Analyst Perspectives

We live in a time of uncertainty, not unpredictability. Especially when a business finds itself on an undefined journey with an unclear destination—whether caused by internal events or the world at large—having plans to deal with a range of outcomes increases the odds of success. Or, at least enduring the least amount of damage. Managing an organization in uncertain times is always hard, but tools are available to improve the odds of success by making it easier and faster to plan for contingencies and scenarios.

Software makes it possible to quickly consider the impact of a range of events or assumptions and devise a set of plans to deal with them. Dedicated planning and budgeting software has been around for decades but is about to become all the more useful as software providers increasingly incorporate artificial intelligence (AI) using machine learning (ML) to assist in scenario planning. Enterprises can investigate the impact of different contingencies and the consequences of various reactions faster than ever.

Integrated business planning (IBP) is a term I coined back in 2007 to describe a rapid, collaborative, high-participation process that brings together operational and financial planning using a planning software platform to connect the disparate planning activities that happen in an enterprise. Each business unit plans as appropriate but in a connected fashion that achieves better alignment with strategy and objectives and better coordination in executing the plan. ISG Software Research asserts that by 2028, one-fourth of FP&A organizations will have implemented integrated business planning, bringing together operational and financial planning on a single platform to improve the business value of planning and budgeting.

IBP is a technology- and process-driven approach to business planning. It connects the forward-looking activities in which organizations routinely engage into a unified process using shared, consistent data. This includes marketing, sales, customer, supply chain and workforce planning as well as budgeting. It can substantially cut the time spent creating and updating plans, making it possible for financial planning and analysis groups to develop detailed assessments of the impact of alternative scenarios rapidly. IBP gives senior executives the ability to quickly explore different scenarios and their potential impact. It provides the necessary information to assess alternatives, and it does so in quick order to make planning actionable.

Today’s business planning challenges are the result of rapid evolution of secular trends in markets, economies and politics, as well as impactful events that accompany these sea changes. It’s no longer adequate to answer what-if questions with “I’ll get back to you on that” because successfully planning next steps in a dynamic environment requires a free-flowing dialog. Today’s planning applications achieve speedy scenario development, helping good managers make better decisions faster and more consistently.

Contingency planning is at the heart of good management. When reviewing organizational operating and financial plans, the best executives I’ve known always ask, “What will you do when your plan doesn’t work?” The point of contingency planning is to provide thoughtful answers to that question, including the impact of various scenarios on financial statements, profitability, market share and operating metrics. The ability to rapidly model and plan different scenarios at a useful level of detail enables organizations to assess alternate options more frequently and pivot quickly when conditions change enough to warrant it.

By streamlining planning and budgeting cycles, IBP makes it possible for executives and managers to have the time to assess different scenarios and contingencies. Business is all about managing trade-offs because resources are always limited. Yet those organizations that lack the technology to perform short planning cycles have little or no ability to measure trade-offs in the plans in which they are involved. Moreover, being able to include operational resources—not just the financials—provides business managers and executives with a clearer picture of the impact of various scenarios—and the means to formulate a coordinated, consistent response.

To be truly effective, contingency planning must include operational and financial budgeting. In planning, executives and managers almost always think about things such as units of production and headcount, not just money. Planning for units is essential. For instance, if a port strike is threatened, organizations need to assess how that will affect product availability. If the shutdown stretches into weeks or months, what is the best response, including the optimal allocation of available products? In a mild recession, allocating resources to sustain efforts in attractive markets while cutting less strategic investments can provide a competitive edge. Executives must be able to accurately evaluate the impact of multiple scenarios on the business to understand their options and trade-offs. Doing so requires a planning and budgeting process that’s accurate, efficient and fast.

The rapid rate at which most software providers are applying predictive and generative AI (GenAI) to enable enterprises to streamline planning processes is impressive. There are well-within-reach use cases for business-focused AI capabilities, especially in finance and accounting departments, including:

• Accelerating forecasting and planning while reducing bias by autogenerating first-draft plans
• Automating analytics production to enable more time for analysis and thought
• Providing task supervision to spot data and information input errors
• Adding recommendations to facilitate decision-making
• Automating commentary to enhance reporting.

This last item is likely to increase FP&A effectiveness. We assert that by 2028, all providers of business planning software will use GenAI to streamline commenting and note annotations in tables and exhibits to boost productivity. GenAI, along with natural language querying, will support a high level of executive and manager self-sufficiency in forecasting, planning and analysis.

Increasingly, business unit owners can create and update contingency-based, combined operational and financial plans at a pace never before possible. The role of the financial planning and analysis (FP&A) group must evolve from a budget maestro to an internal consultant, enabling fast cycles with (when necessary) far-ranging and nuanced scenario planning. They must be able to guide senior leadership teams in developing optimal responses to potential disruptions and a range of business environments.

I recommend that all midsize and larger organizations adopt dedicated planning and budgeting software to improve performance. It’s also essential to craft a data management strategy incorporating a data store to support better planning and, potentially, a planning center of excellence to manage the process. We live in an age of the uncertain, not the unpredictable. Technology enables senior leadership teams to manage more intelligently to achieve greater resiliency and agility.

Regards,

Robert Kugel