It is no secret that the past year has blindsided economies. But if there was one silver lining to the universal disruption of markets in 2020, it was the heightened awareness of how critical financial forecasts can be.
A robust financial planning process is no longer just a toolkit for growth, but rather, can shield a company from inevitable uncertainty. As organizations calm down from the panic of the pandemic, the next uphill climb is to understand the post-COVID market situation and begin setting their sights past the horizon of 2021.
So how can CFOs and FP&A directors set their teams up for success?
Transformed data is the new superpower
Data is a raw resource. To empower your team to strategically collaborate on it, you can’t simply dump it on them like a slab of ore and expect them to clean it up and be ready in a snap. Instead, the CFO looking to the future must invest in processes and automation that provide real-time organized data to their finance team. Unburdened with manual data transformation, strategic planning and analysis will no longer just be steps in the process but can turn into the core of FP&A’s day-to-day.
Teams that funnel and transform data from systems to business partners are able to find critical points that feed into forecasts and business plans. The worst mindset to have in an emergency is rushing to understand what is happening and why. Investment in people-centric automation signals to your financial planning team that you trust them, not simply with number-crunching, but with finding solutions.
“History doesn’t repeat itself, but it often rhymes.”
People first, forecasting models second
Experienced FP&A managers know that forecasting is not fortune-telling. As Mark Twain quoted: “History doesn’t repeat itself, but it often rhymes.” Fiscal policies, social trends, macro and micro-economic events; businesses will continue to experience these situations over and over. There is no sacred scenario that exists to guide CFOs and FP&A teams on the art and science of forecasting. The question is, can you confidently say that you, your team and your financial models are prepared to adapt to the ever-changing environment?
The first step you can take is to separate from your existing models, and instead enable teams to adapt to various outcomes. Fixed models limit your team’s imagination to find implications brought about by different situations, and to adjust to the limitations they find in your current models.
A ranged financial planning team also ensures that the entire value chain is future-proof – meaning your models will prepare business partners to withstand whatever the future brings. Models that are open to variabilities unlock the diverse and flexible capabilities of your team.
Decisive and active FP&A teams
Whether it was the global pandemic or the financial recession year prior, one key takeaway is that financial planning teams should not be back-office players, but cross-functional and collaborative business partners. With an important process like forecasting, success requires action and FP&A teams have to be proud owners of this process. Financial models may work perfectly but without someone driving the insights and judgement, upward performance can end up directionless.
The problem is that with poor 2020 economic performance, finance leadership is likely to be more conservative when forecasting scenarios. By doing so, they prevent their teams from being proactive and taking ownership of driving insights and strong decisions from others in the organization.
Frequent and transparent communication from the top is key in this situation. If FP&A teams are aware of the landscape, understand key metrics that are important to leadership and most importantly, the company’s goals, they are in a better position to drive ideas on what can be done and release some pressure from other business units.
Recovery might be a going-concern for the remaining months of 2021 and the following years to come, but ensuring that financial planning teams are equipped with confidence to run forecasts will be key for a future crisis-proof enterprise.
With Abacum, we empower finance teams of high-growth tech companies to become true strategic partners in the organization by driving time-to-insight with powerful automation and seamless collaboration. Request a demo now to see the product live and start your own transformational journey.