwest’s CFO Adam Harby, who has been part of Bankwest’s large scale drive and transformation to ’agile’, who said that in an agile environment – “What to measure and how to measure is a challenge”. Thus a focus should be drawn toward the foundational aspects along with the key internal and macro drivers for CFO’s to best leverage these new tools.
CFOs, finance professionals and organisations need to establish ‘new’ value driven roles alongside ‘traditional’ operations and governance roles, and they need to ensure an open and willing mindset.
The future of Finance may not be entirely clear, but change is in the air and it is coming fast! The best guide to the road ahead comes from looking at the 3w’s Framework of: Work, Worker and Workplace.
Work – Finance will need to guide, track and nurture shorter timeframes and increasingly frequent tactical changes. Rolling plans and supplementary sprint planning will better inform budget cycles, allowing iterative updates to changing priorities and changing customer needs.
Worker – Traditional approaches deliver long interims between budgeting and planning. They create large scale exercises, sizeable time and manpower allocations and the detachment of budget teams from the ‘day to day operations’. Agile working prescribes continual budget development through the real time assessment of projects. Embedding finance members in project teams (as Finance Coaches) may provide two-way understanding of how work is being done and how it aligns with longer-term strategy and goals.
Workplace – New PBF tools not only bring improved capability in finance and enterprise tasks, they have a profound impact on the workplace itself. Cloud software offers scalability as it leverages software as a service and this will affect the physical workplace in terms of size, layout and facility requirements.
The clear positive of creating teams that are able to learn fast and fail fast is to build a “do it once and do it right” environment.
This article has looked to provide an introduction to agile PBF which is the starting point for successful change, our next article will look at agile budgeting methodology and forecasting agility.
Caleb is a Consultant in Performance (Finance) at Deloitte Consulting Australia. He has completed an undergraduate degree in Economics and a Master of Business Economics degree at Monash University, with a focus on economics, statistics and finance. He has interests rooted in delivering value to companies by identifying future performance-driven opportunities while achieving the CFOs agenda. His focus is on transformation projects with the aim to improve strategic alignment and performance accountability.