Part Three of Three

In this third and final update of three blogs, Gavin Allen (Managing Director LucaNet UK & Ireland), discusses whether there is a difference between financial planning and operational planning, it's data, complexity and processes.


So Why The Discussion Around Operational Planning?

So why do we still have the discussions around operational planning, multi-dimensional capabilities here there and everywhere, mobile collection of data, driver based plans, complex computational modelling and so on? When we have already achieved the core foundations of our business plans already with financial planning?

Well the answer in my opinion is that technology has not helped here. From spreadsheets, to the most modern in memory multi-dimensional tools out there (some completely available on the cloud), it would appear that the advances in technology are (and have) started to dictate that everything should be done in a certain way, and in the modern world of social selling, organisations (and the office of finance) are bombarded with messages indicating they need this “must have” technology to deliver accurate forecasts and plans, and requires the involvement of hundreds of personnel. Sound familiar?

You can see that the brief of technologists is to sway the thoughts of organisations in thinking that unless you are planning by day, by customer, by widget, by this, that and the other, and getting the entire organisation involved and collaborating online, and describing what they are doing, provides a better forecast? I agree that modern technology can deliver to this agenda, but it should not be the place to start – time to get back to basics – leverage intelligent financial planning in the first instance – then and only then consider augmenting this with more detailed operational plans?

With this approach, the world of operational planning, and bringing in non-financial data and drivers becomes apparent. Plan drivers can be presented based again on the historical transactional records, then used to model information in a way that is more understood by non-financial personnel. Click to read more from my earlier articles.

Non-Financial Data - Becoming An Instrumental Factor?

The importance of non-financial data and it’s use in forecasting has long been the hidden secret. Why is this? Well again back to your transactional records – say we record the number of overseas trips. Married to the actual financial information, we can turn non-financial information into drivers (e.g. average cost per overseas trip for planning), when involving non-financial personnel! Instead of asking say “what are you going to spend on overseas trips” which is a financially biased request, ask for the “how many overseas trips are you planning on making” and then use the already derived driver to deliver the financial output. This is very essence of operational planning, providing reference points and drivers for those in a more operational position within the organisation.

Multi-dimensional modelling and planning should empower operational personnel to work outside of the constraints of the chart of accounts (for example modelling sales quantities by customer, selling prices, margins etc). Deriving the financial information from a suite of underlying information not held in a chart of accounts. Allowing different perspectives of information to be “sliced and diced”, and of course to perform break back to ease the burden of data entry associated with modelling and planning at such greater levels of detail.

Yet according to FSN's recent survey, Non Financial Data is the Forecasting Game Changer, but not appearing on the list of CFO's top priorties!

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So we start to know see how the results from a rule based financial plan, can be compared and aligned with an operational plan, and for the resultant business discussions to take place. Agreed, financial planning does not cater for details within the business that are not known by financial personnel. Using run rates and history cannot always be a good basis when an organisation is going through change, but it’s not a bad place to start.

And this is where that value of operational planning lies, using drivers, dimensions and additional context allowing the marriage of operations and finance personnel in what appears to be a harmonious environment. I am not suggesting for one minute that conflict resolution is easy when operations and finance have differing views, but at least those views have foundation, auditability, accountability and buy in for discussion!

I have also witnessed a revolution recently in the charts of accounts being incorporated by organisations – more account lines holding more details that embrace a more operational style of reporting (perhaps account codes for each customer under sales). Often now seeing a whole section of the chart of accounts given over to the recording of non-financial information. This starts to show that in those organisations performing Financial and Operational Planning in harmony that the end result is a co-ordinated platform for business financial performance management.

Back To Basics With Planning

To conclude therefore, start with the basics, accounting, logic based Financial Planning, delivering robust, high quality strategic forecasts of your business, from Profit and Loss right through to the Balance Sheet and Cash flow., simply, easily and effectively.

Then, and only then, enhance, and AUGMENT with Operational Planning. Allow more drivers, non-financial information to influence the forecast results. Bring in to play the dimensional characteristics of specific areas of business performance, and enable cross dimensional modelling accordingly. Collaborate these vast data sets amongst peers and control what is often a very disparate process.

Bring the two result sets (and importantly the people) together for business analysis and business direction, getting away from the “well those are not my numbers, they are finance”, and above all else just because technology can, doesn’t mean you should!

Additional Information

In the mean time you might like to watch our recent interview with Business Reporter of The Daily and Sunday Telegraph, where we discuss the impacts of Brexit and innovative technology.

To discuss your requirements further, or arrange a personalised one to one demonstration of the LucaNet platform, then please contact us and discover the unique, simply intelligent solution that is LucaNet.