Great expectations lie ahead for finance

In an organizational setting, evolutionary change is inevitable. Often shaped by emerging technology, evolution gradually influences consumer demographics, culture shifts, market dynamics, and job roles. For finance professionals, this change has been a constant variable over the past five years as analytics, data, and technology provide organizations with increasing opportunities to steer business performance.

I recently joined a webinar with Gary Simon, Chief Executive of FSN and leader of the Modern Finance Forum on LinkedIn, to discuss what FP&A professionals can expect over the next five years. We discussed the contrast today to where finance was five years ago, what future planning needs for sustainable success, the skills that the office of finance will need to adopt, and explored challenges, opportunities, and great expectations to come in the years ahead.

Four emerging trends gaining steam in finance

Five years ago, the function of FP&A primarily supported the needs of the CFO. Fast-forward to today, and FP&A professionals have evolved from record keepers and controllers into strategists and catalysts for change. This has also shifted the internal customers of the FP&A team; rather than responding solely to the CFO, FP&A teams now respond to the needs of the entire C-suite, as well as leaders of business divisions and key markets.

Understanding the implications of this change for the business and how to better enable the finance team can still prove challenging. Organizations face disruption from regulation, digital technologies, business model innovation, volatility and uncertainty in economics, global politics, currencies, and commodities. This change is unrelenting and continuous.

As organizations and FP&A teams adapt processes and systems to today’s uncertain environments, the budgeting and forecasting process often needs to be reimagined. To accomplish this, there are four emerging trends that finance teams can consider as they navigate the years ahead:

• Forecasts need to be real-time. Planning platforms will connect all aspects of the business with one another so that changes in workforce, for instance, immediately flow into forecasts. Production scheduling changes will be driven by demand forecasts that accommodate impacts of trade promotion, pricing decisions, and demand-sensing indicators. All changes to operating tactics flow seamlessly to the financial plan in real-time, and decisions and assumptions are easily accessible to the people making the day-to-day decisions and the strategic decisions that the C-Suite make.
• Death of the annual budget. The annual budget will be replaced by regular focus on long-term strategic decisions throughout the year, in combination with fast, reliable forecasts. Examples of this include frequent reviews of footprint strategy, profit pool, innovation, and mergers and acquisitions. Business decisions regarding strategic decisions will be supported through continuous, real-time forecasts and performing scenario analysis. Resource allocations are tied to the plans on which forecasts are based. Resources are available as needed, and not through detailed annual budget allocations. Indeed, forecasts become the primary steering mechanism for business performance.
• Planning by exception. In the future, organizations can anticipate looking only at considerations in the plan that could prevent the system from calculating the right forecast, such as a unique event or human factors. Advanced analytics, machine learning, and statistical methods will eliminate cognitive bias in forecasts, helping to achieve acceptable levels of variation, significantly eliminating effort, and increasing speed in the forecasting process.
• Emergence of rolling forecasts. Internal performance will be viewed as a continuum of “innings” rather than tied to financial year ends and will no longer be tied directly to fixed external metrics, but rather, directional, ambitious, and relative goals such as growth relative to competitors. Attainment of the internal metrics will deliver the conditions for continuous outperformance of the external metrics. Planning and forecasting will be in real time, continuous, and much more lightweight from the user perspective. There will be a clear focus on putting effort onto the exceptions with the majority of the process automated and connected throughout the organization.

Where finance can focus to move ahead

As data sets deepen across the organization and beyond traditional boundaries, FP&A professionals will need to connect data to insight, decisions, and action in order to create value. This capability will become even more critical in the future. This demand for connectivity gives rise to a need for FP&A professionals to sharpen their skills in areas that may not come naturally, especially for those who work in controlling or traditional finance positions.

The mindset needs to shift toward a focus on business drivers, leading indicators of performance, external data, and non-financial data. Finance teams need to understand lead-time response in the business and how it determines forecast time horizons, and how to match frequency of forecast or reporting updates to the variability in the business.

The following skills will be more in-demand for FP&A professionals in the coming years:

• A deep understanding of analytics
• An ability to work with ambiguity
• Strong communication skills with senior leaders outside of finance
• The ability to simplify problems and quickly find solutions

In the short term, organizations can also take steps in the present to prepare for success in the long term. Below are six areas that organizations can evaluate today to help pave the way to long-term changes:

• Ensure that the data in the organization is clean. This is critical in all areas of the organization, not only finance. Data is the foundation on which the future of finance is built.
• Confirm that data governance is in place throughout the organisation and fix any data issues early to avoid downstream waste. Any leaks to the system should be identified and resolved to maintain data health.
• Become familiar with external, ambiguous, and unstructured data and explore how external indicators can deliver insight to the business. This is where advanced analytics and machine learning technologies can help.
• Adopt toolsets that facilitate Connected Planning and start connecting plans. This includes the adoption of dynamic technology and collaborative business processes that can link business units across the enterprise with one another in real time.
• It will take time to unpick and reconstruct end-to-end business planning logic. Begin breaking this down for a fresh approach; “lift-and-shift” should be challenged as the default option.
• Build capabilities for better partnering across the business and free up time for executing change. This gives the internal teams the experience and rewards of driving finance transformation in the organization.

For more information on how organizations can prepare for the future and how the industry is moving toward accurate, real-time forecasts, access the on-demand webinar, “What will FP&A look like in five years’ time?”