With supply chains still in flux and Delta not quite in the rearview, FP&A teams need to shine a brighter light on future developments.
The pandemic rendered most corporate budgets and forecasts obsolete, and FP&A had to quickly step in to provide some visibility into future performance. According to peer group leader Brian Kalish, the Covid-19 pandemic was like “a bank of fog rapidly and unexpectedly engulfing a ship at sea.” Teams must now find new ways to pilot the ship to a safe port.
Haze of uncertainty. At a recent meeting of NeuGroup for FP&A leaders, members agreed that although accuracy has become more difficult in the last 18 months, they can still help their companies traverse the obstacles that stand between them and the ability to thrive. According to the head of FP&A at a global health care conglomerate: “There are more unknowns than ever before.”
- “Since both the rate and magnitude of change are increasing, the ability to drill down into our data and mine for those nuggets of information to incorporate into our forecasts has never been at a higher premium,” he said.
- Another member agreed, responding that at his company he has “to adjust quickly and be able to learn new insights about our business on a weekly, if not daily, basis.”
Mapping out routes. Some members said the key for forecasting success in what one called the “new new normal” is not producing an accurate single-point forecast, but a range of possible outcomes.
- “We create a worst-case, best-case and a mid-case scenario,” one member said. “We just tested the hell out of everybody, from the sales team to the strategic team, to see every kind of range and the assumptions behind the range. It was pretty difficult, but worthwhile.”
- Because of recent supply chain disruptions, one FP&A head said the focus should now be on integrating factors driving the business into the forecast. “Everything is now really hard to predict,” he said. “Some of the assumptions we have to make now are ones that we wouldn’t have touched for 10 years.
- “You try to model your drivers, but what we found was those drivers were not predictive. It’s really been a challenging environment to try to scenario plan around things that are inconsistent and not within historical norms.”
- “You have to balance your strategic, long-term view with understanding what key assumptions are driving the business now,” another offered. At his company, FP&A identified 10 “high-level knobs” that his team can adjust that impact the forecast. “We started iterating more often in every scenario, comparing against different variables.”
Riding the waves. When the FP&A group last met in June, a number of members said they believed the disruptions in the global supply chain and the increased rate of inflation would be short-lived.
- It turned out that wasn’t the case. Corporates are now having to build out forecasts incorporating these factors for a significantly longer horizon, since businesses often don’t have the luxury of waiting for months to make important decisions.
Looking ahead. As the pandemic and its fallout forced the hand of FP&A teams across the globe to accelerate their use of new tools and new strategies, a number of members see a positive impact moving forward.
- “Have courage,” one member said. “You can’t just get stuck on one model of doing things. Being open to change is a huge benefit: It’s something we’ve had to get better at, and something we’re going to keep doing.”
