The FP&A Trends Webinar: Mastering Analytical Transformation with FP&A Trends Maturity Model
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The FP&A Trends Webinar: Mastering Analytical Transformation with FP&A Trends Maturity Model
Click here to view details and register
By Laryssa Reifel, FP&A Professional and Founder at FP&A Expertise
Annual Operating Planning is an important activity in many organisations. Some refer to it as budget season and every organisation has its own nomenclature such as AOP, OB, LRBP, etc. This article covers best practices for a successful planning season, explains what best-in-class organisations do to create a solid annual operating plan and answers three burning questions.
Most organisations operating on a calendar year begin their planning cycle in the autumn. The challenge lies in finding the ideal amount of time to spend on this activity. If you start too early, you are in a perpetual budgeting cycle which creates organisational fatigue. If you start too late, you are in a fire drill situation and mistakes can happen.
A natural tendency for line of business leaders is to want to have as much data as possible (in the form of actual results) prior to making commitments for the following fiscal year. This can have the unfortunate effect of landing in the starting too late category.
The nuance in when to start truly lies in understanding who starts what and when.
Each company has its own challenges when it comes to communication, engagement with FP&A and the planning cycle. There are a number of common pitfalls and avoiding them can make a big difference in everyone’s annual operating plan experience.
Organisations should have sub-processes that support having a perspective on a full year at any given point in time. Rolling forecast cycles outside of the annual operating plan allow the numbers to be built out for 12, 18 or 24 months at a time. A strong sub-process allows organisations to spend more time on the story of the business. If those regular long-term projections are in place at a detailed level (i.e. department and natural account) then the team can spend more time on:
In addition to spending time on the thinking beyond the data, organisations should do a post mortem on each planning cycle to understand a number of key items:
For a successfully built annual operating plan, FP&A has to plan to plan. There needs to be a solid amount of preparatory work, frequent communication with leadership and attention to calendaring and the achievement of deliverables. There are many pitfalls but perhaps the biggest pitfall is lack of alignment on what the final numbers are. This can be avoided with adherence to an attestation process. Finally, best in class organisations leverage FP&A sub-processes to set themselves up for success.
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