Five Ways to Get the Most Out of the Annual Planning Process

For most companies, the annual planning and budgeting process is not what it used to be. These days, CFOs and finance teams invest time and energy putting together a highly detailed budget for the coming year. The numbers seem precise, but they start to unravel after the first inevitable disruption. 

A decade or so ago, when the business environment was more predictable, the process was relatively straightforward: dig up last year’s numbers, add 3%, and the job was done. Now, any number of disruptions can throw budget planning in disarray: new technology, changing customer behavior, and interruptions in supply chains, just to name a few. 

But it is possible to improve the process and make annual budget forecasts as helpful to business leaders as they used to be—maybe even more so. Through BCG’s experience working with CFOs and finance functions across industries and regions, we see five differentiating moves companies can make: 

• Plan less. Yes, it sounds counterintuitive, but less can be more when it comes to budget planning. Leaders should actively plan out fewer P&L lines, product lines, and geographic markets. And they should shorten the planning cycle overall, starting later in the year and spending less time on the overall process. 
• Use advanced technology. When companies incorporate advanced tools and AI, their planning cycles are 30% faster, forecasts are 20% to 40% more accurate, and overall productivity in finance increases 20% to 30%. The technology can also take on some of the tedious work of planning and budgeting, giving CFOs and finance teams more time to generate insights and support the business more broadly. 
• Be pragmatic. Remember the 80–20 principle: about 80% of consequences come from 20% of causes. Stay locked in on the biggest change drivers, get used to the idea of some degree of imprecision, and count on making frequent, ongoing adjustments over time. Planning should be directional and flexible. 
• Expect the unexpected. Because budgets will likely have to shift as events unfold over the course of a year, some companies are instead sketching a rough view of what the upcoming year or two will look like. They can then generate rolling forecasts based on the company’s position at a given point in time, turning planning into an ongoing process based heavily on scenario modeling. Instead of trying to predict the situation 12 months from now, business leaders can use this approach to make smart decisions in the moment. 
• Segment your approach. Companies are working hard to lower costs—finding ways to reduce redundancy, increase efficiency, and become more productive. That’s an understandable response to the many markets that have been dealing with inflation and increasingly price-sensitive customers. But segmentation can be a better approach to budgeting. Boosting productivity and tapping into new growth opportunities may require an investment—not a reduction—in key functions, business units, and technologies. It’s not about spending less, but spending smarter. 

Companies putting these five moves into practice are seeing results. We worked with the CFO of a global health care company, helping to redesign its planning process and implement broader changes to the agile operating model and organization design. The impact: finance teams became more flexible and efficient, freeing up 20% to 30% of their capacity. 

In another example, a fashion and luxury retail brand transformed its planning, forecasting, and business intelligence capabilities with greater data automation and streamlined planning and forecasting processes. The work gave leaders more real-time visibility into the drivers of performance and freed up 30% to 40% of capacity for the financial planning and analysis teams.

These shifts can make the annual planning and budgeting process more rewarding for CFOs and finance teams. They get a clear enough view of what’s coming, they can refine the outlook over time as disruptions surface, and they can rely on technology to generate faster and more accurate forecasts. And best of all, they can ensure their planning is worthwhile. 

More of our top reads on budgeting and cost advantage:

Five Ways to Make Your Annual Planning and Budgeting Process Worth the Effort 

Cutting Costs and Catalyzing Growth with Zero-Based Budgeting 

Zero-Based Organizations Free Up Funds to Make Strategic Bets 

The Power of AI in Financial Planning and Forecasting