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Finance10월 25, 2023

Achieving agility with predictive planning: A five-step guide

By: CCH® Tagetik

Predictive planning has become the gold standard of planning. Adding a predictive element to planning and forecasting practices offers finance an opportunity to pivot and re-plan faster, produce more accurate forecasts, and understand the impact of more scenarios on the bottom line. 

Top-down, bottom-up, side to side, whichever way you plan, predictive planning can simulate the entire up and downstream effects. While implementing a robust predictive planning program might seem like a giant technology project, you don’t have to go from analog to AI overnight. 

The FP&A Trends report, Maximizing Potential: Unleashing the Power of Predictive Planning & Forecasting within xP&A, provides finance teams with a helpful guide to advancing predictive abilities via a staged approach.

This article will summarize FP&A Trends’ research and break down:

  • FP&A Trends’ predictive planning and forecasting maturity model
  • The five stages of predictive planning and forecasting maturity — and how to determine where you stand
  • How to advance to the next stage

What is the predictive planning and forecasting (PPF) maturity model?

FP&A Trends developed its predictive planning and forecasting maturity model from a series of interviews with organizations that are actively investing in PPF capabilities. The model outlines the ideal PPF implementation journey based on a staged approach. The stages are:

  1. Basic: Minimum viability, which is the most elementary phase
  2. Developing: Managing and recognizing the need to change
  3. Defined:  Mastering the concepts and starting to understand predictive planning
  4. Advanced: Measurable and utilizing predictive analytic tools
  5. Leading: Mature, fully balanced integrated PPF across the organization

 And, the PPF maturity model is based on three dimensions:

  1. Model content
  2. Predictive analytics usage
  3. Use of technology 

Implementing a mature PPF program can't be done overnight, but companies can move towards maturity by following the practical steps detailed in this model.

사업계획에 가시성과 대응력을 더하고 전체 사업계획 단계를 하나의 데이터 소스로 연결하세요.

Breaking down the five stages of predictive planning and forecasting (PPF) maturity

FP&A Trends has established that companies will pass through these five stages on their way to PPF maturity. 

Stage one: Basic Predictive Planning and Forecasting

In the most elementary phase, Basic PPF teams are confined by the limits of the spreadsheet and the human imagination. Spreadsheets allow for only the most basic forecasting. The process is almost entirely manual.

Signs you're at the Basic PPF stage


Predictive Analytics


You use separate models for strategic, financial, and operational plans.  You choose the drivers you focus on. You use spreadsheets.
You access high-level P&L summaries. You set the value of your drivers via simple extrapolations. You manually load data at period end from source systems.
You use fixed calendar time periods.

Stage two: Developing Predictive Planning and Forecasting

Companies in the Developing PPF stage have slightly more advanced predictive ability than the basic stage — but importantly, they recognize the need for and benefits of high PPF maturity. Companies at this stage use separate spreadsheet models for financial planning and forecasting, but they're starting to use detailed modeling and statistical packages in some areas.

Signs you're at the Developing PPF stage:


Predictive Analytics


You still have a separate high-level profit and loss (P&L) summary but access to some detailed models for sales or inventory. In separate models for specific measures, you use basic statistical methods, like regression and time-series analysis, to generate future values based on historical data. You use spreadsheets, but you also use statistical packages for specific measures.
Your drivers are still users defined with fixed calendar time periods, but you have formulae to calculate totals and forecasts. You manually pass results back to the primary model to generate financial statements. You manually load data at period end and view results in a separate BI application.
You have limited scenario analysis capability.

Stage three: Defined Predictive Planning and Forecasting

Another stage, another level up. This stage demonstrates a mid-maturity PPF process where we're seeing some predictive power coming into play — and the results that go along with it. At this stage, teams can get more detailed predictions, like by store or by product, and they're using rolling forecasts instead of fixed periods, all of which are powered by machine learning algorithms. They're also dipping their toes into scenario analysis. 

Signs you're at the Defined PPF stage:


Predictive Analytics


You still have a separate high-level P&L summary, but with automation that allows data to flow between strategic, financial, and operational plans.
Your models use machine learning algorithms to predict future values for some measures.
You still use some spreadsheets.
Your P&L has business/product groupings with detailed models for specific measures.
Your algorithms work at a granular level of details, e.g., by SKU. You use specialized machine learning (ML) tools.
Your model drivers are still user-defined. Your results are passed back to an aggregated model to generate financial statements. You use a central planning application along with a modern planning platform.
You use a fixed calendar time period but have a rolling forecast capability   Your data transfers are automated.
    You can analyze results through a self-service BI application.
    You have a reasonable level of scenario analysis.

Stage four: Advanced Predictive Planning and Forecasting

Now we're getting into a PPF program that reaps the many benefits of predictive and is just shy of full maturity. At this advanced stage, predictive planning is more detailed, like by product and Line of Business (LoB). Automation and integration are the names of the game, and human intervention is minimized. For example, predictive analytics identify critical drivers, not humans. One of the defining characteristics of this stage is a three-way view between the P&L, balance sheet, and cash flow.

Signs you're at the Advanced PPF stage:



Predictive Analytics


Your models have a three-way view between P&L, balance sheet, and cash flow for lines of business or product groupings.
Your models both identify drivers and predict future values.
You have a modern planning platform that has embedded predictive analytics tools.
Your models cross borders between strategic, financial, and operational planning, and data can flow through different planning activities.
Your system automatically selects the best algorithm and passes the results to your central planning model.
Your system automates data transfers, and data is available on demand.
Relationships between drivers are a combo of your human intelligence and your machine-learning algorithms.
  You can create self-service reports.
Your models have a rolling time calendar that spans multiple years.    You have powerful scenario analysis capabilities.

Stage five: Leading Predictive Planning and Forecasting

Companies at the Leading PPF stage access the most mature form of predictions available to them. A balance of ML algorithms, process integration, and human intelligence combine to help businesses anticipate and respond to market changes and trends. Automation reigns supreme and supports teams in every planning task, including fast scenario management.


Predictive Analytics


Your models show a three-way view between the P&L, the balance sheet, and the cash flow statement.
Your embedded ML and statistical models select the best algorithms to identify drivers and predict results. These relationships automatically update model rules and predictions.
You use a modern planning platform with embedded Predictive Analytic tools supporting linked planning models.
Your models are backed up by detailed LoB and product grouping for all measures, not just specific ones.   You get a real-time view of the business.
Your driver relationships are automatically determined by ML algorithms, augmented with human intelligence.
  You can access source data directly.
Your strategic, financial, and operational plans are harmonized in one cohesive system that provides a holistic view of the business. 
  You can access analyses and revised forecasts on demand.
    Your scenario management is extremely fast.
사업계획에 가시성과 대응력을 더하고 전체 사업계획 단계를 하나의 데이터 소스로 연결하세요.

How to advance to the next stage of Predictive Planning and Forecasting maturity

As FP&A Trends states, "An organization might have a modern technology platform and use ML to uncover drivers (Stage four), but if they aren't producing a three-way view of the business, they remain at Stage three."

FP&A Trends identified five strategies to help advance your PPF maturity:  

1. Get senior management support: Senior management must see and understand that your current processes and techniques are insufficient for meeting your organization's needs but also recognize the potential of PPF to provide material impacts via its agile, facts-based approach to planning. 

2. Work with a small, dedicated, skilled team to implement PPF: According to Wojciech Porebski, VP of Finance, Grids & Power Quality Solutions at Hitachi ABB: "The (PPF) team must be well-versed in the business landscape, understanding the intricate connections between its various components. Only then can they transform raw numbers into a compelling story that drives informed decision-making."

3. Begin with your goal in mind: What is your desired outcome? And how will you get there? Before you can map out your PPF vision, you need to understand the requirements of business partners, processes, reporting systems, and functional needs. You also need to know how existing technologies, like your ERP, BI, and closing software, will interact with new PPF software. Essentially, to be able to determine your destination, you need to know where you are now and how you’re going to measure success in the future.

4. Identify key business drivers: Fabrizio Tocchini, Head of Innovation at CCH Tagetik of Wolters Kluwer, suggested three ways to identify key business drivers: "First, choose a measure with significant organizational impact, such as revenue, and gather at least two years of detailed, consistent, and reliable historical data. Then, employ a predictive machine learning regression model to determine the accuracy of the correlations that best explain the outcomes. Finally, discuss the key drivers with those most familiar with the predicted measures." You can read more about these steps in detail in the report. 

5. Take it one step at a time:
Start with small projects, like improving forecasting in one specific area, and take on a learn-test-improve mentality to manage expectations. There will be stumbling blocks along the way, and you don't have to eat the entire elephant of PPF at once. What's more, even when you've implemented a PPF platform, it will take time for machine learning forecasts to surpass the accuracy of human-driven forecasts. Multiple interviewees in the study suggested that the best path for organizations new to predictive analytics is to run both human-created and predictive forecasts simultaneously and gradually phase out the manual process over time. 

Get insights from organizations well on their predictive planning maturity journey

No matter where you land on the PPF maturity model, you can always learn from the experience of those who came before you. Read the 2023 global research report, Maximizing Potential: Unleashing the Power of Predictive Planning & Forecasting within xP&A, by FP&A Trends, to learn how senior executives from leading organizations transformed their planning and forecasting processes by combining predictive analytics with xP&A. 

CCH® Tagetik
CCH Tagetik provides a strategic & financial intelligence platform that enables CFOs to propel their strategy with faster and better-informed decisions. CCH Tagetik provides a data-driven, AI-based CPM platform for Financial Close & Consolidation, Extended Planning, ESG and Regulatory reporting, and Corporate Tax. The platform connects leading operational solutions to create enterprise-wide insights, drive growth, and navigate change for our customers to gain the greatest value.
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