Financial Planning the Agile Way

Financial Planning the Agile Way

It’s the start of July, and you know what that means. Leadership teams are launching annual business planning and budgeting processes, all too aware that the current year’s plans went kaput many months ago thanks to the pandemic.

The last few years have been chaotic, but let’s face it, even in typical times most planning and budgeting processes are frustrating. They start five or six months early with promises of visionary transformations that quickly give way to tedious templates, endless financial forecasts, haggling over targets, and battling for resources.

Companies have an opportunity to make a clean break this financial year, with the pandemic requiring a more agile approach. Here are three ways you can take Agile principles that work so well with uncertain times and apply them to financial planning and forecasting.

1. Change the purpose of planning and budgeting.

The typical purpose of financial planning is to predict, command, and control model is ineffective in periods of constant crisis and unpredictable events like pandemic disease, military conflict, financial shock, and environmental crisis. Recently, most businesses have had to ditch their original strategic plans to cope with unforeseen market conditions. In a world of unpredictable and accelerating change, long-term forecasts will be increasingly unreliable, and commanding your people to stick to flawed plans will grow more dangerous.

Effective planning and budgeting define success as improving outcomes for customers, employees, investors, and communities — not as hitting budgets. It focuses on learning, adapting, and growing — not on trying to predict the unpredictable. It tells the truth about forecasts, making it commendable to expose honest uncertainties and potential pivot points — not pretend they are unthinkable.

2. Shift the focus from financial precision to strategic success.

Typically, as the planning and budgeting season kicks off, the chief financial officer issues financial targets and spending guidelines. Later, when budget submissions finally roll in from everyone else, it’s not uncommon for the predictions to be too high. At that point, the CFO has to do some financial analyses to prioritise spending and make painful cuts. On paper, it looks like impressive returns. In reality, it usually means there is some area(s) suffering from lack of funds.

A better approach is to turn the targeted outcomes developed in step one (above) into guidelines that drive the budgeting and adaptation process. These guidelines force discussions that allocate funds from the strategy down, rather than from individual projects up.

By properly aligning resources with strategic priorities, companies can better see the tough trade-offs that should be made but aren’t working — either because of neglect or because decisions are being made by the wrong people. This has only become more important in the current turbulence.

3. Plan faster and more frequently.

If budgets are inflexible and an important forecast can’t be adjusted, the person making it will naturally obsess over its accuracy, and it will take longer to finalise. Even small mistakes can compound over time and make a mess of plans. However, if we can adjust a long-term forecast every quarter, month, or week, we can continually improve its accuracy in far less time and with far less effort. Setting bold, challenging objectives, and then adjusting plans to incorporate valuable lessons learned is the best way to improve.

Remember: precision is not the same as accuracy, and plans that are flexible enough to focus on what truly creates value are worth the initial discomfort that comes from doing things differently.

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