Extended Planning & Analysis Strategies, Implementation Tips

wealth management concept, business man and team analyzing financial statement for planning financial customer case in office.

In the current financial environment, organizations that are most dynamic will win and ultimately achieve more success than their peers.

With natural disasters, supply chain shocks and capital market volatility, there are no shortages of disruptive events impacting markets today.

However, these events, while painful to many, create opportunities for some. The organizations that can pivot quickly while remaining aligned will navigate these turbulent times most effectively.

The Top 3 Questions to Ask When Considering Adopting Extended Planning and Analysis (xP&A)

1. What does it take for organizations to quickly recognize and react to disruption?

One solution that is being employed today is the concept of extended planning and analysis (xP&A).

What is Extended Planning & Analysis (xP&A)?

The concept of xP&A takes the best practices from traditional financial planning and analysis endeavors and extends the analytical methods throughout the organization.

For example, marketing, sales, IT, operations, human resources, and supply chain would create operational plans using a shared platform, unified by a consistent data model and analytical methodologies. The unification of plans across the organization is the driving force behind the benefits of adopting xP&A.

What is an example of Extended Planning & Analysis (xP&A)?

Imagine a manufacturer that experiences a delay in receipt of key raw material. This company will want to understand the impact to production (when the current stock of raw material will run out), and the subsequent impact on sals.

Taking this a step further, the organization should inform marketing so that it can reduce promotions or ads focused on building demand for the product.

In an organization that uses xP&A, alignment can be created rapidly through the single consistent data model and the marketing team can take steps to remove promotions driving up the price and reducing the demand naturally while preserving margin.

xP&A prevents the worst-case situation where marketing runs promotions for a product that production knows will be in short supply in the near term, giving away margin and creating unhappy customers.

2. What can xP&A do for your organization?

xP&A provides a multitude of benefits. Namely, it creates a single source of truth across the organization, forces greater alignment, reduces planning and forecasting cycles, harmonizes data and illuminates opportunities and risks.

Imagine an organization wants to know what the financial impact is if procurement can’t secure a key input and production needs to be reduced by 20% ahead of a new product launch. Also, imagine that the pandemic has caused the current products to explode in popularity and greatly increased sales.

This sounds great, but it could be a real problem if the organization can’t deliver its product to satisfy demand. Organizations that use xP&A would identify the supply based on the current environment lead times, apply current output metrics to estimate production and compare that with forecasted demand based on up-to-date expectations in real-time.

The finance team not only has the financial impact of the events but also has the data to contextualize the situation facing the business.

Looking under the hood, the flow of information happens quickly because these organizations have agreed on a unified data model and apply consistent analytical procedures across the business. Finance teams will be more closely connected to the rest of the organization because they’ll have a holistic view of the organization.

Leaders will see the improvements driven by greater business alignment because teams will link actions to strategic goals and any deviations from the path will be visible immediately.

3. How difficult is xP&A to implement?

As with other business initiatives, xP&A requires organization-wide buy-in. It is particularly important that senior management is committed to the process because it will involve unification and alignment across the business.

After the organization is aligned and committed, Finance must develop a plan to extend FP&A practices throughout the organization.

Oftentimes, conversations between the finance team and other parts of the organization will involve discussions about the most important measures that impact the unit or function, and how those measures will be tracked.

IT should be included in these discussions too as xP&A requires the integration and unification of data in a single platform.

The difficulty of integrating data sources across the organization should not be understated. In some cases, adaptations to current processes or changing of technology systems may be required. In other instances, data can be routed to a centralized place and then harmonized into a single system.

However, in the latter approach, there may be additional data management tasks required. Regardless of the approach, most organizations at this stage need to invest in change management for the implementation to be a success.

When people are asked to adapt to a new operating paradigm, investments in change management often have a high ROI.

Change management will not only increase the likelihood of success in the broader vision of transitioning to xP&A but also reduce friction and employee frustration. As mentioned above, senior management buy-in will be important and will increase the likelihood that employees will coalesce behind the xP&A initiative.

Lastly, it’s critical for organizations to realize that implementing xP&A is a process and will likely involve iterations and continuous improvement. Processes should be tested, and the outcomes should drive learnings that can be used in future tests or elsewhere in the organization.

How to Get Started Integrating Extended Planning & Analysis (xP&A)

The implementation process for xP&A will take commitment from senior management and the organization more broadly. After your organization commits to the vision, they will need to scope the data requirements and gather input from across the business.

Once the organization understands the requirements, it will integrate data for planning. To be successful, they’ll need a solution that pulls accurate, up-to-date information in real-time.

If your organization is already using an Enterprise Resource Planning (ERP) system such as NetSuite, it will be one of the primary sources of data. If your organization has not yet adopted an ERP, now is a great time to do so because you have a vision for how you want your operations to look in the future.

Need Support With Financial Planning & Analysis?

A successful FP&A function should align long-term strategic plans with day-to-day operating realities to fuel long-term financial growth. We help you chart the path forward by identifying the processes, tools and financial planning solutions needed to turn your vision into reality.

Contact us today or click on the link below to learn more about our Financial Planning & Analysis services.