Integrated Financial Planning is the Secret Sauce for Successful FP&A

IFP or Integrated Financial Planning is an industry term widely used by finance pros but do we really understand what it means?

Well first, let’s decipher what Integrated Financial Planning means.

Every company has complex and cross-functional plans. Sales departments will build detailed revenue plans by reps, product/services, channels, and customers. Marketing departments will build program and campaign budgets that support their larger objectives, Operational teams will put together costing models that predict personnel and material costs.

However, there are very few companies do a good job connecting all the various plans, which leads to a lack of alignment and unity across the organization.

Consider a manufacturing environment – the sales plan should feed directly into the production plan, which in turn should inform material procurement plans. Makes sense, right?  If the materials procurement team is planning an increase in material prices, this will affect selling prices, which may also impact unit sales. This integrated planning process creates a continuous cycle of data that allows departments to work collaboratively and iteratively.

• Generally speaking, there are many benefits to Integrated Financial Planning:
• Generates a comprehensive understanding of performance and profit drivers
• Quantifies financial impact and interdependencies
• Balances sales and operations planning for profitability,
• Promotes business flexibility

So, it begs the question – why doesn’t every FP&A team focus on Integrated Financial Planning? I suppose the answer depends on who you ask.

Software Vendor
If you ask a software vendor, they’ll say that underlying infrastructure is the issue. Most companies plan using a complex web of disparate Excel spreadsheets, making it difficult to align departments. To be fair, there is some truth in this. However, solutions for this problem exist (Prophix, for example).

Non-finance Leader
If you ask a non-finance leader (i.e. VP of Sales), their opinion is likely that the planning process works fine, in fact, it’s already too detailed and onerous! The reality is that they likely don’t care about integrated planning at all, although it benefits the business.  Often there exists a culture of keeping plans close to your chest, to avoid scrutiny.

CFO
I asked almost every CFO I’ve interacted with over the past few months and their collective answer surprised me. The overall sentiment is perhaps best summarized by a meeting I had with a CFO of a national specialized plastics manufacturer. During our conversation, I explained the concept and benefits of Integrated Financial Planning. She asked me dozens of questions about how Prophix has helped other companies achieve organizational planning unity. At the end of the meeting, she said IFP would never work in her company.

“Why?” I asked.

“My engineers would never trust the data provided by the Sales team,” she answered.

I couldn’t believe it! Her teams would not trust the data entered by the various non-finance leaders.

With this one conversation, we can start to understand the challenges of IFP. Although most companies don’t have the required systems/infrastructure in place to facilitate true Integrated Financial Planning; with the advancement of planning tools and the cloud, this challenge is easily overcome.

The real challenge is the people!
Often, the people involved in the process are not intrinsically motivated to contribute to plans in a meaningful way, which in turn feeds the skepticism and lack of trust among departments. This leads to financial leaders throwing their hands up in frustration saying, “this is not going to work for us!”

So, the question becomes, “how can we create a system of intrinsic trust that organically leads to Integrated Financial Planning?”

Here is another outlandish thought: Can we do meaningful Integrated Financial Planning without people?

That’s a topic for another blog.  Stay tuned.