Managing Risk Through Better Planning

A corporation with the right processes in place is able to turn its attention to added value finance: evaluating strategies, assessing how to drive top line growth, improve the bottom line, and using assets more effectively. Most management processes are linked to each other in one way or another. Budgeting and planning, for instance, are intrinsically intertwined with other financial processes like consolidation, reporting, risk management and analysis. These processes, in turn, provide critical insight for managing risk, steering corporate performance and shareholder value, as well as making strategic decisions.

In the context of planning, many business processes rely on the finance department to play the role of expert. Budget Controllers are required to oversee the entire planning process, collecting individual submissions, creating first-pass assumptions, mediating variances between top-down allocations and bottom-up aggregations. If the finance department is using an ineffective or inflexible planning solution, then finance becomes a bottleneck. The result: a time consuming, inaccurate or poor result which generates a deliverable budget whilst failing to achieve the strategic goals. In most companies planning usually combined three key disciplines:

Budgeting

• Goal is to provide something to 'control' the business
• Short time horizon, typically one year with quarterly analysis
• Often focused on revenue and costs, cost/profit centers

Planning

• Often linked to strategy formulation
• Longer time horizon, often three - five years with scenario analysis
• Enterprise level focus looking at the whole business

Forecasting

• Create likely outcomes based on a combination of budgets, plans and actual information