Covid-19 has put an additional strain on companies’ financial planning teams, and many departments are looking to them for answers about the future of the business. In March of 2020, FP&A teams worked around the clock to try to forecast what the future would look like both in the short term and long term. Despite having a year and a half behind us and relative stability being achieved, the struggle still remains to combine short term forecasts with the long term goals of the company, especially in the fast-changing and versatile environment of today.
Previous Data may be Obsolete
One of the biggest tools that financial planning teams use to configure data is previous performances. Since the start of the pandemic in 2020, it is very hard to rely on these traditional methods, being that almost everything has changed in one way or another. Supply chain shortages, customer preferences, and changing laws and regulations have created scenarios where businesses must completely rebrand themselves, rendering their previous data obsolete.
Where to Start
Zero-based budgeting is a good place to start for those trying to rebrand, but due to time consumption, it may be best to focus on one section of the company at a time. The biggest advantage of Zero-based budgeting is that it relies on assessed value, efficiency, and necessity, instead of previous budget history.
Rolling forecasts have become more popular due to necessity and combining this with Zero-based budgeting is a great way to adapt on the go. Doing all of this work manually can be extremely time consuming and sometimes inaccurate, so adopting an FP&A Platform can save your company valuable time and consolidate both existing spreadsheets and new data.
Agility- Short Term (Up to 10 weeks)
Short term planning has become imperative during the pandemic for businesses to survive. To begin with, basic logistic planning needs to be incorporated for the short term. Are laws or regulations subject to change in the near future? Are there any supply chain interruptions that could affect the immediate financial aspects of the business?
FP&A teams now need to process both external and internal data points, and using EPM services is the best way to analyze everything, especially in the short term where time is of the essence. Another step to take for the short term, which is more internal, is to prepare for talent disruption by virtualizing your organization and preparing for movements in accordance with changing regulations and “The Great Resignation”.
Mid Range (10-25 weeks)
The midrange time period is the gap between the immediate “survival” of the company and building the long term plan and growth. The keyword here is forecasting, but once again the focus is less on existing data and more on scenarios. The hardest part for FP&A teams is to identify new drivers of performance and to create new models for forecasting financial outcomes. These include outside influences which play much more of a role now than ever before. Therefore, scenarios that may not have been necessary to prepare for before, now need to play into the company’s mid range planning.
Resilience- Long Term (25-54 weeks)
As we see from the companies that came out of the pandemic stronger, those that have a strong, long term vision or an ability to adapt to one, will strive even during huge changes such as Covid-19. No matter what size the business is, centralization is key. From hybrid and work from home models which need to be built to last, to adopting integrated planning, there is a lot of work to be done to adapt to the new norm which seems like it is here to stay.
Consolidating data and sorting through which past financial numbers are relevant is key to long term planning, along with building business KPI trees and integrated planning. The outdated financial planning methods of manual Excel inputs and going over droves of data is simply not efficient enough. Finding a cloud based Financial Analytics software that helps your company realize its long term goals will help you be ready for any big changes that can happen in the future.
While in the past, it was far easier for financial teams to predict and plan for the long term, Covid-19 has brought the short term into play as well. The balance of adapting quickly to changes while also making sure the company stays on its projected path has put a lot of pressure on the FP&A teams. In response, new tools and technologies have come forward to help with these challenges, and it is important for each company to find tools that fit their plans and help them thrive in any scenario.