Guest post by Mark Jenkins
Failing to plan is planning to fail. As CFOs we know this adage well, yet in the current climate we find ourselves less able to plan and forecast than we ever have before.
A recent poll by MHR Analytics showed that budgeting, planning and forecasting was the CFO-owned process most impacted by the pandemic. Around 70 per cent of CFOs surveyed said this has been highly affected compared to financial consolidation only impacted for around 17 per cent at the other end of the scale.
As I write, despite the UK’s vaccine success, World Health Organisation Director General, Tedros Adhanom Ghebreyesus, has warned that the world could be on the brink of another wave of infections and deaths. The lack of a coordinated global response raises the risk of new strains that might usurp current vaccine measures. No-one is immune.
More locally, the current ‘ping-demic’ is hitting businesses just at the point when they are getting back to some normality. The ripples of Covid-19 are far from settled and they will continue to impact our ability to forecast for the future for some time.
However this does not mean CFOs cannot plan and forecast at all – it simply means they need to look more closely at the affected areas, more frequently, and get better at scenario planning. It may also be that longer term forecasts need to be relatively pragmatic, certainly for the next few years.
Short and medium term forecasting and modelling is crucial, exploring and considering the different ways in which the business might be impacted by external factors. In The Bank of England’s Q4 2020 CFO Decision Maker survey, businesses said they continued to expect Covid to have a large impact on their sales, employment, hours worked, investment and costs over the next year, with things only reverting back to 2019 levels of certainty, in 2022 and beyond.
With shareholder, investor, and board pressure upon us, plan we must. But do we have all the tools for the job? From a financial perspective, top-line revenue uncertainty must be the biggest challenge of all. Businesses simply don’t know where, or when, revenue is going to come from compared to the relative certainty they had in the past.
A recent study by Deloitte says that financial forecasting ‘capability’ has now overtaken ‘capacity’ as the top financial planning challenge. It’s not a question of ‘do you have enough financial bodies?’, but ‘do have the tools, systems and processes in place to do the level of planning and forecasting required in the time available?’
Eighty-four per cent of Deloitte’s respondent CFOs cited challenges in rapidly modelling the implications of business decisions, sensing, and responding to external events, or performing contingency planning for disruption as their top planning challenge. Accelerating and broadening the planning and forecasting capability is essential.
Tax and treasury changes
While the six per cent rise in Corporation Tax announced in the last budget isn’t exactly great news for large UK enterprises, it does at least give CFOs some certainty about the impact of rising tax, so that they can model how the business can manage this and remain profitable.
But the package of measures announced by the Chancellor in March is of course more complex than this. There are offsetting capital allowances, R&D reliefs, and potential VAT changes to consider too. A mixed bag of problem and opportunity.
From a forecasting perspective, CFOs need to ‘view the whole package’ from different perspectives so they are ready with scenario plans for whatever further changes come, or a plan of the best route for the business, which could mean some wholesale changes to operating cost bases and business models.
The ground rules of workforce planning have also been tossed into the air. On the cusp of a domestic ‘return to normal’ it seems many businesses are still hedging their bets on where people will work, how they’ll work, and who they’ll need. A recent survey by VenueScanner revealed that over three quarters of UK workers are being kept in the dark about their post Covid workplace.
For many sectors it’s difficult to know precisely what future workforce requirements will be and what operational infrastructure, from technology to premises, will be required to support them. CFOs should seek to integrate workforce and financial forecasting into one scenario plan.
These are just some of the factors impacting the CFO’s ability to forecast. Add to this other Covid-related changes such as: late payments (The IoD says two in five business faced an increase in overdue commercial debts during the pandemic); and greater borrowing dependency by businesses. It soon becomes clear that the interdependency of these factors is crucial to effective planning. So many variables now need to be plugged into scenario planning, not to mention a new perspective on cash flow, with the Bank of England estimating an aggregate corporate cash flow deficit in the region of £140bn.
Improving planning and analytics capability
Facing the unknown with more confidence requires an improved ability to know ‘what might be’. Data sits at the heart of this ability but most finance teams are also facing data overload.
There’s so much information to work with from so many sources that it is increasingly difficult to turn data into decisions. Using planning software, CFOs can gain that ability, with the help of interactive visualisations and enhanced data cleansing, to transform every aspect of their entire planning cycle – from target setting and budgeting, to scorecarding, forecasting and reporting.
More importantly, planning software allows teams to plan with confidence, validate data and enhance collaboration to avoid silos.
In many ways, the CFO’s future planning pandemic is only just beginning. Luckily a vaccine already exists in the form of planning and forecasting tools.
Mark Jenkins is Chief Finance Officer of MHR Analytics
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