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News & Press: Blog

Agile Finance

01 April 2020   (0 Comments)
Posted by: Rikard Olsson & Knut Fahlén
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Everyone is talking about Agile and how being agile helps organisations become more adaptive, creative and resilient in complex and uncertain times. One vital element of most organisations is however not so agile – the finance function.

Being agile in finance is not about using small teams, Kanban or working in sprints, it is more about the analytical work being done to support business and operational departments so that they can be agile, adapt quickly to market changes, respond to customer demands and improve their competitive advantage.

When talking about agile finance the word ‘budget’ and the associated corporate management processes must be challenged. Before coming up with a solution let’s look at the principles behind business agility leadership and compare them to traditional management to see what Agile finance is made of.

Business Agility Leadership

Traditional management

Agile Finance

Act when needed

Acts once a year with a decision and plan called a budget. By locking in variable costs in a budget agility is lost.

Develop the decision process in different time zones – strategic, tactic and operational – and decouple the organisation in respect to their ability to predict and act.

Let those closest to the problem take the decision

Decisions are taken at the top, far away from where the action is and often too late, and then cascaded down through the organisation.

Develop decision processes adopted to the ability to predict and act. Monitor progress on a rolling basis to see the reality of progress towards the vision and goal.

Give feedback and visualize performance

Feedback is given by discussing variances against a plan (budget) decided long time ago with no respect to other changes in the business environment.

Visualise actual trends and how performance is in comparison to peers.

Purpose is key for meaningful work

Focus is on adding up the numbers in a budget.

Accept uncertainty, involve people in decision making towards a higher purpose than meeting the budget.

Innovation and creativity is used to reach the full potential of the organisation, its teams and people

Follow the yearly plan. To innovate and deviate from the plan is dangerous and not rewarded.

Develop and react in accordance to the business rhythm. It is better to act fast and improve prototypes than follow an outdated plan.

Agility is everywhere and everyone’s responsibility

Changes are made through command-and-control from the top

Adjust responsibilities to the business and operational models, their rhythm and the organisational competence.

Authority is organised to empowered teams

The budget manifests who is accountable and restricts spending and responsibilities in a hierarchy.

Everyone is responsible to do what is best for the organisation and its business. Cooperation is encouraged through transparency and trust.

Collaboration can achieve more than individuals

Individuals are accountable for results, and incentives are payed to those who perform well in relation to a fixed plan (budget).

Incentives can be used on a collective basis and in relation to performance compared to peers or other relative measures.

People closest to the problem are the ones best suited to come up with ideas and solve the problem

Suggestions and ideas are escalated and depending on cost, solutions are prioritised at a higher level than where the problem is.

Develop the decision process and keep some financial resources flexible to use when needed.

 

With an unpredictable future and with the world and its technology changing ever faster, keeping a slow-moving, backward-looking finance function can be devastating. If the finance function does not embrace agility, business and operations will not reach their full potential when transforming to an agile mode.

Agile Financial Management can be achieved by trust and transparency and by developing the traditional budget process in three separate processes. The process for decisions about resources is one, the target process the other and finally the process for monitoring and forecasting performance the third. By separating and developing these processes there will be three topical numbers to analyse instead of one that takes too much time and effort to come up with and that is obsolete once decided.

Any organisation that decides to transform the traditional financial way of managing towards Agile Finance will achieve the following results:

-       More time spent on the business, less on the numbers

-       More collaboration between teams

-       Increased trust and transparency

-       No dysfunctional behaviour around year-end

-       Lower cost and increased profitability

-       More fun


Guest blogger bios

Rikard Olsson is the Managing Director of the Beyond Budgeting Institute, which also includes the international Beyond Budgeting Round Table (BBRT) network and the Beyond Budgeting Advisory group. In addition, Rikard is a Partner at Ekan Management, a Swedish consulting company specialising in helping private and public organisations improve their management practices

Knut Fahlén work as a management consultant at Ekan Management in Sweden. He earned his PhD 1998 and has been active as a lecturer and promoter of Beyond Budgeting since 2010. He is also the author of “Beyond Budgeting in Practice” (2016) and “Dynamic Management Strategy (2018)¨


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