Long-range financial planning can be a big obstacle for many companies. It can be hard to make all the different pieces fit together in the right way. The following is a list of the most common issues companies run into when trying to make these things work in the right way, as laid out by Madison Laird, the CEO and Co-Founder, CPM Methods.
The Perception that Finance Runs It All
When such an important part of the company is left to the intuition of one or two people, then the power has been put in the wrong place. Everyone needs to have a say in the way things work in the financial planning process. This perception will keep people from offering their meaningful ideas and problem-solving ideas. This is especially important when stake-holders are involved.
The best way of taking care of this is to increase your transparency and solicitation for input from all involved.
Big data management has become a major problem for many companies. Data is more easily obtained right now in the technology era than ever before.
Handling this pitfall will involve limiting the amount of information solicitation and putting in place good software tools to organize and protect this information.
Setting goals is a great way to improve the way companies run and maneuver, but it is becoming more and more common for organizations to get hung up on these objectives. In these situations, it can be hard to see when objectives are no longer as helpful or necessary to the improvement of the company.
A good way to deal with this issue is to have some outside eyes looking at these goals and offering input on the best way to handle them.
Not all risks are created equal. Some issues, like information security, for instance, should demand a lot of your attention and should be given a high spot on your list of priorities. Other risks, however, like the threat of competition, probably does not need as much attention and time given to them.
This is one of the easiest pitfalls to overcome as it simply takes a good look at what is happening. Some risks should be embraced, and others will need to be better handled.
This pitfall boils down to the existence of human error. People make mistakes, and some of these mistakes can be quite costly. Employing the right tools and quality management personnel can be very helpful in solving this common issue.
Many companies utilize Excel for their finance planning data entry. There are a lot of other tools out there that can be used for these purposes, and they will offer a lot more security, accuracy, and speed to the financial planning process.
Embracing new technology will make this pitfall a lot less prevalent in many companies.
It is important for all companies to recognize that the financial goals and needs for a company will always be changing. Having a manual approach and the wrong tools in place makes it impossible to keep up with these changes.
Handling these issues is a lot harder, as it means changing the entire way your administration looks at the problems and processes at hand.
If you are constantly looking at what happened in the past as the hard and fast rule about what will happen in the future, then it will be harder for you to change the way you manage things. This is very dangerous, especially as the business and finance climate is changing so quickly.
To solve this pitfall, you will need to create some possible scenarios based on your data and your goals rather than sticking with the boundaries of your past experiences.
This pitfall comes down to the training and the strategizing that happens in the process. It is necessary for you to create workflow management possibilities that will allow the people involved in the system to find good solutions to the problems at hand. There is no need for the fears you are facing to become reality.
The decisions made with your financial planning really need to be based on the data at hand. It is important not to let too many funds and investments be sent to the wrong areas.
This happens when bad information is given, a lack of data exists, or the wrong data is valued too highly. Better data analysis tools can help a lot with this issue.
Not every financial issue or investment is worth the same amount of attention and revenue. You just can’t use the same criteria to manage each financial issues that comes along.
It is very common for companies to reduce everything that happens within a company to financial decisions. This makes it very hard to implement new strategies as the profiling limits the options companies and shareholders think they have.
Handling this issue will involve being open to new strategies and not assuming that every problem in the company stems back to the frame of reference of a financial planning mistake.
This is very strongly connected with the data inequality, but is different enough to warrant its own pitfall entry. The forecasts that you ask for need to be accurate and not completely resigned to a narrow facet of your fears and past experiences.
Sometimes you will need to set some asymmetrical guidelines when looking at potential predictions. Using a good analysis tool can be very helpful with this.
The goals set in the company should be designed to align with the financial planning process. This will mean a recalibration of the way companies are handling things.
Each department making corporate goals and making strides to keep those goals will need to work directly with the financial planning department to be sure that the goals are appropriate, and that the right funding will be in place to pursue these goals.
It is becoming very common for many departments not attaining the goals set for them. When departments do hit their goals, it is often by mistake.
Putting in place more accountability is a very helpful and surprisingly simple way to solve this issue. Better communication can go a long way to solving this problem, and it can have a hugely positive impact on the company.
Not every company will face each of these pitfalls, but every company will struggle with some of them. No company will be free from all of these issues because there is no perfect planning process. The larger your corporation is, the more of these issues are likely to occur.