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Seven Best Practices for 2024 Budgeting and Planning Sessions

Jim DeLoach, Managing Director Host, The Protiviti View

Amid a highly uncertain current and future business climate, 2024 is shaping up to be a doozy, particularly for CFOs and finance leaders as they plan and budget for the coming year.

A complex global landscape: The ripple effects of wars, upcoming elections, inflation, central bank policies, trade wars and other disruptions are further complicating planning and budgeting activities.

What you should know: Companies with leading business planning and analysis capabilities can convert disruptive events into an advantage by responding with greater speed, resiliency and impact.

Our thought bubble: There are opportunities to get ahead of the game by setting realistic targets, leveraging partnerships, supercharging scenario planning, ensuring data availability and integrity, incorporating advanced analytics and technologies, optimizing technology tools, and formalizing performance metrics and KPIs.

However you look at it, amid a highly uncertain current and future business climate, 2024 is shaping up to be a doozy, particularly for CFOs and finance leaders as they plan and budget for the coming year.

The ripple effects of wars in Ukraine and the Middle East, upcoming major presidential and parliamentary elections around the world (e.g., in the United States, European Union, India and Russia, among other countries), a problematic inflation dynamic, uncertainty over central bank policies, a high-stakes trade war, and other disruptions will further complicate what already are challenging planning and budgeting activities for 2024.

But there are opportunities to get ahead of the game. Rather than reacting to what goes wrong after the fact, companies with leading business planning and analysis (BP&A) capabilities are ready to convert disruptive events into an advantage. This ability to respond with greater speed, resiliency and impact doesn’t come easily. It requires the board and C-suite to commit to ongoing people, process and technology transformation – and it requires the CFO to embrace leading budgeting and planning practices, including the following seven actions. Note that these actions are not necessarily sequential. Many should, or perhaps must, run in parallel.

1. Set realistic targets aligned with strategic objectives

Realistic targets require comprehensive input and alignment. To achieve alignment, annual budget targets should derive from top-down, long-range financial plans that correspond to long-term strategic objectives for increasing enterprise value. These targets also should reflect goals set after reconciling top-down financial guidance and bottom-up input from business units. But they also need to be relatable directionally to the overall strategy. Otherwise, the planning process occurs in a vacuum.

2. Leverage partnerships within the business

Of necessity, the inputs and outputs of effective planning and budgeting extend beyond the finance group’s traditional boundaries. As they expand, the value and importance for establishing strong business partnerships across the organization rise. Such collaboration helps CFOs identify, quantify and address potential threats and opportunities throughout the organization and across the value chain. Collaborative risk management efforts drive a more cohesive annual plan. Finance leaders should leverage their cross-functional relationships to encourage internal business partners to expand their focus beyond capital planning and the P&L statement to address cash flow in ways that bolster organizational resilience amid profound uncertainty.

3. Supercharge scenario planning

In response to prolonged instability and disruptive change in the market, CFOs are leaning into more frequent, data-driven scenario planning to enhance agility and resiliency. Scenario analysis enables a more comprehensive and nuanced grasp of the drivers of market risks and strategic shifts and their potential impacts on the business plan, and it helps identify the soft spots in the plan. This deeper understanding produces more effective and actionable response plans before they are needed, resulting in a more robust planning exercise. Leading finance groups treat scenario planning and related modeling activities not as an annual exercise, but as a continuous process conducted throughout the year. As interest rates and borrowing costs are expected to remain elevated in 2024, cash flow may be negatively affected, making funding of strategic projects more difficult to secure. Scenario plans shed light on the implications of different investment prioritization plans, facilitate the assessment of financial risk and feed decision-making on deployment of capital.

4. Ensure data availability and integrity

Sophisticated planning and analysis tools are only as effective as the data that fuels them. Finance groups should establish data quality, management and governance standards and protocols that are flexible enough to adjust to evolving standards. A solid data governance foundation enables effective and efficient analytics that use a broad range of data inputs to analyze growth, customer trends, economic indicators, supply risks and market risks. Finance groups should identify data sources and determine if appropriate data access and governance measures are in place for the finance organization to have clean, accurate and standardized data to support planning and budgeting activities. As more finance organizations leverage artificial intelligence (AI) solutions and tools, including generative AI and machine learning models, any potential biases or correlation between variables must be identified and addressed. Although enterprise data governance is not the CFO’s sole responsibility, the finance group plays a prominent role in shaping the data governance program.

5. Incorporate advanced analytics and technologies

Leading BP&A capabilities leverage advanced analytics to uncover trends, identify outliers, and generate forecasts and related budgeting plans with greater precision than the traditional methods of years past. Machine learning tools can analyze spend to optimize cost budgets. AI models can help inform the demand forecast for new and existing products. Increased use of advanced analytics and technologies also underscores the importance of data, so all caveats expressed above apply. As finance groups wade into using new, and much larger, data sets to run analytics and feed into new technologies, the table stakes for sturdy data governance programs and processes increase.

6. Optimize technology tools

Sophisticated BP&A requires a three-pronged approach to modernizing finance systems and technology tools. First, legacy systems and applications that are difficult and expensive to maintain and support should be retired. Second, advanced tools, such as AI and predictive data modeling, should be put in place. And third, cloud migrations and the implementation of cloud-based applications should move forward – and quickly. Cost optimization mandates can help galvanize stalled cloud migrations and efforts to trim the technical debt created by retaining and maintaining decades-old finance systems. These initiatives clear the path for deploying the advanced analytical applications that produce real-time insights on the many factors – including, among others, market volatility, economic shifts, supply chain disruptions and evolving workforce dynamics – that influence the organization’s ability to hit performance targets.

7. Formalize performance metrics and KPIs

Performance metrics developed during the budgeting process provide a clear picture of whether the organization is on budget, and on track to achieve performance objectives, at any point throughout the year. Paired with ongoing variance analyses, these performance indicators alert finance groups and C-suites when adjustments, either in execution or to the plan, are needed. With access to the right data and advanced technology tools, finance teams can identify key indicators and address potential variances as or before they develop.

In closing, two underlying factors bear emphasizing. First, these budgeting and planning practices are interrelated and mutually reinforcing. For example:

  • Establishing realistic targets aligned to the strategy ensures the relevance of the entire process.
  • Scenario planning provides an opportunity for the finance organization to play an active role in driving business agility through collaboration and business partnering across functions.
  • Data availability and integrity enables the use of advanced analytics while helping finance groups maximize the value added from investments in technology systems and applications.

Second, access to the right finance talent and skills is crucial to executing leading BP&A practices. To generate the insights required to navigate a complex and constantly changing environment, finance leaders must ensure the capabilities of their BP&A teams continue to evolve. BP&A leaders and staff not only must possess the technical financial capabilities required of their increasingly data-driven roles, but they also need business acumen and a keen understanding of 2024’s geopolitical, economic, environmental and social trends and risks.

This article originally appeared on Forbes CFO Network.

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