By Mark Bodger, Director at ICit Business Intelligence
We live in extremely volatile times. But unpredictability has traditionally been the enemy of effective financial planning. Over the past two years, legacy budgeting and forecasting processes have been cruelly exposed as incapable of dealing with this flux. So, what’s the solution? When the only certainty is more uncertainty, finance leaders need a more agile and transparent approach. In fact, a September 2021 Gartner study revealed that improving the flexibility of budgeting and forecasting will be the top area of focus for three-quarters (72%) of CFOs this coming year.
To get there, finance leaders must focus on data-driven automated solutions to support scorecarding, rolling forecasting and intelligent, adaptive company-wide planning.
Why digital and why now?
Digital planning tools like these will be essential to CFOs as they try to manage risk and adapt to rapidly changing circumstances in 2022. With macroeconomic conditions on a knife-edge thanks to the latest COVID-19 variant, the stakes couldn’t be higher. By leveraging intelligent planning tools, finance leaders are able to check to see if assumptions made during the pandemic were accurate or not, by seeing how initiatives impacted performance. This insight can in turn help to stress-test future plans.
It’s not something that can be done with legacy, static planning and budgeting approaches built around spreadsheets and informed only by backward-looking business reviews. There’s nothing intrinsically wrong with spreadsheets. But when they’re used as quasi-databases, well beyond their intended purpose, finance teams can quickly run into trouble. Information often contains input errors and it’s difficult for distributed teams to work collaboratively on spreadsheets—not a great fit for the new era of hybrid working.
Why make things harder than they need to be for team members? In an era where talent is hard to come by and many workers are reconsidering their current career path, the tools you provide must at the very least be intuitive and enhance rather than restrict productivity.
Analyse your way to business success
Consequently, what should you look for in a digital planning and forecasting platform? It must be able to support driver-based modelling—that is, the creation of plans and budgets based on the organisation’s key business and value drivers. For example, rather than having to fill in account line details for a department, a driver-based system might ask for data on employee numbers for different salary grades. It would use this input to calculate the detailed salary account lines by month using standard rates for salary, overtime, and so on.
Automation does all the heavy lifting here. Teams quickly and easily input driver figures into the budgeting process and the model does the hard work, calculating the financial implications. This kind of efficiency will also help to democratise the budgeting process across the organisation, to other departments. Teams can use it to compare and contrast multiple scenarios with relative ease, enhancing decision making.
In fact, it’s essential that any tool you choose runs across the enterprise. Again, this is much harder to achieve using spreadsheets as it inevitably leads to multiple sources of the truth. The direction of travel should instead be towards a platform where every stakeholder can input data, understand who added what and when, and then benefit from meaningful insight generated from integrated information sources. By combining operational forecasting with financial budgeting, everyone can work with the same information—from Marketing to HR to IT.
Scorecards and forecasts
Integrated solutions also support action-oriented scorecards across the business, to help analyse and communicate how the organisation is performing holistically, rather than from a pure financial perspective. Scorecards are preferable to dashboards as a way of ensuring everyone is working to an agreed set of corporate objectives that go beyond the financially based measures of KPIs.
Once operational and financial performance management has been successfully integrated, it’s easier to deploy rolling forecasting. This is increasingly essential for a modern business, especially in an age when uncertainty is everywhere. It allows teams to input current figures regularly to a centralised system, to maintain 12 or 18-month forecasts with targets that will always retain their relevance. The business landscape moves simply too fast for organisations to be measuring performance against budgets that may have been prepared months earlier, and only look a couple of months ahead.
Plan better, succeed faster
The bottom line is that powerful analytics combined with accurate, up-to-date financial and operational data should be table stakes for today’s CFOs. The resulting insight will help align resources with opportunities and help articulate where, when and how growth can be realised. As we enter 2022, nothing less will do.