xP&A in Action: Integrated Sales & Revenue Planning
This blog was written in collaboration with Ron Montreiro
The pace of business has increased dramatically over the last few decades. Competition has intensified dramatically which has resulted in significant volatility and changes in demand patterns in many industries. This often results in revenue, EBITDA, and cash flow uncertainty. An integrated sales & revenue planning approach helps reduce this uncertainty and is a significant advantage to businesses as they can understand business trends in real-time.
xP&A (Extended Planning and Analysis) is a complete transformation of the FP&A function to move beyond the finance function to challenge the status quo, educate, shape continually, and influence management decisions. Sales and revenue planning are one of the aspects of xP&A: it goes beyond just finance and extends into HR, sales, supply chain and marketing. Moreover, in many leading organizations it is enhanced by analytics.
This article highlights the immense benefits of an integrated sales and revenue planning approach.
The challenges of a manual environment
To derive an accurate financial and operational forecast and make great business decisions, volume and revenue must be forecasted as accurately as possible. The challenge of a manual planning environment is that the volume and revenue forecasts are often obsolete very early in a financial forecast. New information such as customer wins or losses and other factors that impact demand emerge daily and can drastically impact the forecast.
Many businesses have linear forecast processes requiring volume and revenue forecasts to be ‘locked’ early in the financial forecast. Unfortunately, because volume and revenue are so dynamic, the forecast becomes obsolete if these critical variables cannot be updated seamlessly down the P&L if volume changes materially.
The top 5 benefits of integrated sales and revenue planning:
The thought of an Integrated Sales and Revenue Planning model is extremely appealing to FP&A professionals. The benefits of integrated sales and revenue planning include:
- Sales and revenue forecasts can be updated dynamically throughout the financial forecast. This helps FP&A professionals provide real-time and accurate forecasts up and down the P&L. The forecast becomes much more relevant to the business and increases stakeholder buy-in.
- An integrated model allows FP&A and the rest of the organization to stay on top of trends impacting the business. Allowing shifts in customer buying patterns can be understood in real-time and sales teams can take actions necessary to course correct or capitalize on opportunities promptly.
- The organization’s supply chain can use this information to adjust manufacturing in real-time and ensure the organization has the optimal raw material, labor, and logistics resources.
- Human Resources can proactively develop their startegic workforce plans and operational headcount plans. This provides significant advantages to organizations as they can ensure they have their labor optimally resourced.
- FP&A teams can run multiple ‘what-if’scenarios that help the organization develop and manage contingency plans.
Implementing integrated sales and revenue planning:
Critical factors involved in implementing integrated Sales and Revenue planning successfully include:
- Investing in cultural transformation. Start with senior management and extending to all organizational team members.
- True collaboration – FP&A professionals must work collaboratively with cross-functional partners and build trust and accountability to make confident decisions together.
- Develop a true xP&A process across the organization that links all participating functions (sales, supply chain, human resources, finance) and enables faster and more accurate forecast cycles.
- Invest in dynamic models and technology that enables new processes and provides the capability to integrate sales and revenue into the overall financial system.
Organizations that invest in integrated sales and revenue planning will have a significant advantage as their FP&A departments will have more accurate financial and operational forecasts. This will lead to better business decisions and significantly improved financial results.
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