Michael Judd, senior director – strategic finance transformation, Anaplan
Evolutionary change in business is inevitable. Often shaped by emerging technology, evolution gradually influences consumer demographics, culture shifts, market dynamics, and job roles. For finance professionals, this change has been constant over the past five years as analytics, data, and technology provide organisations with increasing opportunities to steer business performance. So, what can they expect for the next five years? What does future planning need for sustainable success and what skills will the office of finance need to adopt?
Five years ago, the function of Financial Planning and Analysis (FP&A) primarily supported the needs of the Chief Financial Officer (CFO). Fast-forward to today, and FP&A professionals have evolved from record keepers and controllers to strategists and catalysts for change. This has also shifted the internal customers of the FP&A team; rather than responding solely to the CFO, FP&A teams now respond to the needs of the entire C-suite, as well as leaders of business divisions and key markets.
Understanding the implications of this change for the business and how to better enable the finance team can still prove challenging.
Organisations face disruption from regulation, digital technologies, business model innovation, volatility and uncertainty in economics, global politics, currencies, and commodities. This change is unrelenting and continuous.
As organisations and FP&A teams adapt processes and systems to today’s uncertain environments, the budgeting and forecasting process often needs to be reimagined. To accomplish this, there are four emerging trends that finance teams need to consider as they navigate the years ahead:
- Forecasts need to be real-time. Planning platforms will connect all aspects of the business with one another so that changes in workforce, for instance, immediately flow in to forecasts. Production scheduling changes will be driven by demand forecasts that take in to account the impact of trade promotion, pricing decisions, and demand-sensing indicators. All changes to operating tactics flow seamlessly to the financial plan in real-time, and decisions and assumptions are easily accessible to the people making the day-to-day decisions and the strategic decisions that the C-Suite make.
- Death of the annual budget. It will be replaced by regular focus on long-term strategic decisions throughout the yea
r, in combination with fast, reliable forecasts. Examples of this include frequent reviews of footprint strategy, profit pools, innovation, and mergers and acquisitions. Business decisions regarding strategy will be supported through continuous, real-time forecasts and performing scenario analysis. Resource allocations are tied to the plans on which forecasts are based. Resources are available as needed and not through detailed annual budget allocations. Indeed, forecasts become the primary steering mechanism for business performance.
- Planning by exception. In the future, organisations can anticipate looking only at considerations in the plan that could prevent the system from calculating the right forecast, such as a unique event or human factors. Advanced analytics, machine learning and statistical methods will eliminate cognitive bias in forecasts. This helps to achieve acceptable levels of variation, significantly eliminating effort, and increasing speed in the forecasting process.
- Emergence of rolling forecasts. Internal performance will be viewed as a continuum of “innings” rather than tied to financial year ends. It will no longer be tied directly to fixed external metrics, but rather, directional, ambitious, and relative goals such as growth relative to competitors. Reaching the goal for internal metrics will deliver the conditions for continuous outperformance of the external metrics. Planning and forecasting will be in real time, continuous and much more lightweight from the user perspective. The majority of the process will be automated and connected throughout the organisation.
With these trends in mind, where does finance need to focus in order to move ahead? As data sets deepen across the organisation and beyond traditional boundaries, FP&A professionals will need to connect data to insight, decisions, and action to create value. This capability will become even more critical in the future. This demand for connectivity gives rise to a need for FP&A professionals to sharpen their skills in areas that may not come naturally, especially for those who work in controlling or traditional finance positions. Areas such as:
- A deep understanding of analytics
- An ability to work with ambiguity
- Strong communication skills with senior leaders outside of finance
- The ability to simplify problems and quickly find solutions
- Lead fast & innovative change
- Focus on the critical few strategies that will drive impact
The mindset needs to shift toward a focus on business drivers, leading indicators of performance, external data, and non-financial data. Moving forward, the finance function will play an increasingly strategic & integrated role within the business.