Amid Disruption, Finance Emerges as a Leader
As these finance leaders have learned, agility starts with planning. This is true when the world isn’t in crisis, but it’s even more vital for organizations hoping to steady themselves now. And we’re seeing now how an intensely digital, increasingly global business environment can turn a traditional, static annual planning process into a potentially devastating competitive disadvantage.
It’s not all bad news. This moment is also showing us how finance organizations of all kinds are realizing they hold the keys to agility for the entire business.
Finance is where all financial and operational data naturally resides. Because it touches every aspect of a business, finance also drives the budgeting and forecasting activities that essentially create the roadmap of that business. In this role, the finance team defines the processes for planning and manages the key tools of agility: scenario planning, continuous planning, and rolling forecasts.
Here are three key planning processes that finance can implement to support businesses agility during times of uncertainty.
Think of scenario planning as harnessing the power of “what if.” With a planning platform, you can model multiple scenarios based on everything from competitive threats and supply chain interruption to natural disasters, war, and pandemics.
Businesses today can use this powerful capability to anticipate the impacts if current disruption lasts 30, 60, or 90 days or longer. What if we can’t get parts for 60 days? What if 90% of our workforce needs to work from home? What if one of our fabrication plants goes down?
Modeling different potential futures pays off. Chris Hadfield, former commander of the International Space Station, has noted that to safely survive long periods in space, the mission team devoted endless hours to identifying and modeling various scenarios. So when the air-making equipment on the space station failed, the crew was prepared.
Not every scenario is quite so critical. But for businesses, the ability to plan for even unlikely scenarios—perhaps not for an entire pandemic, but for how disruptions in supply chains or workforce shifts can impact revenues and operations—could prove existential.
In a volatile marketplace, few things are more important to business agility than a plan that’s relevant to what’s happening now. Static annual plans, often of limited value as the quarters pass, offer little help in the face of a “black swan” event that blindsides markets and disrupts wide swaths of daily life.
The antidote to episodic planning is continuous planning. This ongoing approach automates the manual, menial processes that once led to the average annual budget taking 77 days to prepare. Even data integration with ERP, HCM, and other enterprise systems becomes seamless and automatic. This spares finance professionals and business users from wasting valuable time and risking costly errors by re-keying data.
And with faster planning cycles come budgets that adjust with the shifts and changes of the business and the marketplace. In a continuous, active planning environment, the budget isn’t frozen—and it’s never obsolete.
In fact, companies that implement continuous planning are 1.5 times more likely to be able to reforecast within just one week, and four times more likely to respond quickly to market change.
The business case for rolling forecasts can probably be summed up in two words: “Things change.”
So it’s hard to imagine waiting around for the next budget period to pivot. Rolling forecasts offer a way to course-correct quickly, with enough insight and confidence to make critical decisions on a deadline. Rolling forecasts are unique in several ways. They:
Are modeled on drivers, not details. This is a more strategic way to approach forecasts, because the drivers can largely remain intact as shifts occur, even if specific details change.
Usually forecast four to eight quarters in the future. By providing a continuous forecast over a specific time horizon, actuals move forward each month on a rolling basis, making it easier for decision-makers to see what’s happening in real time.
Have consistent horizons. Unlike quarterly reforecasts, which shorten as you approach the one-year horizon, rolling forecast horizons stay constant.
Inform better business decisions. This is especially true when incorporating nonfinance data like labor costs, staffing pipeline, and sales attrition rates. In fact, FSN research found that senior executives who make better use of nonfinancial data are more than twice as likely to be able to forecast beyond a 12-month horizon.
There’s a Plan for That
Most problems, even most crises, are not unique. We have seen them before, and forward-looking organizations will have likely sketched out some response that aims to keep them competitive in the face of change.
But organizations that operate with agility can rigorously explore a range of possible scenarios in a timely manner—even, sometimes, those that seem remote or impossible. Solutions that let businesses plan continuously, forecast constantly, and model virtually anything will become increasingly critical in a time of escalating uncertainty.
Because now more than ever, agility is the safest harbor of all.
Don’t miss this important webinar on April 22, “Reforecasting in Uncertain Times.”