ARTICLE
19 April 2024

The Tool Every CFO Needs…But Most Lack

AC
Ankura Consulting Group LLC

Contributor

Ankura Consulting Group, LLC is an independent global expert services and advisory firm that delivers end-to-end solutions to help clients at critical inflection points related to conflict, crisis, performance, risk, strategy, and transformation. Ankura consists of more than 1,800 professionals and has served 3,000+ clients across 55 countries. Collaborative lateral thinking, hard-earned experience, and multidisciplinary capabilities drive results and Ankura is unrivalled in its ability to assist clients to Protect, Create, and Recover Value. For more information, please visit, ankura.com.
The days of gathering data, analyzing variances, and sending out overlooked reports are over, thanks to developments in financial tools and process automation.
United States Law Department Performance
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Unlocking Value With the Long-Range Plan (LRP)

The days of gathering data, analyzing variances, and sending out overlooked reports are over, thanks to developments in financial tools and process automation. With more innovative solutions, Financial Planning and Analysis(FP&A) teams have the data access, insights, and bandwidth to be valuable partners to their management teams, business segments, and boards. 

To optimize the strategic decision-making process, FP&A needs a seat at the table. Strong FP&A teams can acutely link strategic efforts, financial requirements, and the metrics that measure success and establish governance. The LRP is the tool that empowers FP&A to do just that. When combined with effective storytelling, the LRP can (1) translate business goals into credible financial projections, (2) evaluate financial results through the lens of operational outcomes, and (3) garner buy-in from key stakeholders.

The LRP Demystified

The LRP is the financial roadmap to guide the strategic planning process, steer the business, and validate performance ambitions. It enables FP&A to evaluate potential financial outcomes, typically over a three-to-five-year time horizon, with conviction and insight. With rigorous organizational discipline and focus on drivers of the business, FP&A can partner with leadership to analyze sensitivities and create scenario plans. This will cultivate greater awareness around the impact of internally controllable drivers (e.g., price of product or service, volume, speed to market) and external variables (e.g., interest rates, commodity prices, foreign exchange (FX), climate). 

The LRP typically includes the standard three-statement financials (i.e., income statement, balance sheet, and indirect cash flow), rendering it equally important for profitability analysis, capital allocation, and working capital management. Further, the balance sheet and cash flow forecasts are critical for projecting long-term liquidity, preparing for potential transactions or capital events, and identifying the levers that influence enterprise value. 

While the LRP process should be distinct from other activities, such as budgeting or interim forecasting, it should be integrated and aligned with all other financial information to ensure consistent messaging and accurate reporting. As an example, a 13-week cash flow forecast utilized for tactical liquidity oversight may differ from the indirect cash flow within the LRP. If the direct and indirect cash flows are not in sync, it is prudent to understand why and adjust accordingly. Reconciling the differences may be a daunting task, especially when the models are managed by different teams, but the avoided confusion will inspire trust and confidence in management.

From Zero to LRP

The benefits of LRP are profound, but the perceived level of effort and know-how to build it can deter companies from investing in its development. The Ankura Office of the CFO® team follows a simple four-step approach to create an LRP that can handle the depth and complexity of any organization:

  1. Validate Management requirements and business structure.  Define how the company is organized (e.g., segments, channels, regions), how management views the business (e.g., core key performance indicators (KPIs) and drivers, key risks, competitors, investor relations), and how the business makes money.
  2. Develop the blueprint. Determine the tools needed to build the model and how it will be structured. Identify the data inputs and outputs and agree on the level of data granularity. Assign accountable and responsible parties to own the model and clarify any interdependencies.
  3. Build the model. Leverage modeling best practices and collaborate with company stakeholders to build the tool's core functionalities. Architect a repeatable process to manage and maintain the LRP. Ensure adequate model controls are in place to mitigate risk, enhance quality, and align to the requirements and blueprint. Prepare for the transition of the model and respective processes by conducting knowledge transfer with the pre-determined owner.
  4. Operationalize the model. Embed tools and related processes into existing finance & accounting operations. Unlock time savings and allow the team to shift focus from report generation to root cause analysis and business partnership. Integrate LRP with other data sources allowing for a quick and painless roll-forward process. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
19 April 2024

The Tool Every CFO Needs…But Most Lack

United States Law Department Performance

Contributor

Ankura Consulting Group, LLC is an independent global expert services and advisory firm that delivers end-to-end solutions to help clients at critical inflection points related to conflict, crisis, performance, risk, strategy, and transformation. Ankura consists of more than 1,800 professionals and has served 3,000+ clients across 55 countries. Collaborative lateral thinking, hard-earned experience, and multidisciplinary capabilities drive results and Ankura is unrivalled in its ability to assist clients to Protect, Create, and Recover Value. For more information, please visit, ankura.com.
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