Integrated Planning: How to Sync Financial and Operational Processes

Integrated planning is becoming the new buzz phrase in finance. It means merging the financial and operational planning processes to allow management to make smarter decisions up and down the value chain.

To execute on this mandate, finance must combine disparate streams of information into one view, which includes financial and non-financial information, so everyone can feed the same data into their models. Finance, business, and management need to see, down to the transaction level, how changing business drivers affect financial performance today and in the future.

According to Dean Sorensen, an independent consultant and integrating planning expert, the approach helps companies handle the growing complexity of their businesses. As complexity rises, integration provides the means to accomplish objectives that become increasingly difficult to support with fragmented processes and systems.

Integrated Planning allows senior finance leaders to have a line of sight into various budgets and enables budget owners to make sure they’re all looking at the same numbers

Integrated planning gives companies real advantages:

  • It provides greater insight into financial and operational risks
  • It optimizes operating performance by breaking down functional silos
  • It optimizes investment ROI by managing risks associated with project cash flows
  • It cascades realistic and adequately funded targets
  • It helps companies respond quickly to change

The drivers of change

The primary reason integrated planning is become more of a household term is the changing role of the CFO.

“The CFO is becoming more important,” said Pras Chatterjee, senior director of product marketing, enterprise performance management at SAP. In the past, the budget and planning were done at a centralized, high level only. Today, finance functions are embedded in regional and functional entities and each creates its own budget.

According to Chatterjee, Integrated Planning is the glue that holds all these together, allowing senior finance leaders to have a line of sight into various budgets and enabling budget owners to make sure they’re all looking at the same numbers. “Technology brings all these plans together,” he said.

Integrated planning is happening within a broader context. According to Christian Gheorghe, CEO at technology vendor Tidemark, three shifts are affecting the office of CFO and driving companies to take a holistic view of the business:

The impact of digitalization. Companies are changing the way they are thinking about how to compete and measure performance in the digital economy. To have a clearer line of sight into what’s ahead, companies must engage more people in the activity of forecasting.

“In the past, planning was an activity handled by a few. Going forward, the pressure of this new environment will force companies to push [planning] into the periphery of the enterprise,” Gheorghe said.

Shifting business models. The digital transformation also is forcing companies to rethink their business models. “The finance team is moving from a small ‘a’ to a big ‘A,’ from analysis to analytics.”

A secular shift in technology. Finally, new technologies are not just about handling ever-larger sets of data, but also bringing together different data sets. “We’re moving into the intersection of collaboration, mobility, conversation platforms, consumers and internal data,” Gheorghe said.

Cox Wood: How Integrated Planning Works

A good example of how integrated planning works in practice is Cox Wood, an industrial manufacturer of treated wood products in the US.

Matt Yaun, Chief Administrative Officer, oversees enterprise wide functions in the areas of finance, HR, IT and business analysis. He relies on a solution called River Logic to bring all these parts together into a single integrated platform, so he can run models that connect operational decisions to financial outcomes and vice versa. 

For example, Cox models how capex decisions affect its credit capacity and how pricing decisions impact operational choices.

Finance plays a key part in the company’s integrated business planning approach, according to Yaun. “Finance verifies that the models remain current; it also runs different scenarios that help discern the income statement and balance sheet impact of operational decisions in real time,” he said.

Finance and operations must work hand-in-hand in the budgeting process. “At the C-level we guide Finance to run different scenarios to test how the budget will perform at different levels of capex expenses and pricing,” Yaun said.

“Planning is only as good as understanding how demand will impact the organization’s financial performance,” Yaun said. “You can’t reach back into the supply chain with promises or requirements without that understanding.”

Technology is the backbone of integrating two, once-disparate data streams – operational and financial. That’s something many legacy systems can’t do because they were built to work in silos

Integrated business planning enables Cox Wood to make tough resource-allocation decisions. It is privately held and has limited financial resources, namely a bank revolver and some access to family equity. As a result, managing capital capacity is essential.

“I need to know what my balance sheet will look like in three, six and 12 months,” Yaun said. To do that, “I need to run all these scenarios and continuously improve our capability for prescriptive analytics.”

Not figuring those out upfront can mean not having capacity later to take advantage of attractive opportunities.

Financial and operational processes

Integrated planning means syncing the financial and operational planning processes. It’s a strategy that merges cross-functional information and allows finance to see and predict the financial implications of changing business drivers and how financial decisions may impact operational choices.

By looking outside its own four walls, financial planning and analysis (FP&A) can provide better and data-driven decision support to business leaders and management to optimize enterprise performance.

Technology is the backbone of integrating two, once-disparate data streams – operational and financial. That’s something many legacy systems can’t do because they were built to work in silos.

According to Meredith Hobik, product line leader, finance at vendor Anaplan, to be able to break the old barriers, companies need tools that provide users with a collaborative planning platform to share the same metadata, hierarchies, versions, and formulas.

These tools “can pass the information between finance, HR, sales and marketing on the same cadence. Integrated planning means everyone speaks the same language, across finance and the business.”

Added Steve Elliott, director at The Hackett Group’s EPM Transformation Practice: “Now there’s a real opportunity to integrate the S&OP process with the finance process and create a strong linkage between the budget and the forecast and operational information flows in real time.”

Ultimately, all financial metrics relate to something that at its core is operational. The simple premise behind integrated planning is that every line in the P&L or the balance sheet is tied to real or virtual assets.

“Production limits tie into marketing campaigns, which tie into working capital, which tie into what kinds of financing a company needs. That’s why it doesn’t make sense to work in a silo,” said Nari Viswanathan, vice president of product management at River Logic.

What’s different?

There are several aspects to these new solutions that make them stand apart.

They democratize knowledge. The solution may sit in finance, but it must extend to other departments so that changes to business drivers are incorporated in real time into the financial plan and analysis. 

Ian Charles, CFO of Host Analytics, offers a simple example: “If you ask the head of sales what’s the impact of a growth of X percent in sales on EPS, he or she can’t answer that question using traditional tools. It’s only when you combine the financial and operational steams of data that you can ask and answer questions that require more complex calculations.”

Taking an integrated approach leads to measurable benefits. Viswanathan has seen companies realize actual top and bottom line improvements of 1-5 percent in annual revenue

It’s very helpful to use tools that provide business partners with the capability to ask and answer some of their own questions. “It gives them a chance to have a deeper understanding of the overall business and have a richer conversation with FP&A,” he said.

They can get granular. According to Christian Gheorghe, CEO at Tidemark, planning used to be done at the regional or corporate level. To be able to compete in the digital age, companies now need to be able to analyze their business at the transaction level to uncover patterns, look at business drivers and accumulate per-customer information. “Before they were basically blind,” he said.

They’re hypothesis based. What distinguishes a system that enables integrated planning from a traditional financial planning application is that it’s hypothesis-driven.

“You start with a problem,” said River Logic’s Viswanathan. “Then you then look across the data sets to find the relationship.” Older systems first identify drivers and then look for what connects them.

In integrated planning, once the model is validated, FP&A can enter new data. Based on this new data, FP&A can test how the model will respond. “The system can deliver recommendations on what you can do to change the outcomes,” he said.

They’re multidimensional. Even today’s driver-based models are based on simplistic assumption. They do not connect the relationship between multiple parameters and a number of combinations, but how a single driver affects a single financial result.

“If FP&A is really trying to predict how the enterprise will perform, it can’t make simplistic assumptions or rely on averages. It needs to use granular data points all the way down to the cost of raw materials at the supply-chain level,” Viswanathan said.


Taking an integrated approach leads to measurable benefits. Viswanathan has seen companies realize actual top and bottom line improvements of 1-5 percent in annual revenue.

“The integrated planning tool provides data-driven decision support,” he said. “It means the company can move away from making decisions based on the loudest voice in the room.”

“To perform its basic tasks and get the enterprise conversation going, FP&A need tools that break down organizational silos,” said Anaplan’s Holbik. “When you’re not connecting finance and operations it’s hard to make smart decisions.” According to Hobik, “it’s an opportunity for FP&A to take on more responsibility.”

About the Author

Nilly Essaides is Director, Financial Planning & Analysis Practice, at the Association for Financial Professionals (AFP), a US-headquartered professional society that represents finance executives globally. For more insights on FP&A, subscribe to the monthly  FP&A e-newsletter.

Copyright © 2016 Association for Financial Professionals. All rights reserved.


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