Are you planning for a Saturday night? Welp, that’s kind of short-ranged!
How about, planning to buy a house in the next five years? Or a farm in the next 10 years! That’s exactly how Long-range Planning (LRP) works – not only for individuals but for businesses as well.
Long range planning extends beyond conventional budgeting, planning, and forecasting processes which usually span a year, and concentrates mainly on financial goals and key initiatives that are 5-10 years or more into the future.
Strategies for Business Growth
Essentially, a long-range plan aims to align long-term objectives with actionable strategies needed to achieve those objectives. Understanding the organization's strategic direction enables FP&A to develop a vision of the future, which forms the backbone of the long-range plan.
Unlike short-term and mid-range planning, the LRP process requires comprehensive inputs from various stakeholders within the business:
Operations – is in charge of making strategic decisions on overhead and personnel needed to reach the company's goals.
Supply Chain Department – has to grasp the costs and material availability for the long-term plan and make calls on alternative suppliers or possible future supply hiccups.
Manufacturing – zeroes in on equipment, machinery acquisitions, upkeep, and production floor needs to align with the LRP vision.
For a long range plan to be effective, it is important that those implementing it understand not just the goals, outlooks, and financial impacts, but also the execution strategy. Given the current volatility in markets and global economies, long-range planning can indeed seem daunting. Predicting what will happen tomorrow or next week is challenging enough, and looking ahead for 1-2 years, let alone 5 years, appears almost impossible.
Key Components of a Long-Range Plan
Organizational leaders often develop long-range planning documents to outline goals and procedures. These documents serve as valuable resources, enabling the leadership team to evaluate the plan's success.
Although the specific content may vary depending on the organization and its objectives, most long-range plans include the following elements:
Understanding Objectives
Organizations need to be specific with their goal if they are aiming for long-range plans. In LRP documents, company officials like the CEO or board of directors typically outline this goal and explain its importance to the organization. This explanation often links the goal to the company's broader strategy or growth objectives.
Prerequisites to Success
An LRP could also highlight some key resources to help the company hit its goals—things like time, money, facilities, or employee expertise. Depending on how detailed the directors get, the document might set budgets for each department or outline personnel needs. Sometimes, the leadership team sticks to broader categories and lets department heads submit budget requests later, once they figure out what their team needs to make the plan work.
Operational Targets
When you have a long-range plan for your organization, it's like having a roadmap to your destination. Along the way, you set small goals to track your progress. These goals can be specific targets for different teams or departments. For instance, a healthcare solutions company might have a long-term strategy to introduce a new telemedicine platform. To reach that objective, the company's development team might set an operational benchmark of developing a prototype of the platform for beta testing within six months.
From Strategy to Execution
Operational plans are like detailed roadmaps to hit the targets in a long-range plan. In smaller companies, the leadership team could whip up operational plans for all departments, while in bigger ones, department heads or managers might craft these plans and get them greenlit. These plans usually include bite-sized, short-term goals to nudge the department toward its long-term objective.
Streamlining Long-Range Planning with Advanced Financial Software
If the planning process depends on offline spreadsheets, it becomes increasingly burdensome. Merging various spreadsheets without controls for data quality and consistency can turn any planning process into a tedious and time-consuming ordeal.
Despite these hurdles, long-range planning remains important for outlining future visions and formulating the goals and action plans needed to achieve them. Using FP&A software to gather inputs can unify this vision into a comprehensive long-range plan that the entire organization can strive toward.
A common pitfall of traditional LRP is the reliance on manual modeling in custom Excel spreadsheets—a frustration any financial analyst knows all too well. The use of spreadsheets often means investing countless hours creating, distributing, collecting, and compiling complex Excel models, only to encounter issues with data accuracy, quality, and consistency. Without traceability to data sources and the factors driving the data in the Excel file, the numbers lack credibility. No one enjoys presenting figures that can't be substantiated.
There's a significant inability to adapt the plan as changes occur. In today's volatile market conditions, the ability to react and adapt with speed and precision is critical to driving performance. Fragmented Excel models do not support the type of agile, on-the-fly modeling or adjustments that are essential for success in modern planning.
Instead, leveraging FP&A software for long-range planning offers numerous advantages:
Segregating the data in one place saves time. When everyone has access to the same information, you get rid of offline spreadsheets and separate processes. This means less work to gather and check the data.
Allows for the incorporation of predictive analytics and machine learning, using internal and external insights to better anticipate future fluctuations and changes. By integrating both internal data and external trends, additional insights can guide future decision-making and future-proof the plan by sensing fluctuations sooner.
Offers detailed reporting and analytics that help guide decisions across various audiences.
Immediate and informed decision-making with quick data visualization through updated dashboards and reports.
Enhances data quality and accuracy, redirecting time and effort from managing manual processes to making better strategic and tactical decisions.
Enables leaders to model what-if scenarios and make ad-hoc changes as the plan is executed. Managing a dynamic plan is essential in a fast-paced business environment, where conditions are constantly evolving. The ability to update plans dynamically as situations change is crucial for long-term success.
These improvements ultimately make long-range planning more efficient, accurate, and less of a headache for financial analysts responsible for crafting the plan. They also allow leadership to focus more on strategy and implementation rather than worrying about data credibility or the reliability of Excel models.
Final Thoughts
FP&A teams must leverage processes like LRP to uplift finance as a strategic business partner and earn a seat at the strategy table. The first step in achieving these goals involves moving beyond the role of data aggregators and cleaners of complex and messy Excel spreadsheets. Effective software enables this transition, facilitating the next stage for Finance.