So why do we get our predictions wrong? Many times, it is due to personal biases and over-optimism, and focusing on one preset thought. This could be “We want to grow Net Sales by 15% next year”. So instead of verifying the validity of this assumption, we pre-determined built our financial plans based on this assumption. Instead, the Financial Business Planning process should rely on bottom-up, realistic assumptions and analysis. Historical data is a great starting point and with powerful new software, we can get very sophisticated trend analysis based on big data, which can be very helpful in predicting the future.

There are also many planning software platforms that can help with the process and providing reliable analysis. IBM-owned TM1 Cognos is a great provider of planning and analysis software, but also a great model in Microsoft Excel that can be used by many companies. Your historic data from Net Sales, Profit & Loss Statements, Balance Sheets, and Cash Flow Statements together with market intelligence on inflation, expected GDP growth assumptions from our Strategy and Action Plan will be a good base for establishing the Financial Business Plan. This is where a CFO is very valuable to any business.

The CFO can be the process owner and facilitator of the business planning process. Also, as we mentioned above personal biases are many times the reason for unrealistic financial goals. The CFO can be the “grown-up” in the room and challenge the business on financial business planning assumptions. We always use a 50/50 rule on reviewing the probability of meeting the business plan objectives and goals. There should be a 50% probability of over-achieving the Plan and a 50% risk of not delivering the Plan. In our experience, this ends up as being a 20% probability of over-achieving the Plan as all known upsides get built into the Plan, whereas business risks are ignored. So many Business Plans are unachievable from day 1.

Another key part of the Financial Plan is to establish a list of Risks and Opportunities, which also can help in assessing if the Financial Business Plan and Goals are realistic. Use Key Performance Indicators (KPIs) and compare trends in the Budget to your historical actual data to validate if the Financial Business Plan and Goals are realistic. If your sales have grown 5% per annum over the past 3 years and next year the Budget assumes a 10% Sales Growth Target, you really have to re-validate the assumptions and ask the hard questions, if this is realistic.

Everyone in the Financial Business Planning process should participate and deliver sound financial business assumptions and establish the Financial Business Plan as if it is a contract. If the Financial Business Plan is established as a contract and there is commitment and accountability from all parties involved to deliver, then this is a great foundation for successfully achieving the Plan.

The CFO is a key resource in establishing ownership and accountability for the Financial Business Plan in order to achieve its goals and objectives. The success of the Financial Business Plan will only be realized, when we start measuring actual results against the Plan, Goals, and Objectives and if we track within +5%/-5% of the Plan, then I consider it a very solid Financial Business Plan. Yes, it is great to deliver 50% better than Plan, but in that case, you should really validate, if your business assumptions and goals were realistic.