Unlike a typical financial downturn, the impact of COVID-19 pandemic has been far more difficult to predict. The virus continues to ravage the global population, effect changes in consumer behavior, unearth workforce planning challenges, precipitate demand drops, and create supply chain shocks across the business world.
In this environment, with traditional business models and old market assumptions no longer working, companies are turning to financial planning and analysis (FP&A) professionals to help them navigate the turbulent waters and prepare for the aftermath. But are they ready?
Pandemic challenges to FP&A
James Lee, director of finance at global hospitality brand Sofitel, noted that when “business is not usual,” FP&A professionals are often the ones to investigate new business models. But they will face immense challenges from the onset.
“Your top-line growth will not be the same as what you had in normal times. Forecasting will also become more challenging because COVID-19 has introduced a lot of uncertainties. No one can really give you a precise outlook for what's going to happen,” he explained.
For a dairy manufacturer, carrying out FP&A remotely is creating a different sort of challenge. Paper-based processes became obsolete and secure access to standalone applications posed technical challenges. Process delays and slow communications, coupled with restrictive lockdowns, led to slower payments, increased financial risks and stretched service centers.
“It was not just FMCGs in Indonesia that are facing this challenge, but all other companies around the world,” said Taufan Gunarso, corporate controller for one of the largest FMCG companies in Indonesia.
Amid these changes, FP&A professionals need to have an unwavering focus on immediate risks, such as cash flow and liquidity.
“Securing company operating profit is another immediate challenge for the business to quickly determine how we can protect the profit margin, with much tighter cost control and frequent reviews of business outlook are the key FP&A priorities,” said Wendy Tam, group financial planning and analysis director at Tricor Group.
These also matter when the company resumes operations as the pandemic ebbs away. Tam noted that FP&A professionals will then need to “revisit their financing and liquidity strategies, centralize decisions for cash release upon the applications of government stimulus, and implement tax planning strategies that can reduce cash expenditures and preserve budget.”
While FP&A professionals are well-suited to deliver on the above requirements, many do not. The truth of the matter is that COVID-19 is exposing gaps in current financial planning across the region.
Old gaps morph into current shortcomings
To be fair, gaps in financial planning and analysis existed before COVID-19. They include problems in accessing real-time data, inability to perform proper driver-based analysis (DBA), little attention to stress testing, and insufficient data automation and digitalization making directional predictions difficult. The pandemic merely brought these gaps into the open.
“Most FP&A professionals were aware of these gaps before the crisis, but the disruptions presented by COVID-19 have highlighted how vital a strong and dynamic financial system can support our rapidly changing business needs,” said Tricor’s Tam.
For Sofitel’s Lee, the issues lie with governance. He noted that this is not an FP&A problem but a leadership one. Ultimately it is the board that ensures a proper governance structure. A related problem is how companies tended to operate — whether it is short, mid, or long-term focused. “Companies that operated on short-term outlooks did not survive overnight.”
Then there is the issue with historical data. A lot of FP&A depends on this type of data for forecasting. But this is no longer valid during COVID-19 as there is no historical precedence. Without data, it becomes difficult to forecast “because we don’t carry a crystal ball,” said Gunarso.
To get fresh data, FP&A teams need to work closely with the business and other stakeholders. But they have not traditionally done this. “They need to understand the new landscape of their environment and the market signals, which means you have to understand people’s behavior,” he added.
Tricor’s Tam agreed. While she agreed that “pre-COVID knowledge will, of course, be fundamental in responding to a post-COVID environment,” the traditional “health check” of the business and forecasting models may not reflect the real impact this pandemic has on business. So, this requires FP&A teams to combine traditional financial planning knowledge and new innovative approaches that allow them to break free of traditional thinking, when appropriate, and remain flexible in the face of change.
Gunarso calls it “business curious.” But asking FP&A professionals to become curious and innovative can be a tall order when, in the past, they are used to delivering reports and analysis.
“However, in the current environment, the traditional way of disseminating financial information and explanation of variance analysis is no longer fully reliable and accurate — and fails to account for the unique risks caused by the global pandemic,” said Wendy Wang, group chief financial officer and chief operating officer at Tricor Group.
Empowering the new FP&A professional
Technology is one way companies like Sofitel and Tricor are looking to close the gaps in financial planning and analysis quickly.
“More than ever, FP&A professionals must embrace digital transformation to advance their role beyond the traditional responsibilities in monitoring daily cash flow and optimizing liquidity. In particular, they must harness new tools to offer a quicker turnaround of data with key financial highlights, more robust tracking of business performance, and enhanced productivity measures,” said Wang.
Both Tam and Gunarso argued that financial data analytics and even predictive data analytics will play a more prominent role in FP&A teams, post-COVID-19. But they admitted it needed companies to take a step back to rewire their legacy systems and integrate with more flexible and dynamic tools.
Gunarso pointed out that this will help them to explore new scenarios and quickly “dive deeper” into data sets. “With the right data analytics tools in place, FP&A professionals can gain a better view of the future — a power that will prove to be critical in this time of unprecedented uncertainty,” added Tam.
Domain knowledge is critical and currently at a premium. “I see domain knowledge is crucial to address key challenges that a company faces,” said Sofitel’s Lee.
The problem with domain knowledge is that it is not easily transferable. “My knowledge is confined to hospitality. If you port me to oil and gas, my effectiveness and productivity will not be as high,” he added.
Meanwhile, Gunarso called for FP&A professionals to stay open-minded and learn more about their industries and others. He noted that with COVID-19 changing the market landscape, companies need to be aware of where the opportunities and the challenges lie.
A cross-industrial knowledge can even help companies explore new opportunities, like shifting from alcoholic beverages to hand sanitizers. “More than valid experience, people need to have the willingness to be open-minded,” he said.
This is where a professional certification body and the program can help, said Himashi Soriano, managing director for APAC at the Association for Financial Professionals (AFP).
These certification programs keep FP&A professionals rooted in the fundamentals while updating them with new knowledge and lessons. Wang felt this is especially important as new skills and training becomes essential for companies looking to navigate the pandemic. “The availability of these programs will also yield long-lasting results,” she explained.
So, it is not surprising that certification programs are seeing an uptick in popularity during COVID-19. “And this will continue to accelerate long after the situation passes, helping companies gain the expertise and skills they need to thrive,” said Soriano.
The benefits do not stop there. An important aspect of certification bodies is becoming platforms for professionals to exchange new ideas and techniques.
“This sharing will be crucial for professionals as they look to learn about new trends, best practices, and techniques to manage the uncertainty that COVID-19 brings about, which will be highly regarded in the years to come,” added Soriano.
Predicting and sidestepping the false dawns
FP&A professionals will also play a more significant role when the market recovers. Their analytical insights and forecasts will help companies to maximize the bounce back when it comes.
There are already some signs of recovery. “If we look at a company’s individual financial statements, it’s very possible that those that quickly responded, appropriately pivoted and swiftly implemented digitalization and digital transformation may experience the highly sought-after V-shaped recovery. Those less prepared will report more volatile or variable curves, such as an S-shaped recovery,” said Wang.
But recovery will not be easy. David Bloom, head of global foreign exchange strategy at HSBC, sees some “false dawns” where the economy looks like it is recovering but then falls back to negative territory. As a result, many expect the U-shape recovery to have a jagged bottom.
As a result, Sofitel’s Lee feels FP&A professionals should become experts at rolling forecasts. “Because it tells you how much latitude you have” when you take on new financial risks. “COVID-19 can present you a golden opportunity to even do [rolling forecasts] better,” he added.
For example, Lee noted that before the pandemic, the hospitality business was forecasted around the number of flights. “You look at what is your arrival pattern and the length of stay? But now, we have to change to local guests,” he said. “So, who are these people and what is the price point?”
He noted that a rolling forecast will allow you to look at different sets of drivers and how they can impact your cost structure.
Tam felt that automation will play a more significant role as FP&A professionals ask for more time for forecasting and less time on data preparation.
“FP&A teams should institutionalize the recent best practices and permanently adjust their planning and forecasting processes to accommodate the change. Automation will rank high on the list of priorities,” she said.
She also noted that in traditional models, finance teams spend a great deal of time collecting data. But post-COVID-19, companies will be moving fast to respond to new market needs and explore opportunities. FP&A professionals cannot afford the time spent on data preparation.
“Automation will alleviate this and allow teams to spend more time responding to these insights rather than culling through the clutter of raw data. Automation will also allow them to respond faster to future economic changes and other possible disruptive events,” Tam added.
Rise of the new business partner
Whatever the future may hold, the role of the FP&A professional will inevitably evolve. “Once upon a time, FP&A teams were charged with focusing purely on the bottom line. But today’s FP&A teams are handling much more than finance and branching out well beyond the P&L and balance sheets. Even before COVID-19, teams were delving into governance, risk and compliance (GRC), M&A, IT, procurement, and more,” said Tam.
COVID-19 has shown FP&A professionals the value of being nimble and updated. AFP’s Soriano saw a growing need for FP&A professionals to deal with the uncertainty. This requires new approaches, best practices, and techniques that a platform like AFP can provide.
Gunarso observed that the ways in which FP&A professionals approach their jobs will also evolve. Instead of focusing on containing costs, they will identify human capital trends, monitor customer behaviors, ensure the stability of service providers' support, and even weigh into innovation.
This requires FP&A professionals to go beyond their function and work with other departments. The future of the profession has always been to become a business partner to the company. COVID-19 has just made it a reality.