Numbers People in Action: Planning Process
August 24th, 2009
Copyright © 2009 Integrated Profitability TM
Another continuation of the suggestion that came in to
“…include a simple but meaningful scenario which you’d have the three Numbers People work through to posting, reporting and interpretation and planning…”
The first article set up the simple scenario, the second dealt with Accountants & Bookkeepers. And then Finance: basic, financial analysis and financial planning. This article covers a process to do that planning.
The Planning Process
Most “Plans” start with the financial numbers that have been created for and used by the regular (monthly) reporting. Of particular importance is the most current trend within those numbers (e.g., what’s going up? what’s going down?), as well as a good understanding of the underlying business drivers of those trends. Using the trends and the drivers, Finance can model what most likely will happen, assuming those trends continue. This initial set of future numbers then needs to be adjusted based on input from other stakeholders. Each of the main financial sections (e.g., revenues, expenses, assets, liabilities) may be adjusted up or down based on the other stakeholders’ views of the future from their particular areas of expertise:
● Economists: provide information about the high-level business and seasonal cycles (e.g., is the business in the up or down part of a cycle?) and various rates (e.g., interest and foreign exchange rates)
● Marketing: provides input similar to that from the economists, but more detailed in terms of targeted regions, industries, customer segments and product performance metrics (e.g., are different industries or customer segments moving in different directions? Are there any shifts in products being purchased in the market?)
● Sales: provides even more detailed insight, with the focus on what the company’s customers (both current and prospective) might do with the company’s products and services, including what future transactional volumes and realized prices might be (e.g., what is in the sales pipeline? Is the company losing customers or gaining new ones? What kind of pricing will be needed to retain current business; to close new sales?)
● Operations: working with vendor prices (the company’s cost), transactional volume forecasts from the sales function and their own operational productivity goals, the operational function (e.g., factories, processing centers) provides detailed forecasts on total expected operational expenses (e.g., are postage rates increasing? Is minimum wage going up? Based on the sales transaction volume forecasts, are any step functions going to be invoked, either in terms of personnel, equipment or IT capacity?)
Finance takes the initial set of numbers created from the historical financial books and works with (negotiates with?) other stakeholders to fine-tune the company’s future financial plan to make it as realistic as possible. The company’s financial plan is truly a joint effort.
Again, notice how “The Numbers” become so dependent upon non-financial information? And how the menagerie of Numbers People has increased?
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 41
Copyright © 2009 Integrated Profitability TM
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