The real value of integrated business planning (IBP) is the ability to establish credible plans that enable the business leadership to make the appropriate tactical and strategic decisions that aligns with the business’s ambitions over the long-term horizon. To accomplish this, the IBP process requires transparency of bottom-up plans with credible assumptions that can be financialized that leadership trusts. Unfortunately, integrating finance into the IBP process can be challenging for an array of reasons that often result in financial leaders becoming frustrated. This frustration is recognized when you hear comments such as, “the business doesn’t know how to plan”, or “I’ll just give them a budget they have to hit” or my all-time favorite “I can generate a top-level financial forecast better myself”. So, why is this difficult? Here are just a few challenges to think about:
- Level of aggregation is critical, and trying to plan at a too detailed level (SKU) over a 3-year horizon is nearly impossible to do credibly and time consuming. Or account codes that are at a minutiae level of detail that make it cumbersome to roll-up. For the P&L, establishing the right level of detail that enables the organization to render appropriate decisions is what is required. Some finance leaders resist this, as their desire for precision almost to the dollar can be a challenge to change. I once saw a business with a demand review slide deck that was 220 slides long. Not because sales/marketing wanted it, not because supply chain wanted it, but because finance insisted on that level of detail. The problem is, that level of detail is more often incorrect. This is an issue for IBP because one, it is time consuming to generate a full P&L which then makes evaluating scenario what-if analysis at the P&L level cumbersome and two, that level of detail increases the likelihood of errors resulting in credibility issues. Three, that level of detail often is too much for IBP and is therefore accomplished through a parallel process outside of IBP.
- The inability to financialize a realistic supply plan. This can occur when the system receives the unconstrained demand plan that then flows into the MRP without constraints. This is indicative within organizations that have back orders, arrears etc. and no constrained supply plan for finance to financialize. What finance will do in this case, is review the information and do their own best guess. This is an issue for IBP because the business will not be able to evaluate the consolidated plans for gaps to the business ambition. Instead, leadership will be focused on when back orders will be cleared.
- Leadership bias. Some finance leaders receive the information from the IBP process but insert their own bias for their own objective. The finance leader may prefer to always exceed plan, so they lower the numbers from IBP. Another finance leader may want to challenge the team by raising the IBP numbers to create urgency to accomplish more. Both of these types of bias will prevent the business from having the right conversations on what decisions need to be made to ensure alignment to the business’s long-term ambition.
Any business segment that has the ambition to grow requires credible financial plans, without this, the business may not have the required gap closing discussions, actions or decisions when responding to change. This can make the difference between a planned trajectory for growth and wishful thinking. Need more information? Leave a comment.
