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If we want plans and budgets to be credible; they must promote trust.

April 26, 2017

 

Traditional budgeting and planning models are proving to be ineffective in today´s uncertain and dynamic economy. Competitors appear from anywhere with almost no barriers, driving down prices and reducing margins across customers, channels, products and services.

 

Almost finishing the second decade of XXI century, digital business is a reality. New business models require better methods to allocate resources in order fund new sources of competitive advantage to deliver an acceptable return on invested capital and attract more demanding investors.

 

Unfortunately, in the face of all these technological and dynamic advances in digital business, corporate performance analytics are not evolving in the same way to better support complex decision making situations. CFOs still struggling with infinite spreadsheets and wasted time not related to collaborate and improve shareholder value.

 

A huge gap remains between technological innovation and decision-making processes. The bottleneck continues to be the lack of leadership of many CFOs that are not perceived as highly valued in their respective organizations.

 

If we want plans to be credible, they must promote trust.

 

The CFO is in a unique position to be the "champion of trust" and to be a highly valued executive to participate in the strategic, tactical and operational execution in digital businesses. For all this, if organizations are migrating to operate deeply in the digital world, so will the management accounting models do the same thing. In-memory computing is allowing not only the execution of automated processes and “webonomic” reports but also the speed required by analytic models that operate with artificial intelligence and interpret simultaneous planning scenarios.

Uncertainty and chaos still the main constants of planning. Bexit is only the beginning of what we will see in the European Union. We also will see substantial changes in the North America Free Trade Agreement very soon. The geopolitical rearrangement is going to be affecting the strategic scenarios in a different type of organizations. For these reasons, the planning process will become more important in the success of the digital business.

 

 

CFO, What is your value proposition?

 

The professionals who take part in the finance teams should be valued for their collaborative efforts with better evidence-based reporting. For this, it is necessary to update constantly the analytical models that support decision making. Updating these models, its operators have to demonstrate a strong mix of technological dexterity combined with strong business understanding.

To improve CFO´s value proposition in digital finance need to elevate their role through innovative strategies, planning, and tactical execution. Some undertaken initiatives to improve business planning process in the digital organization are:

  • Digital Partnering helps CFOs using new enabling technologies to improve planning, forecasting, reporting and profitability analysis based on leading management accounting operating models, and data structures.

  • Integrated Customer Centricity Analytics helps to rank and design new operating models that integrate front to middle and back office processes and functions into stakeholder-driven enterprise services, focused on achieving business outcomes at each client level. 

 

But….  What are the traditional budgeting alternatives?

 

It is hard to defend traditional budgeting because we all know that traditional budgets are dysfunctional because they have problems outlined by cost, timeliness, dysfunctional behavior and inflexibility to follow strategic targets truly. Some "trendy" planning methods are:

  • Driver-based planning

  • Better Budgeting

  • Zero Based Budgeting

  • Rolling Forecasts

In another blog, I will continue talking about the characteristics of predictive analytics... If you want me to write about some specific planning method, you can contact me at peter@ashercompany.us

 

Have a nice weekend.

 

Pedro San Martin

 

 

 

 

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