Long Term Planning with 2 Models

CamdenMaggos
CamdenMaggos
in Integrations and extensibility

Hi everyone,

 

We have our large production model, with 100s of modules that are currently feeding our P&L. This houses all of our actual, forecast, and budget data. The rest of the year we will be budgeting in this model for 2023 and 2024, but we want a "Long Term Model" (LTM) where we plan for 2025-2028.

 

Ideally the LTM would house the numbers for 2023 and 2024 as well, but be at a much higher level.

 

For example, in our current production model, we may have a structure in our P&L such as:

  1. Revenue
    1. Chocolate
    2. Fruit
    3. Pies
    4. Cakes
    5. Doughnuts

In our LTM we would want the "Revenue" but none of the individual revenue drivers that are feeding the revenue, and hypothetically 2025-2028 would just be a forecasted growth rate applied to the previous year.

 

For example, 2025 would = 2024 Revenue * 5%. 

 

Does anyone have any ideas on the best way to go about this or any experience within their company as to how they have handled long term planning/forecasting?

 

Thanks in advance!

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Answers

  • TimothyThomas
    TimothyThomas

    Hi @CamdenMaggos ,

     

    Great question! I helped my old company with creating their Long Range Planning (LRP) model. Obviously there's a lot more detail involved, but to keep it super simple and at a high level it's all about:

    1. Deciding exactly which level of granularity you will need within the LRP/LTP model, both from a growth driver perspective and from a reporting perspective. These could be the same or different. For example, do you want to show the level of detail you explained in the LTM (Chocolates, Fruit, etc.)? Will you have different growth inputs for each of these lines of business? Or just one generic revenue growth input?
    2. Lay out which reports end users are going to need to see as an end result. Just a P&L? Balance Sheet/Cash Flow? Income by segment/LoB?

     

    From there, you can decide exactly which modules/lists you really need to import into your LRP. It really comes down to the granularity you will be planning/inputting growth drivers at in my opinion. For my specific case, we had a third party economic provider that we were using for these long term assumptions, which went down to a pretty granular level of data. So we ended up pulling in a good level of detail when it came to revenue and raw material costs. But when it came to other costs like SG&A we used some fairly simple assumptions, so we brought those in at a much higher level. 

     

    However, if you will be planning at a high level, there's no issue with just pulling in the end-result reports (P&L, Balance Sheet, Cash Flow, etc.) For us, it was also helpful to set up a regular action to update the "actuals" from the main model (of course depending on how often those numbers change for your company). It is also worth noting that you will want to treat your "short term" forecast from your main model as essentially actuals, so that your numbers for those short term forecast years (2023/2024 in this case) always match.

     

    Like I said, this is very high level, but hopefully it helps a tiny bit. There's of course much more to it, but I will say that compared to other model builds, this one went the quickest for us since we were able to import so much of the structure from an already-existing model. Feel free to shoot me a private message if you want to discuss in further detail, and best of luck!

    Thanks,

    Timmy

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