Profit& (and most of my career as an accountant) is about promoting more relevant and agile planning and forecasting. Decision-makers need our best view of the future, not confirmation of the past. I regularly try to persuade management information providers to focus on predicting the future rather than reporting the past. A global crisis—such as the coronavirus pandemic—has underlined how clunky, or even non-existent, forecasting processes often are.
The severity of this crisis for an individual organization largely depended on its financial strength before it all hit the fan, but for all, the pandemic has exposed the shortcomings in normal financial planning and analytics processes. CFOs are accelerating plans to adopt and expand use cases in Anaplan, specifically to build capabilities that will make their organization more resilient and agile in future crises.
Resilience is Now a Key Priority for CFOs
The slow and cautious approach that CFOs have taken to new technology is no longer appropriate. They need to build capabilities to respond to crises quickly and incisively so that they can get back to an optimal and sustainable level of performance that enables future growth once the threat has passed. This is often referred to as ‘resilience’ to bounce back after taking a hit. It’s now more clear than ever that superior analytic capabilities, far in excess of the usual strategic planning process, are needed to underpin an assessment of the severity of the situation and how to respond.
Enabling Rapid Decision Making
To be agile, organizations need to be able to make to a continuous stream of small decisions that they can quickly test and refine. In practice, this means that they do not have to build a consensus around a single big decision, but instead, can rapidly explore several potential scenarios before agreeing on a way forward. Connected Planning is critical to this, because the senior team is supported by a scalable network of business unit, or functional teams, that cut through the traditional management hierarchy and departmental silos.
Regular and Frequent Forecasts Are the Key
Still, 20 years into the 21st century, finance departments, even where they recognize the need for forecasts, at best take weeks and enormous effort to crank a legacy spreadsheet system, or at worst don’t forecast at all. The excuses used are plenty but normally revolve around a lack of resources. With Anaplan technology, the spreadsheet and resources excuses are removed; finance can run a process across the whole organization where forecasts are derived with a combination of forecast driver volumes, educated estimates, and manual data entry overrides. With coordination and workflow, the whole process can be completed in a few days if not a few hours. “But it’s not accurate” I hear you cry. I say it's better to have the best view of the future (a forecast) than an out-of-date historic performance report. With practice, say monthly rolling forecasts to the planning horizon, estimations can be improved, and more reliable volumetric forecast data can be sourced. The spin-off, on top of useful future-looking MI, will be that the latest forecast (at worst only one month old but forward-looking) can be the baseline for urgent scenarios and analysis. These requests would previously have been riddled with out-of-date data and unreliable assumptions.
Real-Time Planning Platform is Critical
Connected Planning enables superior scenario analysis, simulating how both external and internal influences might impact financial performance with input values, business drivers, assumptions, and occasionally the entire business logic constantly in flux. This is clearly beyond the capability of both spreadsheets and siloed domain-specific planning tools. FP&A professionals recognize that they need a planning platform that enables real-time what-if analysis based on changes in drivers and assumptions. What’s more, they need the ability to create new scenarios on the fly, rather than waiting on internal and external resources to build and amend planning models for them.
FP&A professionals get a never-ending stream of questions about what’s happening to cash flow and liquidity. Forecasts are highly dependent on constantly moving external factors, like when will consumers get back into the shops, or whether overseas supply chains will be interrupted. The need for multiple scenarios, e.g. best, worst, and most likely, compounds the complexity. Without a real-time planning platform such as Anaplan, designed to be managed by finance professionals themselves, many finance teams will struggle.
With the benefit of hindsight, I believe we will look back on this crisis as the tipping point that accelerated the transition from a focus on reporting history to a focus on forecasts that help organizations respond to the most unexpected events.
One thing is for sure, frequent, sudden, and severe disruption has made traditional planning and budgeting processes and tools totally obsolete. I can report on at least two of our clients that didn’t let the latest crisis interfere with implementing Anaplan. In fact, these projects were accelerated despite the crisis.
A medical products company has a five-year plan with integrated profit and loss, balance sheet, and cash flow, all connected to production planning. The latter includes a bill of materials and batch planning over a 16-step, three-factory supply chain. This week they told me they needed to reappraise a scenario to invest in high-volume production lines against the need for additional finance. They were able to do this in a matter of hours by a simple process of:
Copying a version.
Amending capital expenditure.
Amending batch volumes and phasing.
Amending component purchase and product sales prices.
Amending bottom-up volumes in year one and top-down demand-driven volumes in years two through five.
Use Case: IT Services
In March, at the start of the pandemic, we had just built a new three-year financial plan in Anaplan for an IT services company and had it approved by the board in just 10 weeks, start to finish. They then recognized that they had little insight, at the tactical decision-making level, of the evolution of the sales pipeline. To address this, we worked with them to replace a myriad of unconnected spreadsheets by connecting Anaplan directly to their CRM system. They now provide weekly revenue forecast updates against the three-year plan. Soon they will be able to provide a rolling short-term revenue forecast based on qualified sales opportunities that in turn will increase board confidence in the sales team’s ability to deliver longer-term goals.
A key learning point from this project from a model builders’ perspective is to look outside of the application for examples of spreadsheet chains that feed into Anaplan, then assess what can be gained from bringing these into Anaplan.
In this case, greater transparency and insight into the sales pipeline was the primary driver, plus the speed and frequency of presenting a sales forecast. A spin-off was that the greater executive scrutiny drove the much-improved accuracy of sales opportunity recording in CRM.
Provider of Health Services to the UK Government
A contrasting story is of a services provider to the UK government and privatized health organizations. (No need to spell out the demands being made upon them by their clients throughout the pandemic.) Whilst we were finalizing financial management reporting (backward-looking) in Anaplan, the finance team was being pulled in every way responding to scenario requests for different contract options. Responding to a stream of urgent requests has, by a long way, taken higher priority, and being ready with a flexible tool has had to wait but is now firmly on the CFO’s agenda.
The current global crisis has highlighted to them in glorious technicolor that a forecasting model in Anaplan would also support rapid ad hoc scenarios and analysis, and would greatly alleviate this pain. As a first step, they have created a budget 2021 process in Anaplan that can be easily modified to become the forecasting process. While doing this, they realized that the contract-costing functionality (mainly manpower planning) could also be used by the sales teams to support presales contract discussions. This illustrates Connected Planning in action!
Which story do you have most in common with right now? We’d be interested in hearing how your finance teams are coping with these events. What we do know for certain is that the world will not be the same as before. For now, take care and stay well.
Steve Benham's passion is to help finance departments become genuine business partners, transforming them from corporate historians into fortunetellers so that CFOs become relied upon for insights into the effect of decisions on future profitability. Steve qualified as an accountant with PwC and spent 15 years of his early career in CFO roles, before forging a career in cost management consulting, spanning over 20 years. Steve has implemented large cost management projects and developed deep expertise in key sectors including airlines, utilities, and manufacturing. Prior to establishing Profit& in 2016, Steve was a director at PwC Finance Consulting and a cost management practice lead at Vantage Performance Solutions. Steve also led consulting practices for cost management in technology firms including SAP, Business Objects, and ALG Software.