In that sense, COVID-19 hasn’t so much introduced new trends and challenges as it has accelerated and exacerbated existing ones. Still, the question remains: How can finance leaders instil the agility necessary to adapt to that acceleration?
Foster a culture of innovation and experimentation
As with most things in business, it starts at the top. Senior leadership within an organization must foster a culture of innovation and experimentation. Fail-fast-and-move-on is quickly becoming a central tenet of successful business, because those who remain rigidly set in their ways will fail to remain competitive and leave themselves open to the impact of negative disruption.
With economic uncertainty and the need for greater ROI, CFOs in particular are under pressure to navigate around these pitfalls. According to Digitalist Magazine:
Embrace financial tools and technology
The key to instilling this agility lies in digital transformation. Digital transformation in finance requires advances like intelligent automation—cutting the time finance planning teams spend on time-intensive, manual tasks such as data collection and consolidation—and machine learning—improving the accuracy of forecasts over time. Also key is the use of tools to provide timely and intuitive insights so that leaders can plan and execute strategy with confidence.
Advanced analytical technology can also enable CFOs to conduct stress-testing operations to see how their forecasting and planning might be impacted by various scenarios, ensuring crisis response mechanisms are in place in case anything unforeseen does occur. But again, finance leaders must go beyond scenario planning to avoid assumptions becoming static and outdated.
Adopt an approach of continuous planning
Continuous planning is key. Workday highlights how this is effective:
Research backs up the efficacy of this approach, with reports indicating that 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. This ability to pivot on demand is perhaps the very definition of business agility, so CFOs musn’t miss out on the benefits of continuous planning, with the inclusion of rolling forecasts.
Rolling forecasts are modelled on drivers rather than details, and often forecast four to eight quarters ahead of time. By generating a continuous forecast over specific time horizons, actuals move forward on a monthly rolling basis, making it easier for finance leaders to see what’s happening in real time.
McKinsey points to how some organizations have reacted to the flexibility imperative over the last year:
The McKinsey report goes on to encourage CFOs to maintain a modular approach to budgeting by building various options and contingencies into budgets. This includes holding back a centrally controlled reserve of funds to be used when certain metrics indicate it’s necessary. The overarching goal of this is to enable a more agile allocation of resources outside of the year-start budget, enabling departmental funding to more closely mirror dynamic and evolving industry and business demands.
Planning for an uncertain future
COVID-19 aside, most crises aren’t unique. In finance, we've seen certain scenarios play out multiple times before, and have the benefit of hindsight to learn from. Most organizations will already have some response sketched out to potential disruption that keeps them competitive in times of change.
But foresight can be just as valuable, if not more so, than hindsight. It’s impossible, of course, to predict the future with 100% accuracy, but finance leaders can plan for it. Organizations that operate with agility can explore a wide range of potential scenarios in a thorough and timely manner—and this includes possibilities that seem remote or, sometimes, impossible.
In doing so, CFOs can take advantage of solutions that allow organizations to plan continuously, forecast constantly and model virtually any situation. In times of escalating political, social and economic uncertainty, this is more vital than ever.
Agility, as they say, is the currency of success.
- Full Steam Ahead: Finance on Board with Automation
- The Hidden Costs of Static Planning That CFOs Need to Know Now
- The Building Blocks of Agile FP&A
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