As the world is heading towards an uncertain future, businesses can expect some unexpected events along the way. Therefore, agility needs to be embedded in every business process, including corporate financial planning.
According to a Accenture survey, more than 80% of companies used their own historical performance as benchmarks for targets and only half of them used 3 or more major sources of external data for planning. The recommendation is to leverage external information instead, e.g. competitive data, microeconomic reports, market expectations.
Scenario planning involves devising a course of actions if certain levels for metrics chosen as scenario triggers are reached. Although this is a relatively new practice, there has been increasing recognition of its effectiveness.
Event-driven planning can help organisations respond to change faster and in a more active manner. Here are the steps:
While the finance department still has the central role of building the planning model, they could greatly use the help of front-line operating staff who are tuned to changes in the market.
Superior analytics starts with good data, achieved by determining the most important data, then validating and consolidating it. The next step is to derive actionable insights from the data and use them to shape decisions.
An effective capital allocation framework:
Strategic planning needs to be maintained in order to have a healthy balance sheet. While strategic planning deals with strategies and strategy drivers, cash flow and balance sheet planning aid with executing those strategic plans.
Balance sheet planning addresses questions such as:
As intangible assets (e.g. brand, intellectual property) increasingly account for a larger proportion of market value, companies should incorporate this aspect into corporate financial planning. Despite the fact that intangibles are difficult to measure, SG&A costs (e.g. employee training, research) can clearly create value in the long run. Thus, they deserve to be recognised on the balance sheet and amortised over time, i.e. managed strategically.
Read more: Intangible assets: a new financial management challenge
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