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Free your organization from the curse of wishful thinking:
Applying a financial framework to strategic planning

5 min Read

Strategic Planning

It’s a practice that’s fairly common these days. Having a vision not only helps with organizational alignment, but it also helps to prioritize tasks and streamline operational organization. Having a true north or two in your future isn’t exactly a new concept. If you’re reading this, you probably have a strategic plan in place. This article is about what comes after. You can plan ad nauseam, but if you don’t have the means and long-term financial strategy to back it up, it may lead to trouble. Not having a structured, goal-seeking financial framework for strategic planning is, unfortunately, more common than you might think. But not to worry, we’re here to help.

Recently, our Director of Client Success, Dr. Michael Nicolescu, was at a conference where this very topic was brought up. In a room of over 100 people, two questions were asked. The first was, “How many of you have strategic plans?” Unsurprisingly, almost every hand in the room went up. The next question did not receive the same response. The session leader asked, “How many of those plans are tied to financial strategies?” Out of the 100 or more attendees, only about five hands were in the air.

This is unfortunately all too common and begs the question: “why aren’t organizations tying a financial plan to their strategic goals?” Strategic plans are a wonderful opportunity to achieve collaboratively, but without a financial strategy to back them and usher them into the world, their chance of success is going to crumble. They might come to fruition, but certainly not optimally, or worse; they might hinder your goals or burden your long-term forecasting and analysis.

Your strategic plans are meant to serve as a vehicle toward organizational progress. By giving them a financial foundation, you can increase their chances of success, determine whether they are realistic given your current and future financial situation, and ensure smart asset management throughout their lifetime.

With how common the misalignment is between strategic planning and financial feasibility, putting these practices in place will help you sustainably achieve your goals and strengthen your credibility when it comes to planning in the future. Finally, financial feasibility is quantitative. Having an analysis of the financial backing for your strategic plans will reduce indecision, as you will know what initiatives are low-cost, high impact wins and what initiatives will require additional expense and consideration. Let’s dive in.

The First Step, A Critical One

We’re working under the assumption that you’ve got your strategic plan. The mission statement is there, along with the vision. You’ve clearly laid out your objectives, done internal and external environmental analysis, and have concrete strategies for improvement and implementation. Strategic plans often span multiple years; keep this in mind – with multi-year strategic planning, you will also need long-term multi-year financial planning and analysis to back them up.

The first step here is an important one: understand the long-term financial health of your organization. Healthy organizations are going to have the most success implementing strategic plans. A ship sailing toward a destination will get there much faster if the sails don’t have holes in them. Make sure you have a comprehensive financial model set up for long-term FP&A. A proper financial model, with realistic assumptions about the future and accurate historical data, will help ensure that you’re in a good position to start implementing strategic plans. Additionally, you’ll need this later – to conduct and cross-reference the financial aspects of your plans using scenario and sensitivity analysis to ensure that these plans can be enacted in a sustainable manner and that you have contingencies in place.

These contingencies, and the understanding that they are in place, will be important both for your organization’s financial health, and to instill trust in your actions from leadership. The last thing you want is to be implementing a costly part of your strategic plan during your projected worst-case scenario without any contingencies.

With your organization projected to be in good, sustainable health, let’s get down to business. Next up? Get collaborative, get organized.

Get Collaborative

You won’t be able to understand what’s going to go into making these strategic plans a reality alone; you’ll need help. Through your own research and collaboration with team members, you’ll need to start breaking down the high-level information on what these strategic plans are going to cost, both from a monetary cost and an invested effort standpoint.

This collaboration can look like a few different things depending on your organizational structure. Try setting up a committee with different departments. Ask the most affected departments to put together information on both hours spent and estimated costs for any outside help. Additionally, departments will be more intimately acquainted with their own metrics and KPIs, allowing you to better assess the impact of a completed initiative.

Let’s say, for example, part of the strategic plan for a public water utility is to increase the efficiency of their distribution system. These plans include an initiative to integrate a new leak detection technology. Right now, the utility has a 15% loss rate and is addressing an average of 50 leaks per year. What impact would this new technology have on both the water loss rate and the overall number of leaks detected and repaired after implementation? Remember to ask department leaders to be conservative – modeling out these impacts will have speculative components, but that doesn’t mean it has to be wishful thinking. Remember, your goal isn’t to be overly ambitious or look heroic to your organization. The goal is to be realistic, for better or for worse.

The forum approach allows for not only feedback in real-time but also gives others the opportunity to contribute and pose factors that may not have been considered before. Try supplementing with one-on-one meetings to iron out any unfinished details. You can also rely on individualized meetings with these departments for this approach if absolutely necessary, but the efficacy of this approach will be less than that of a think tank or group forum. Giving a voice to colleagues who will be affected by strategic initiatives helps foster buy-in. People will be more receptive to future plans when they are confident that their interests have been listened to and considered.

Get Organized

The purpose of your initial collaboration was to provide you with a backing, a generalized concept of some of the underlying factors that are going to financially affect your strategic planning. We’re still operating at a high level. Laying the groundwork is going to be important because you will need information to draw reference from when working out a comprehensive strategy for your strategic plan. Your organization has a mission statement, but have you thought about one for your financial goals?

Clearly define your financial goals that will support both the organization’s health and the strategic plan. You’re playing a balancing role right now, and part of these goals should be forward progress without sacrificing the long-term forecasted health of your organization . You will have to consider both the short- and long-term impacts that these plans may have on your finances. Remember, what may be good for your organization today may not be good next year.

Part of getting organized is refining your own processes to keep up with current expectations. Historically, CFOs have been responsible for reporting current finances against an organization’s past performance. More recently, CFOs are expected to engage in strategic decision-making, providing data and insights that help drive the mission and success of the entire organization. The needs of the past still remain, and with them come inefficiencies and time spent on tasks that may hinder the strategic planning process.

The key to balancing this is the old adage: work smarter, not harder. What can you automate in your transactional and reporting processes? Getting even more granular, how much time is spent on tasks like sharing files when delegating some of the smaller tasks? The smoother your overall process flows, the more time you and your organization will have to dedicate towards actionable items that actually move the needle. We like to use the 80/20 analogy. If you let transactional and reporting tasks monopolize 80% of your time, how do you expect to make impactful change with the 20% left over?

By looking for an innovative solution, Austin Water was able to cut their time building their annual forecast and budget from 3-4 months each year, to 1-2 weeks. This is a perfect example of creating space and time for high value-added tasks. By decreasing the time it takes to put together their annual forecast the team at Austin Water now has more opportunity to plan strategically, solve problems, and achieve sustainable success.

Let’s go back to our ship analogy. Sure, you can’t go very fast with holes in your sails, but once the sails are in good shape, think about how fast you could get to your destination by installing a motor.

Finding a way to spend 80% of your time on high-value tasks, like strategic and financial planning, will allow you to accomplish larger goals more sustainably and faster

Short-term

Consider the reality of enacting your strategic plans against factors such as cash flow management and operational expenses. Conducting a sensitivity analysis will be helpful here, as you will be able to understand which areas you are comfortable impacting more than others.

Long-term

What are your long-term realistic goals for implementing these strategic plans? Set targets for growth, investment returns, and all factors that might affect your organization’s sustainability. By widening the lens that you view your finances you will be able to more completely see how these strategic plans will affect the future of your organization. It’s important to view your finances holistically. Only viewing the direct impacts of initiatives can lead to tunnel vision and a limited or incomplete financial plan.

Understand which factors are within your control and which are not. An example here is rate setting for utilities companies. Can you control your rates, or are they mandated? It may be helpful to document everything that is within your control, so you have your options for change readily available in the future.

Now that your goals are set, it’s time to start creating the financial framework to enact your strategic plans.

You may be tired of hearing this by this point, but we’ll say it again: it’s important. Keep it high level. Keep in mind the words of Albert Einstein “As simple as possible, but no simpler.” Scope creep is real, your time is valuable, and if you try to model every expense into your planning instead of taking a conservative approach, this process can and will delay your progress. Here we go.

Resource Allocation & Impacts

The goal here is to establish a semi-concrete outline of the cost-benefits of each initiative. Taking this approach will allow you to see their individual impacts, but also has the benefit of being rolled up into scenario analysis to understand what accomplishing multiple initiatives at once could look like or see how current and ongoing projects will work in conjunction with these new strategic plans.

Identify the cost of these plans over the lifetime of their implementation. Consider their impact on operating expenses, capital expenditures, and investments.

Ask yourself as initiatives go live, how will they affect the future? This is where having an implementation timeline and a general estimate of ROI from other departments will be valuable – projects that will generate revenue or positively affect your bottom line can be leveraged to make accomplishing other initiatives more realistic in the future. This goes hand in hand with project prioritization, which we cover below.

Identify Funding Sources

The money has to come from somewhere. Proper consideration of funding sources can make or break a project. Some internal methods you might consider are reallocating existing resources, utilizing reserve funds, or additional revenue generation – either as its own initiative or as a part of one of the existing strategic plans.

Some external funding sources are more industry relevant than others, but leveraging debt is certainly an option – just make sure you’re modeling out a plan for amortization and debt servicing. Some industries may have access to grants, or public private partnerships, which are another avenue that can be of use for funding strategic initiatives.

Risk Management

At this point, we’ve laid out our pertinent information regarding cost, timeline, and funding. Now, let’s assess risk. Knowing whether a project carries greater risk will be key in the next step, project prioritization. Look at your strategic initiatives and identify which items pose risks based on amount of required funding, potential for overspending, and impacts to liquidity. If leveraging debt for a project, consider market changes to interest rates, or potential credit impacts. These are all risks that must be considered before taking action on your strategic initiatives. Having a robust financial modeling platform with risk analysis capabilities and visuals prepared will help you and your team in the strategic decision-making process.

Project Prioritization

This step is another case for collaboration. Presenting your findings, case analyses and data on the strategic initiatives is key. The hard part will be doing so in a digestible manner. Non-finance team members may have key input, but this may be withheld if they can’t understand what’s being presented to them. Make sure your visuals are communicative when getting to this step so all team members can contribute.

When prioritizing projects, there are multiple factors to consider:

  • What is urgent? What needs to get done now and what can wait?
    An example here could be an urgent infrastructure project or an update to IT and security systems.
  • What can be accomplished quickly without significant cost, and will bring you closer to accomplishing your strategic plans?
  • What items, when taken care of, may help accomplish future strategic initiatives?
    Our previous example of water technology fits here. It’s a strategic initiative that will require lift, but also may decrease lost revenue in the future. This revenue can be used to ease the cost burden of future initiatives. Be aware, the speculative nature of this is a risk to consider. If the expected revenue boost doesn’t happen, you will need to have a contingency plan in place.
  • Which items are the least risky?
    We’ve already touched on risk, but treating risk as a spectrum will be helpful here. Assigning a level of risk to each initiative will help you prioritize projects sustainably.

Test Your Numbers,
Organizational Sensitivity & Scenario Analysis

This is where your groundwork is really going to shine. This step is crucial for ensuring a sustainable approach to applying a financial framework to your strategic planning. A lot of this hinges on a flexible, and comprehensive financial model. Incorporating your projects and initiatives with actual financial data against different financial scenarios will help you to understand what your financial future could look like during and after project implementation.

The time to mix and match is now – try permutations of different initiatives and see how they reflect on your best, base, and worst-case scenarios. Analyzing how pursuing these projects impacts your projections is crucial. It will provide insights into their financial impact, whether positive or negative. If feasible, you may consider bundling multiple projects together, which will allow you to determine which combination of projects is the most sustainable for the organization. Make sure your analysis is not siloed, and you are considering the ramifications of your initiatives across your financial processes.

St. Ambrose University is a testament to good analysis when it comes to unifying sensitivity analysis and initiatives. With the goal of problem-solving for new revenue streams, while remaining conscious of both tuition and discount rates rising in tandem, they were able to present two financially viable options to their board, both of which were approved.

You’ll know which initiatives are top priority through your project prioritization steps. Your analysis will take time but remember; this process is about finding the best way forward. This process of carving the most successful path for your organization, is dependent on a focus on high value-added activities. Where finance leaders spend most of their time can have either a positive or negative impact, depending on whether that time is spent on low or high value-added tasks. Recall the chart above if you’d like a refresher on the different levels of value add associated with the different finance tasks.

Reporting & Review

Part of this process isn’t just about proper strategic planning; it’s about building a culture around the healthy lifecycle of strategic planning. Regularly reporting and making sure affected teams and leadership are informed as to how the actuals have lined up with your previous projections will allow for multiple perspectives and lessons learned in the future.

The committee that was originally created at the start of the process can be brought back to review these plans, and shift as necessary. The strategic planning process varies by organizational needs, but we’ve included a baseline template of the process below.

Review your model. As situations change you will need to adapt your model to make sure it reflects the current situation. In order to successfully achieve your goals, keep a cadence of review. Strategic planning is iterative in nature, and your plan needs to keep up with these changes, or risk becoming outdated. As you revisit your strategic plan, adjust assumptions based on the market and rates, and perform further scenario analysis to make sure your organization is prepared for any situation. A holistic strategic initiative pursuit will affect the entire organization, and members should be informed to encourage a team-oriented and goal seeking mindset for the common betterment.

Take the First Steps

You may be feeling a bit overwhelmed, and we understand. There’s a lot of moving parts to the process of making your strategic plans a reality. There are a few things to keep in mind when looking to provide financial feasibility to your strategic plans. First, one step at a time, set goals for yourself and your team to accomplish in segments. Rome wasn’t built in a day, as they say.

Next, use powerful tools that will speed up the process and improve your capabilities. Financial modeling and strategic financial planning and analysis software like Synario help you automate those low value-added tasks and focus on more impactful planning. Make sure to use the resources available to you, Synario’s dedicated in-house service team of experts regularly helps users improve their model or problem-solve with haste. Strategic FP&A platforms like Synario are purpose-built to provide users the analysis and insights needed to make your strategic planning a reality.

See what Synario can do for you

We started Synario for the same reason many of our clients started using it: we were tired of struggling with spreadsheets and their shortcomings. We needed a solution that was dynamic, adaptable, and promoted cross-team collaboration.

To answer this need, we created Synario: the agile modeling software organizations rely on to forecast and visualize their financial futures.

Are you ready to see for yourself what Synario can do for you?