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Accounting

COVID-19 Hastens Rise of Continuous Planning Vs. Annual Planning


by Michael Magaro

Leading companies will emerge stronger from a crisis because, in part, they seize the moment for change.

© utah778/iStock/Getty Images Plus

The COVID-19 pandemic has underscored just how fast business conditions can change—and then keep changing—effectively rendering annual business plans irrelevant.

Companies have responded to the economic uncertainty brought on by the pandemic by rejiggering growth, revenue, and investment plans, sometimes multiple times.

No doubt, the crisis of the pandemic will eventually subside. Yet lessons learned from the importance of being adaptive with planning will, hopefully, stick with us.  Even before the pandemic, companies began exploring continuous versus annual planning, with the aim of being more nimble than annual plans typically allow, and wanting more touchpoints on the plan, meaning leadership actively engaged more often in changing it as business conditions shifted. 

Focus on the Longer Term

One of the biggest benefits of continual planning is that it changes the mindset from focusing largely on decisions that impact the company in the next year to decisions with longer-term impact. This encourages business leaders to think more holistically about their investment decisions. For instance, a sales leader might front load hiring in year one of the three-year plan. Another leader may invest in something that won’t pay off in a year but will be highly fruitful in three years. In businesses like ours, where sales cycles can be sometimes very long, it’s often advantageous to make decisions based on longer term goals. 

Also, continuous planning enables you to more easily pivot should decisions not turn out as expected. That’s because, every quarter, leadership is actively engaged with the plan to discuss what’s impacting the multi-year model and make needed adjustments. Rolling financial forecasts also help manage funds and accommodate real-time shifts in market conditions. Now more than ever, December’s fiscal year-end budget numbers will bear little resemblance to July’s realities. 

There are steps to take before embarking on this change. I see four major foundational pieces that need to be in place. They are:

Clean data. Data that’s harmonized and constantly updated in one unified system will be far easier to work with than data housed in multiple silos. This includes financial and non-financial data, such as data from human resources, as well as customer data. If data comes from multiple systems, it’ll have to be cleansed so that you’re sure you are comparing apples to apples. Cleansing data takes time. Having data harmonized up front, and updated in real time, enables you to glean insights and make decisions more quickly, which is important when reviews are happening more often. 

Flexible systems. Frequent modeling of plans requires flexible systems and technology. As models change, for instance, those changes need to be replicated across different data sets. Systems should be so easy to use that business leaders get visibility on their own and, ultimately, can manipulate data and models on their own, too. For now, finance teams will likely be called upon to help business leaders access data and models to inform planning and analysis.

Strategic alignment.  When you’re planning for three years down the road, it is even more important that everyone is aligned on what the company cares about, how fast it wants to grow, how profitable it wants to be, and how it plans to get there.  With a three-year model, the thinking goes from “here’s what I want to do in a year,” to “here’s my big strategic initiatives over time.” Also, having a multi-year lens better enables you to drive consistent, long-term growth at appropriate margins. To get strategic alignment, identify the key initiatives for each organization within the company, and the deep dives needed for each organization to achieve their initiatives. Part of the process is for finance to spend time with each business leader to capture each priority. Each organizational strategic initiative then feeds the larger corporate initiative. 

Organizational readiness. You need leadership buy-in to pull off a big change from annual to continuous planning. Before you begin, one question to ask is whether your leaders are truly willing to accept that the process will work, that you can agree on a three-year plan, and trust that quarterly updates will give you the nimbleness you need. For some companies, planning three years out will seem very daunting--especially now. Such readiness for change is often spurred by a crisis, such as the pandemic, or it could be something more traditional, such as slowing growth rates as companies mature. Whatever catalyzes you for change, being organizationally ready to carry it out will make everything easier. After our first continuous planning meeting in June, I produced a document stating the kinds of things that needed to be done to get ready for our next milestone in making the change. Within two days, the entire document was filled out with who was taking charge of what and who was working with whom. That indicated to me that the organization was ready for the change.

Crisis Spurs Changes

There is nothing like a crisis to spur change, and to catalyze companies to act. During this pandemic, companies have been forced to dig deep regarding their markets, products and processes. Ultimately, leading companies will emerge stronger from a crisis because, in part, they seize the moment for change. PwC surveyed 330 U.S. CFOs in June and found the majority, 72%, believing they will be more resilient and agile, coming out of the pandemic, and 53% say the new ways they are serving customers will put them in a better position down the road.

Continuous planning is one such change that will enable companies to be more nimble in the long run — and even when business conditions aren’t so extreme.

Michael Magaro is Senior Vice President, Business Finance & IR at Workday.