The depth and breadth of the 2020 crisis caught many unawares. It thrusts the chief financial officer (CFO) to the frontline of business survival and saw many setting up cash control towers with granular oversight over cash flow, receivables and payables to navigate disruptions.
The new normal introduced new risks from employee health and safety, supply chain stress and government mandates – all with working capital implications. The unprecedented uncertainty forced companies to make critical decisions within compressed time frames.
This placed an acute spotlight on planning agility. Many pre-crisis business assumptions and planning models became outmoded overnight. The room for poor assumptions and missed forecasts shrank. For some industries like retail and travel, there was virtually no room at all.
In response, there is a need to accelerate digital transformation for business survival. There is no place for technology complacency. Taking learnings from these times, CFOs must critically double down on digital transformation initiatives to improve the depth, accuracy, and speed of planning.
To enable agile planning, here are three steps CFOs can take:
1. Design for real-time financial transparency
The crisis has highlighted the need for near real-time planning. In the old world, fragmented data, disconnected systems, and manual processes made this difficult, if not impossible.
Cloud scenario planning platforms can now capture financial data and sub-ledger transactions in real-time to provide constant feedback on cost and revenue. Using this data, CFOs can create scenarios at speed, choose the right through-cycle actions and weigh the risks of taking measures to protect top and bottom line — for example, the funding implications for mortgage lenders offering mortgage holidays.
When the workforce shifted to home, business teams embraced video collaboration. For the CFO, where collaboration is critically around the numbers, they must go further. With real-time financial transparency, CFOs can continually reassess trade-offs in resource allocation.
2. Build for broad and deep data integration
Old pre-crisis planning took historic company data like aggregated product sales and applied run-rates. Add a little seasonality, and the plan was good enough. Now planning needs direct third-party data feeds like health, policy and socio-economic drivers. Using these drivers as an overlay to stress-test models add robustness to forecasting and can identify exposure and risks to long-term stability.
However, integrating third-party data into old static models would be a formidable challenge even for the best of companies. Instead, digital planning platform that can directly connect with virtually any data source can help. Without this foresight, CFOs risk being left behind with a worldview limited by historic internal data.
3. Accelerate the FP&A shift to business partner
Finally, FP&A needs to go beyond traditional scope of annual budgets and variance to plan. Like generals in war time, they need to become expert at assessing trade-offs in resource allocation. In response, some CFOs split FP&A teams. One team worked to guide the organization through the short term by targeting cash flow leakage and identifying the right triggers. The other worked as a plan-ahead team to develop mid-term future outlook scenarios.
For both approaches, FP&A teams need to get out from behind their Excel spreadsheets and get closer to business peers and collaborate across borders with cross-functional (xP&A) scenario forecasts. Here planning technology can help, with AI and predictive forecasts freeing up time in Finance to focus on high-value activities. This accelerates the existing trend of FP&A shifting from scorekeeper to strategic advisor.
With many industries facing existential threats, the CFO’s guidance and foresight will remain critical for companies to weather uncertainties.
Beyond survival, CFOs can help their organizations reinvent by making the right bold moves. But not if they are complacent. Their FP&A teams needs the right digital planning backbone, one designed for real-time planning and versatile collaboration. After all, you can only be caught unaware the first-time round.