How to execute annual financial planning and forecasting in today’s environment has been saved
How to execute annual financial planning and forecasting in today’s environment
Strategies for companies, CFOs, and planning leaders
Never has the process of prediction been so crucial. In response, CFOs and FP&A leaders should look to take action to mitigate uncertainty during the current cycle while enhancing processes over time to develop more dynamic, effective financial planning and forecasting capabilities.
Planning and forecasting processes face new challenges
The times we are living in are historic and unprecedented. Without historical business context to provide guidance, the challenge of predicting future market and consumer behavior is exacerbated.
At any time, planning and forecasting are complex efforts. With the heightened uncertainty of the current world, organizations are facing additional challenges in their planning and forecasting processes:
- Constant scenario development and modeling
- Discomfort and lack of confidence in future projections
- Urgent need for decisions and courses of action
- Unclear decision-making framework and ambiguous criteria or triggers for contingencies
- Excessive and resource-consuming manual iteration
What should CFOs and planning leaders consider when conducting crucial forward-looking financial processes? Keep reading or download the PDF.
Strategies for developing more dynamic, effective planning and forecasting capabilities
The following strategies can help produce more effective, useful near-term plan and forecast results while creating more dynamic go-forward planning and forecasting processes as well.
Additional planning and forecasting considerations
Organizations should carry these practices forward and layer in the following to help build planning and forecasting processes that are more robust, flexible, and shock-resistant.
Realize the power of a dynamic, predictive forecast: Many organizations perform a quarterly forecast (if they execute a forecast at all). Now, the days of only executing a forecast quarterly are being challenged. Executives are increasingly expecting a forward-looking view of the financials updated on a monthly, if not on-demand, basis to adjust projections, incorporate new scenarios, and inform strategic decisions. Organizations should consider forecasting key line items, and underlying drivers, on a monthly basis, including topline drivers, revenue growth, and operating profit. Given changing market conditions, identifying core drivers and metrics by which organizations evaluate forecast-to-actuals variance monthly may prove to be a more valuable exercise for the organization than executing a detailed plan. Given the greater frequency, it is critical for organizations to revisit information needs to produce only what is relevant to steer the business and guide decision-making while leveraging technology improvements to automate and simplify processes.
Develop connected, enterprisewide planning and forecasting capabilities: More and more organizations today are realizing the potential value of connecting functional planning and forecasting efforts throughout the organization. The value of strategic decision-making informed by financial forecasts is only increased, as those forecasts are able to seamlessly integrate expectations of future performance across the organization, including commercial and operational functions. Increasingly, enterprise-level planning and forecasting platforms are designed specifically to facilitate cross-functional integration and eliminate organizational barriers.
Consider the impact that changes to the financial planning process will have on incentive compensation planning: Implementing the strategies above may have implications for how compensation will be tied to actual versus plan performance—a practice common across many organizations. As changes to the strategic planning and financial planning and forecasting process are identified, it will be crucial for these changes to flow through to planning and executing incentive compensation as well.
Building a resilient financial planning and forecasting process
To successfully deliver, finance organizations should challenge the existing mechanisms by which they are executing their planning and forecasting processes and developing associated scenarios. Targeted efforts using these short- and long-term strategies can bolster planning capabilities across times of crisis, recovery, and business as usual and unlock the value that is uniquely attributable to financial forecasting and its ability to inform and strengthen strategic decision-making.
Building trust in a dynamic, predictive forecast
Predictive forecasting (using algorithms and statistical modeling techniques to describe what’s likely to happen in the future) is quickly transitioning from a “nice-to-have” productivity advantage to a foundational finance capability. Deloitte’s own PrecisionView™ solution combines data science, machine learning, and advanced visualization to help companies accelerate their forecasting and scenario modeling efforts to more quickly move to action. Still, realizing the benefit of predictive forecasting goes beyond securing organizational investment in technology capabilities. It is critical that organizations adopt a human-centered approach to integrating predictive capabilities into redesigned forecasting processes to ensure that machine-enabled capabilities align with target forecast outputs, reduce manual effort, and enable users to translate data science–driven outputs into meaningful, transparent insights.