Ditching the Crystal Ball: How Continuous Planning Can Tackle Uncertainty

When it comes to financial investment, whether it’s in supply chains or your employees, business decisions are an everyday chore. If you add Brexit, hurricanes and fluctuating stocks to the mix, planning for uncertainty can become tedious. Here Lena Shishkina, head of finance, EMEA and APJ at Workday, provides Finance Monthly with some insight into planning for uncertainty.

The level of uncertainty that businesses have to deal with today due to various political, social and economic forces is almost unprecedented. From fluctuating currencies and political leadership to other disruptive events such as Brexit, there are plenty of reasons for a degree of global anxiety. The reality is that the effects of these things are still unknown. Business leaders are in a state of flux, questioning how this instability will affect trading, regulation, policies, and markets, for instance.

This level of uncertainty is impacting the finance world most. Now more than ever striking a balance between executing the day-to-day and future planning is critical. Unfortunately, not everyone has this mastered just yet. Despite the advent of tools such as big data and predictive analytics, recent figures show that 50 percent of businesses cannot create revenue forecasts past the next six months.

When uncertainty strikes, the c-suite tends to revert to requesting more frequent forecasts and adopting a ‘what about now’ mindset. While this tends to be a knee-jerk reaction, finance planning is only effective if it is based on relevant, real-time data.

Expecting the unexpected

It’s probably from personal experience that most financial professionals know that an annual budget can be rendered useless in the space of a few days. This is due to the unexpected nature of market volatility and political changes for instance that can shape the future of companies.

This is why continuous planning is being widely adopted by organisations, as it allows them to have the ability to re-run forecast predictions based on these kinds of changes. And it works: businesses that have already adopted this methodology claim to be almost twice as likely as their peers who haven’t accurately forecast earnings between plus or minus 5 percent.

Another benefit is that this kind of approach can create and develop the authority of the finance department. In fact, the same study found that respondents were three times more likely to report increased stakeholder confidence, and finance leaders were four times more likely to be able to respond more quickly to market disruption.

Despite the clear advantages of this methodology, why do many so companies still choose not to go down this path? A lot of businesses continue to rework forecasting on outdated budgets, which breeds inaccuracies and further trepidation. Financial professionals need to rethink their forecasts and look beyond financial data to ensure their projections are robust, accurate and of the highest quality.

Continuous planning and the importance of non-financial data

Non-financial data has traditionally been left out of forecasting largely because it is not as quantifiable or predictable, but executives can no longer get away with that thinking. A recent report found that executives who make better use of non-financial data are more than twice as likely to be able to forecast beyond a 12-month horizon.

Take workforce costs, for example. This is typically an organisation’s greatest expenditure and relies on much more than just financial data for an accurate forecast. That includes everything from anticipated salary to recruitment plans as it paints a more comprehensive view that teams can then use for an accurate look at the future.

A robust data set is one thing. But being able to adjust forecasts in real-time as changes arise at the last minute is just as vital. This is where continuous planning can be truly valuable as it adds context from across the organisation, helping to involve more stakeholders and providing deeper visibility into plans and real-time revisions. A rolling model means the business is in a much better position to react quickly to external factors and give the organisation the visibility they need when these changes arise.

Innovation is key

In theory, continuous planning is a saviour for financial services professionals. However, the reality is most organisations do not have the infrastructure or technology in place to support it in practice. Embracing new technology is the only way organisations will be able to seamlessly bring together rolling forecasts and non-financial data.

The fragmented way finance teams currently work is stifling operational agility. All too often, they are using a mixture of legacy tools from a variety of vendors, which makes it difficult to integrate data sets and make educated decisions. Organisations can no longer afford to base their decisions on luck; they have to start rethinking their technology and the foundation it’s built on. It is the only way to achieve real transformational change. A visionary CFO and a highly engaged finance team will see that and be well placed to usher in this new era.

Determining the future

The only constant in this world is change. And as this time of uncertainty shows no signs of slowing, continuous planning is the only antidote. The combination of rolling forecasts alongside both non-financial and financial data is a significant step in effectively predicting future business outcomes. As a finance professional, you’ll no longer feel like you’re being asked to gaze into your crystal ball, you’ll finally have the answers.