# Financial Planning & Reconciliation

Financial planning in IBP is the process of translating operational plans — demand, supply, and portfolio — into a unified financial projection 📈. It is the step that turns volume conversations into money conversations, and it is where the operating plan meets the business target.

Financial Planning & Reconciliation:
The IBP process step that converts the consensus demand plan and constrained supply plan into revenue, cost, and margin projections, then reconciles those projections against the financial targets (AOP, budget, strategic plan).

This is not a finance-only exercise. Financial reconciliation works precisely because it brings operational reality and financial ambition into the same room. When it is done well, it replaces guesswork with a clear, assumption-driven view of where the business is headed — and where the gaps are.

One of the most common IBP failure modes is treating finance as a downstream consumer of the plan rather than an active participant in building it. When finance plans separately from operations, two things happen:

1. Parallel plans diverge. Operations builds a volume plan based on demand signals and supply constraints. Finance builds a revenue plan based on targets and top-down assumptions. The two plans tell different stories, and leadership gets conflicting numbers.
2. Reconciliation becomes firefighting. Instead of proactively identifying gaps during the IBP cycle, the organization discovers them at quarter-end when it is too late to act.

Integrated financial planning means finance is in the room during demand review and supply review, not receiving a handoff afterward. The finance team brings the financial lens — margin, cost structure, investment trade-offs — while operations brings the volume and constraint lens. Neither view is complete on its own.

The core translation in financial planning follows a straightforward logic:

Revenue projection starts with the consensus demand plan. Volume by product family, multiplied by the expected price and mix assumptions, produces a revenue forecast.

\displaystyle {\text{Revenue} = \sum_{i}^{} (V_i \times P_i)}

Where V_i is the planned volume for product family i and P_i is the blended net price (accounting for discounts, promotions, and channel mix).

Cost projection draws from the constrained supply plan. The key cost categories include:

• COGS — material, labor, and manufacturing burden driven by production volume and sourcing decisions
• Supply chain costs — warehousing, freight, and distribution (see Supply Chain Costs for detailed cost modeling)
• Capacity investment — capital expenditure or additional shifts required to close supply gaps

Margin analysis is where the financial picture comes together. The projected revenue minus projected costs yields the expected margin — and the gap between that margin and the financial target is what drives decision-making.

\displaystyle {\text{Margin Gap} = \text{Target Margin} - (\text{Projected Revenue} - \text{Projected Costs})}

When that gap is positive, the organization needs gap closure options. When it is negative, there may be upside to capture — or targets to revise.

The finance team plays three distinct roles within the IBP cycle:

1. Translation — Converting the operational plan into financial language that leadership can evaluate. This means taking volume plans and applying price, cost, and margin assumptions to produce a P&L view.
2. Challenge function — Pressure-testing assumptions. Are the price assumptions realistic given competitive dynamics? Are the cost assumptions consistent with known inflation or sourcing changes? Finance brings rigor to the numbers.
3. Scenario evaluation — Quantifying the financial impact of alternative plans. When the demand team proposes an upside scenario or supply proposes a cost reduction initiative, finance models the margin impact so leadership can make informed trade-offs. See Scenario Planning for more on structuring alternatives.

Traditional budgeting produces a static annual target that becomes outdated the moment the fiscal year begins. IBP introduces a rolling plan — a continuously updated projection that extends 18-36 months into the future.

The tension between these two is real: the AOP is what leadership committed to the board, while the rolling plan reflects what the business actually expects to deliver. Financial reconciliation is where this tension is managed.

The goal is not to replace the AOP — it remains the commitment. The goal is to give leadership an honest, early view of how the business is tracking against that commitment, and what actions are available to close any gaps before they become surprises.

Financial reconciliation typically occurs after demand review and supply review, and before the Management Business Review (MBR). The sequence matters:

1. Demand review produces a consensus volume plan
2. Supply review produces a constrained and costed supply response
3. Financial reconciliation translates both into a financial projection, identifies gaps to target, and develops options
4. The MBR receives the reconciled view with gap closure recommendations for decision

When financial reconciliation is skipped or rushed, the MBR becomes a data-review meeting instead of a decision-making meeting. The whole point of doing the financial work upstream is so that leadership walks into the MBR with clear choices — not raw numbers.

The shift from static budgeting to rolling financial planning is not a technology change or a process change. It is a trust change. Leadership must trust that the rolling plan gives them better information than the budget — and the IBP team must earn that trust by delivering a reconciled, assumption-transparent financial view every single cycle.