Tim Wakeford, VP of Product Strategy at Workday, outlines the benefits of agile financial planning and the research backing it.
It’s hard to be certain how long the economic impact of the COVID-19 pandemic will last. Recent predictions estimate 2025 as the finish line for recovery, but this isn’t the first and won’t be the last forecast we see. However, as we adapt our strategies to recover, one thing remains clear: COVID-19 will have a lasting impact on how businesses make plans worldwide. I’ve been talking to many customers to understand what they’ve been doing to weather the storm and what they’ve valued the most is having the agility to respond quickly to changes.
Agility to gain business resilience
Being agile when faced with change has always been a defining characteristic of companies that respond well to competitive threats. A Workday study on organisational agility showed that top-performing companies were ten times more likely to react quickly to market shifts, proving that agility is often a synonym for performance. During the pandemic, agility has emerged as the defining attribute of organisations which are responding well to the current crisis. Moving forward, it will be the essential tool to draw a much needed resilient course for growth.
To build agility into an organisation, processes need to be transformed. Finance sits at the heart of this transformation, simply because it touches every aspect of a business. The finance department is responsible for the budgeting and forecasting of activities — all essential planning processes that will map recovery. Three out of four finance executives admit their planning processes have not prepared them for economic disruption, let alone a global pandemic. They have found the key to respond better to this and any future crises in adopting three agile processes: scenario planning, continuous planning and rolling forecasts.
To build agility into an organisation, processes need to be transformed.
Scenario planning to anticipate impacts
From the moment companies started to send employees home and supply chains were interrupted, the future became more uncertain and organisations were forced to ask themselves “what if?”. What if our workforce has to work from home for the rest of the year? What if our supply chain is interrupted for 60 days? With tools that provide the ability to build-out scenarios, businesses can ask these questions and understand what different versions of their future might look like. With roadmaps laid out, they’re able to not only identify future risk but also look for new opportunities. During the first months of the pandemic, we’ve seen organisations create up to 30 times more build-out scenarios than usual in our platform. The value of this strategy has been proven beyond financial planning: Oxford University, for instance, has an approach to scenario planning used by scientists and policymakers when facing situations of global impact.
As we move towards recovery, the future is just as unclear. A recent survey conducted by Deloitte showed that 89% of CFOs now feel there is a high or very high level of uncertainty facing their business. The more finance teams apply technology to model different future scenarios, the better prepared and more confident they will be to quickly adapt their strategy to these uncertain outcomes. Planning based on assumptions is better than not planning enough, and technology can make this process seamless without weighing on anyone’s time. One of our retail customers, for example, is planning their recovery by using multiple pictures of their budget based on different assumptions, all sitting in the cloud platform, to avoid any version control issues that offline spreadsheets can bring up.
Continuous planning to avoid obsolete budgets
A survey conducted by the Association for Financial Professionals in 2019 revealed that the average annual budget takes 77 days to be prepared. Think back to where the world was 77 days ago to understand that this is simply not a sustainable process. Forward-thinking businesses no longer approach financial planning as a one-time annual or quarterly event. Episodic planning quickly becomes obsolete and wastes valuable time.
By deploying a continuous active approach to planning, leaders are able to quickly adjust budgets adapting to any shift in the marketplace or change in the organisation — something fundamental in the current scenario. We have found that companies that implement continuous planning are 1.5 times more likely to be able to reforecast within just one week, a level of agility that helps businesses avoid budget freezes.
Rolling forecasts to roll with the punches
Rolling forecasts are just as important in the toolkit of agile finance planning. They are a strategic way to approach forecasts because they are guided by key business drivers. We’ve found from our customers that they can help accurately predict changes from four to eight quarters in advance. By being able to visualise a consistent horizon, finance leaders gain the confidence to make critical decisions. In addition, the rolling aspect of the forecasts offers an invaluable way to course-correct quickly.
To survive a time of escalating uncertainty, agility is a safe harbour for any organisation. By deploying continuous planning based on build-out scenarios and rolling forecasts throughout the recovery, leaders will be better equipped to make forward-looking decisions, and not only recover but do it with a competitive advantage. Ultimately, the changes in planning processes implemented during this crisis will prepare businesses for any future storms they might face.