5 new pillars of financial planning for enterprises in 2024

The status quo of acceptable financial planning processes has changed. Historically, financial planning has been divorced from operational planning, leading to unreconcilable chasms in decision making that devour time and resources.

For many organizations, the notion that planning remains an isolated, us versus them battle of the boardrooms is becoming less and less tolerable. Compounded by the fact that planning requirements have both multiplied and intensified, finance is having a reckoning: it's time to reevaluate what it means to create financial plans for enterprises.

This article will explore the five new pillars of enterprise financial planning — and why they're imperative to planning in our current environment.

1. eXtended planning and analysis

In 2022, Gartner pinpointed a significant shift in the enterprise planning space. There was a dire need for FP&A practices to be employed beyond the walls of finance and into any department that produces plans. They termed this concept 'eXtended planning and analysis (xP&A)' and predicted that by 2024, 70% of new financial planning and analysis projects would become xP&A projects. 
From our recent research, it looks like this prediction is well on its way to becoming reality: as of 2022, 25% reported the have or are currently implementing xP&A, 39% hoped to make the move within 12 months, and 31% have their eyes on adoption within three years. 

xP&A, FP&A, and IBP: What’s the difference?

It's important to note that xP&A differs from the financial planning and analysis (FP&A) or integrated business planning (IBP) processes we're familiar with.

• IBP has its foundation in operations. As an extension of sales and operational planning, it aligns supply and demand with promotions, marketing, sales, finance, and other departments. Its goal is to create a better customer experience.
• FP&A refers to the processes, like scenario modeling and reporting, that enable the office of finance to create plans, budgets, and forecasts. It is the classic Finance-led planning process. Outcomes-driven and analytics supported.
• xP&A extends FP&A processes, like scenario modeling and reporting, to operational departments, like HR, supply chain, and sales, so they can create data-driven plans, budgets, and forecasts that align with an organization's financial goals. Its goal is to bring all planning insights into one collaborative space and to ensure that each organization’s decisions have a positive financial impact and align with broader company goals.

xP&A has quickly become the gold standard of enterprise financial planning — and for many good reasons:

• Today's business climate is volatile — a change to one department's plans reverberates across all others. xP&A allows companies to see the net effect of disruption.

• Organizations are faced with an overwhelming amount of data and must make sense of it on department and enterprise levels. By its nature, xP&A centralizes planning data and puts the interplay of performance outcomes on display for all decision makers to see.

• Most businesses have no way to share information or transform data into sharable insights — only 3% of businesses have a solution that can analyze strategic, operations, and financial data. xP&A platforms connect plans and process large volumes of financial and non-financial data. They’re designed to give operational departments financial tools, which result in connected plans that put finance at the heart of objectives.

Planning isn't a one-way street any longer — xP&A paves a highway for finance and operational teams to collaborate, align, and serve the broader goals of the business.

2. Operational and financial alignment

Balancing financial and operational imperatives has always been a struggle, but the appetite to align processes is becoming ravenous. A 2022 study of finance and business leaders found that 90% believe financial and operational process integration would moderately or significantly benefit the organization by improving decisions, increasing business agility, and providing better insight into revenue and operations. Although few leaders are equipped to realize this vision — of that same population, over half reported disconnects between systems, financial and operational processes, data sources — there is an urgency to foster alignment. Seventy-four percent of leaders planned on reviewing financial and operational planning processes and tools in the next year. 

The long and the short of it is operational alignment has become a core tenant of planning within finance. Financial plans alone aren't enough to guide a business forward in today's climate. A comprehensive, connected approach to planning is required to stay on a growth trajectory. 

3. Predictive planning

It seems everywhere you turn, predictive analytics, artificial intelligence (AI), and machine learning (ML) dominate conversations about innovation. If you think about it, AI and ML are what automation was ten years ago: a desirable technology promising efficiency and expedited decision-making. xP&A is the next frontier.

In a recent report by FP&A Trends,  41% of leaders reported that predictive analytics is a part of their long-term strategy. While adoption among this population remained low since 58% still used spreadsheets for planning and forecasting, the implementation of modern cloud-based planning platforms supporting predictive planning doubled from 2020 to 2022, indicating that indeed finance is heading towards a planning future that is powered by AI and ML.

Spotlight on scenario planning

Predictive technology spans a wide range of functionality. When it comes to financial planning, we see the most considerable influence of predictive tools on scenario planning. Traditional scenario planning involves developing multiple plans to address an array of possibilities. AI and ML promise to raise this cornerstone practice to new heights.

Florian Klein, founder of the Center for the Long View, perfectly articulated the impact of AI-powered scenario planning tools: 

"How confident can we be in a 10-year strategy that doesn't consider evolving trends and complexities in technology breakthroughs, sudden shifts in online purchasing, or new regulatory changes? By combining proven methodologies of scenario planning with the capabilities of AI and big data, decision-makers can establish real-time strategy techniques that can be more effective at developing dynamic strategies, monitoring their validity, and reacting faster."

As companies search for ways to become more resilient in 360-degree disruption, scenario planning will be the key to replanning when plans are suddenly redirected.

4. Environmental, social, and governance (ESG) 

For Europe especially, tying ESG metrics into the broader planning program has become mission critical. With the corporate sustainability reporting directive (CSRD) impacting thousands of organizations in 2025, the correlation between ESG efforts and financial results will be displayed for all to see. We expect the effects of CSRD to ripple into adjacent regions, including North America. Wise companies are already considering how they, too, can best track and report on ESG initiatives.

Along with anticipated government-led directives like CSRD, the investor appetite for sustainable, ethical business is generally high. In a recent PWC study, half of the investors surveyed expressed willingness to divest from companies that aren't taking sufficient action on ESG issues. What’s more, McKinsey reports that over 90% of S&P 500 companies now publish ESG reports, indicating that the largest companies on the NASDAQ are prioritizing ESG metrics.

There are many misconceptions about ESG, chief among them being that ESG is a trend. We see ESG as a performance management issue that intersects with risk management, compliance, investor relations, operations, and finance. Above all, ESG is an opportunity: Investors and other stakeholders are interested in supporting ethical, sustainable businesses — that are good investments. By connecting ESG with finance, companies have their cake and eat it too: they're empowered to plan ESG initiatives that are good for the world and reflect well on the annual report.

5. Tax and finance alignment

With BEPS Pillar Two coming into effect for many regions as soon as 2024, planning will be impacted by this directive's major tax implications. BEPS Pillar Two will usher in a new era of transparency. To meet the directive’s reporting requirements, the ability to reconcile between group GAAP, local GAAP, local income tax returns, country-by-country reports, and GloBE tax filings will be critical.

Because BEPS Pillar Two sets a global minimum tax of 15% at the local level for multinational enterprises in reporting jurisdictions, impacted finance teams not only have to marry their tax processes into their close and consolidation processes, but they'll also be charged with providing insight into how much organizations will owe in jurisdictions where they're subject to a top-up tax.

Among other changes, finance will have to:

- Understand how to gather BEPS Pillar Two financial and non-financial data 
- Determine the material impacts of BEPS Pillar Two
- Plan to mitigate impacts and ensure the necessary funds are on hand to pay out the top-up tax if required

We've written more about the CFOs BEPS Pillar Two to-do list here. With BEPS Pillar Two putting a tax on the balance sheet, finance and tax have become intertwined in a way they never were before, ushering in another new planning pillar for finance to attend to. 

New pillars beget new technology

In the last decade, financial planning requirements for enterprises have changed drastically. You know what hasn't changed? The tools enterprises use plan. Study after study confirmed what we know to be true: the majority of organizations still use outdated technology.

Finance is faced with opposing realities: on the one hand, our data needs, information requests, and regulatory requirements have increased while becoming more urgent and complex. But on the other hand, our access to information has stayed the same: elementary, manual, and, for lack of a better word, frustrating. Status quo financial planning tools aren't built to accommodate these new needs.

Our recommendation? It's high time for finance to consider a new approach to enterprise financial planning.

To learn about the latest technology for enterprise financial planning, look no further than the Gartner Peer Insights Voice of the Customer for Financial Planning Software report. This report details how your peers are using financial planning technology. Read on to learn why 97% of verified end-users of CCH Tagetik are Willing to Recommend the comprehensive corporate performance management (CPM) platform.