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Guide
Long-range planning: A playbook
Your comprehensive guide to long-range planning in FP&A. Learn how best-in-class teams set up their organization for long-term success.
Table of Contents
01. Introduction
More than half of the companies on the Fortune 500 list from 2003 no longer exist. How do you ensure that your organization isn’t in the same position 20 years from now?
While it’s easy and tempting to focus on short-term wins, the organizations today experiencing the most success tend to be the ones that are following a plan they laid years ago.
But that’s difficult in what is an increasingly unpredictable global business environment: organizations today need the flexibility to accurately forecast and adjust plans based upon frequent changes in assumptions.
Long-range planning (LRP) refers to the processes and methodologies used to execute a plan to meet an organization’s strategic goals and objectives. A proper approach will help an organization align its longer-term goals with the enterprise’s strategic plan. Most organizations view long-range planning as a 3-to-5-year initiative, while others consider it any plan in effect for more than one year. Most operational plans are for a single year.
The enterprise plan will focus mainly on financial metrics; however, operational metrics and objectives will drive the LRP in finance. LRP in finance involves projecting revenues, expenses, capital investment, and many vital aspects that impact the organization's economic health.
To be effective with LRP, several best practices and appropriately matched technology solutions must be considered. Newer FP&A/EPM solutions can support long-range planning along with their support of operational plans and must be considered in your evaluation and selection of technology. This paper provides an approach to consider when seeking dramatic improvement in LRP.
02. Challenges That Exist in LRP
Organizations must prepare for many short- and long-term challenges in today’s rapidly changing business environment. Before 2020, longer-term goals and objectives were often cast in stone as organizations developed a strategic plan and rarely adjusted that plan.
The annual operating budget/plan was traditionally viewed as needing to be more flexible, reflecting adjustments to assumptions on the economy and geopolitical changes.
Today, structural changes can rapidly alter the course of an organization’s longer-term strategic planning, and these must be addressed with agility and certainty. To be effective, an organization now must consider the following challenges that impact long-term planning assumptions and capabilities:
Uncertainty
Current economic, political, competitive, market/industry, geopolitical, and economic disruptions have significantly impacted organizations' long-range strategies. Many of these concerns impact long-range financial planning, such as long-term investment significantly impacted by higher-than-expected interest-rate financing.
AI
AI will significantly impact industries in the next 5-8 years. It will reduce industry sales and general and administrative (SG&A) costs while providing new opportunities for you and your competitors. As more AI impacts are identified/understood, long-range plans will be changed to reflect these impacts.
Talent/skills
Long-range planning processes and methodologies require highly skilled and capable workers proficient in complex financial models to forecast and creatively develop planning alternatives. For many years, sufficient spreadsheet skills were enough to support long-range planning efforts. However, this has changed as solutions supporting flexibility require staff with more financial analysis and business expertise.
Planning span
Uncertainty increases over longer planning cycles, and companies’ long-term plans must often be adjusted more frequently. For example, a ten-year plan that started in 2015 and has not been adjusted due to the COVID pandemic, geopolitical impacts, and structural economic changes will not have achieved a favorable outcome through 2025.
Modeling flexibility and collaboration
For firms still relying mainly on spreadsheets for long-term planning, the spreadsheet skill level of current staff hinders the development of effective planning models. A more effective approach would be to have long-term planning processes centered around an enterprise model that provides necessary participation, collaboration, and auditability by those who participate in planning.
Access to data
Unfettered access to an accurate blend of historical enterprise results data, current operational and financial results data, current operational and financial planning and forecasts, and industry projections/benchmarks is a top requisite for long-term planning success. For many firms, current data and systems architecture does not allow for the easy flow of data into long-range planning.
Define operational and long-term boundaries and interaction
In many larger enterprises, operational and long-term planning is often accomplished by separate departments reporting to the VP of Strategy/Planning, who reports to the CFO or CEO. Appropriate processes/methodologies are usually established to define the boundaries and interactions between these two departments. These groups must collaborate and ensure that the building blocks to execute the long-range plan are coordinated through short-term operational planning.
03. Impact of Getting it Right
The impact of getting this right goes beyond supporting the strategic plan through effective interaction with operational planning. An effective long-term planning process will improve:
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