In a period that has been described as "seemingly endless volatility," it is an open secret that the traditional planning, forecasting and budgeting process is in need of an overhaul. A once-static process of collecting and aggregating forecasts and creating an annual budget is in the midst of major transformation, and, in the minds of many CEOs and CFOs, this can't happen soon enough.

The problem, in part, is that severe, ongoing volatility diminishes the accuracy of planning. Sharp swings in the price of oil, for instance, can affect almost every aspect of a business from customer behavior to supplier costs to distribution expenses. By their very nature, such swings are almost impossible to predict. Therefore, forecasts and budgets made on fixed assumptions about commodity prices will almost certainly be wrong.

When such assumptions are wrong, investors receive poor guidance, and after-the-fact explanations do little to repair the damage. Findings of an Accenture study conducted in 2010 found that planning accuracy diminished because of economic volatility for two-thirds of the respondents, and only 11 percent of respondents said they were fully satisfied with their planning capabilities.

Given the challenges companies face today, many of them would benefit both from a more rigorous approach to planning, budgeting and forecasting and from the application of sophisticated, analytics-based modeling capability. Instead of concentrating almost exclusively on their own historical performance, companies must do a better job of identifying what really drives value for them and, in turn, for their shareholders. Understanding and monitoring a company's value drivers requires a rolling, nearly real-time approach to planning and forecasting, as opposed to an annual exercise.

Several companies, for example, have created teams to analyze weather patterns and use proprietary software to forecast temperatures and the corresponding consumer demand. These models can be linked to inventory systems to make sure the right products are on store shelves when the temperature drops or rises. Overall, companies need better and more powerful analytics to remodel more frequently and track the impact that the driving factors have on their businesses.

Another important tool is scenario planning, which creates alternative views of the future. Scenario planning poses the type of "what if" questions companies need to ask about sudden decreases in GDP, spikes in commodity prices, the emergence of disruptive technologies and other potentially transformative developments. Such scenario planning can help managers make course corrections more rapidly and efficiently.

In recent years, advanced analytics have helped high-performance companies establish and maintain competitive advantage, particularly in the planning, forecasting and budgeting process. One of the problems with the current planning environment is that companies undertake the process in a sort of information vacuum. They have extensive historical financial data but often have little information about their share of market in key product segments, the value of their brand versus competitors' brands and customer retention issues such as intent to repurchase. Finding this data and putting it to effective use is made possible by robust analytics engines.

While powerful tools are available to modernize the planning, forecasting and budget process, one of the most important elements is the CFO's role. In a dynamic planning environment, the CFO becomes a partner with the business units rather than an adversary who merely controls the purse strings. The traditional performance yardsticks, including share price and return on investment, remain in place, but the CFO sets targets using models incorporating elements that really drive the business. These might include, depending on the type of business, such things as customer acquisition costs, supply chain costs or employee retention rates.

These are the "input dials" that can be adjusted as needed to reach desired goals. A bank, for instance, might be able to increase transaction fees to enhance cash flow. Its model linking fee increases to cash flow would reflect customer price sensitivity, readiness of competitors to maintain or increase prices in response and overall elasticity of demand.

Of course, the CFO's ability to incorporate these elements into the planning process depends upon a high degree of collaboration with the business units, particularly front-line people who are closest to customers and have the best knowledge of what actually drives the business. This collaboration should begin early in the planning process with the stated goal of helping the company make better business decisions. In addition, the process should have a common timeline and use common language so everyone understands the differences among planning, budgeting and forecasting—when targets are set, when each unit comes back with its plans and so forth.

One additional advantage of collaborating early and often with stakeholders is that such collaboration can help change the institutional view of the planning, forecasting and budgeting process. The process becomes a real process rather than a one-time event, building in capabilities for rapid response and adjustment to ever-changing business conditions. Good planning benefits shareholders, but it also helps companies set and meet strategic objectives by reflecting a dynamic real-world environment.

Scott Brennan is the managing director of Enterprise Performance Management in the Finance & Performance Management consulting practice at Accenture. For more information on this topic, read The Future Used to be Easier: Planning for Success in Dynamic Environments.

To learn more, read Brennan's Q&A Bringing a Dynamic Approach to Forecasting or watch his video interview Blowing Up the Forecasting Process.