Raymon van Viegen, CFO, Visma | Onguard
The economic impact of the Covid-19 pandemic has led many organisations to consolidate their operations in order to survive a difficult period. The events of the last 12 months have proven that unforeseen circumstances can impact on financial forecasting with little notice, and a different strategy may be required. Agility is therefore crucial to power the necessary resilience in financial forecasting that businesses need in an evolving environment, and data is a vital ingredient in the planning process. Taking this into account, how can organisations best plan ahead?
Leveraging data
Such is the uncertain economic climate that many CFOs are now looking to financially forecast one to three years ahead for greater long-term visibility, as opposed to a one-year projection. While a longer-term view is beneficial, supplementing this needs to be the ability to adjust within a three-month window to any mitigating external factors. Making tweaks within this timeframe means organisations can negotiate new contracts with customers and suppliers to counteract the negative consequences of decreased trading during times of recession.
Particularly during times of uncertainty, the role of financial forecasting in the wider organisation is likely to be under a greater level of board scrutiny, with business leaders looking to harness accurate financial data to drive business strategy. In order to enable agility within financial planning, the importance of access to real-time data and actionable data cannot be understated. Such is the pace of change in the financial industry that data that is even six weeks old may not provide an accurate picture for planning.
It is pivotal to ensure that internal systems are consistently available across business departments, enabling access to the relevant data when it is needed and creating a common understanding of the drivers behind future forecasting strategy. With many organisations globally still working from home, and hybrid approaches to remote/office working looking likely to continue in the future, great emphasis has been placed on digitisation models, but there is still much work to be done.
Leveraging the right technology can enable better visibility and management of financial data and access to accurate performance figures that can help shape forecasting models. As digitisation moves forward, the potential of AI fed by accurate data from across the business could in future help organisations plan ahead for possible future crises, along with a range of other applications as the technology is more widely adopted. It must be noted however that these advancements are still in the early stages for many organisations in the finance industry.
The human approach
While technology can do much of the heavy lifting, it is just one element to agile forecasting. The human element remains key, but the change is in taking a collaborative approach and leveraging all available talent instead of gatekeeping the knowledge between senior leaders. Organisations must also learn from industry experts and monitor external factors to feed insights from the current landscape into their financial forecasts. While it’s likely that we’ll see technology-powered data insight driving 90% of financial forecasting in the next 3-5 years, the importance of the human element will persist.
The role that humans can continue to play is evident in the communications with customers during the accounts receivable process. While data can give a real-time picture of a customer’s outstanding payment situation for example, it’s crucial for a finance professional to make an informed decision based on personal circumstances. Similarly, human experience can provide unique insights and valuable contributions as to how the financial industry will change or develop in the coming years, which data cannot provide on its own. What is clear is that the role of the finance professional will develop further in the coming years, such as in the areas of data literacy and analytics.
Enabling agility
The combination of data and human expertise undoubtedly plays a crucial part in accurate financial forecasting, along with technology innovations in the years to come. Businesses however need to remain mindful of external factors that can’t be anticipated, which is particularly evident from the events of the last year. Those who have implemented agile processes will be the businesses that stand out in the crowd.
Organisations need to automate repetitive processes and refocus employees on the top-level decision-making areas of the business in order to foster this agility. They can then prioritise the negotiation of terms with suppliers and customers that can be adjusted quickly to help the business adapt to a new external crisis and future-proof its financial operations. Small but incremental changes such as these can gradually help to build towards a greater level of agility across departments, avoiding the need for potentially disruptive large-scale changes to financial forecasting in the short-term which could ultimately do more harm than good.
