Advice and Information for Finance Professionals

Rebuilding Your Budget for a Crisis in Progress

Guest Author

Nick Jackson, Director of Finance and Performance Innovation, Oracle

To budget is to look into the future. A budget is an estimate of the revenues and expenditures needed to meet a set of business objectives over a given period of time. But how accurate can the required projections be when facing an unprecedented pandemic, and whilst lacking holistic, relevant historical data from across the business?

COVID-19 is transforming how businesses plan and budget for the future. Annual or biannual budgets can’t keep up with the pace of change and disruption. Instead, organisations are better served by more regular provisional budgets, with constant re-forecasting based on the latest information.

Budgeting is no longer a purely financial issue

In a rapidly changing business landscape, the critical point when it comes to budget planning is the need to plan for multiple outcomes and run “what-if” scenarios—not just rapidly, but repeatedly, with the ability to apply different assumptions all the time to these plans.

This means that budgeting can no longer be seen as a purely finance issue. Finance teams must collaborate with various lines of business—particularly the HR, sales and supply chain teams—to understand the issues and challenges they are facing. For example, they need to understand from the sales team what is happening with the customer base: Do our customers have money to spend? Are they changing their purchasing behaviour? Is there an increase or decrease in demand for certain products or services?

This all means that budgeting and planning is, increasingly, an ongoing process. In the past, best practice would be to run this process monthly; now, CFOs and finance teams need to do it even more frequently. But how is this possible when the workforce is out of the office and dispersed?

More information makes for better planning

As a first step, companies need to take stock of the (still developing) impacts of COVID-19 on every department, function and market. An integrated cloud suite provides the platform for this exchange of information to take place, while also providing a real-time, granular understanding of business performance. CFOs must ensure they have a holistic view of the company, so that they can better understand the implications of the decisions being made—for example, will reducing headcount also cut revenue?

In larger companies, it’s even more important for CFOs to have this all-encompassing view. For example, we’ve recently been speaking to a multinational conglomerate that operates in multiple sectors. They’ve seen demand for some of their products—such as dairy products to the hospitality sector—slump to near zero. But on the flip side, they’ve seen a huge increase in demand for cleaning products. This CFO needs all the information available to cope with the exponential growth in cleaning products in the short-term, while not compromising the ability to eventually revert back to dairy products in due course.

Speed is another consideration. If budgets are to be drawn up on a rolling basis, they need to be done fast. Replacing spreadsheet collection and uploads with automated data entry and workflows helps business analysts and budget planners spend more time on the jobs that really matter.

Learning lockdown lessons

The way many finance departments operate is likely to change forever. PwC and Schroders will allow staff to continue to work from home after the Covid crisis, for example. Therefore, companies must ensure that they have a cloud solution in place so that multiple individuals, from multiple locations, can all work from the same platform. This cloud suite will also need to integrate various data points from different business units.

Finance departments are also set to undergo somewhat of a culture change. Finance teams are used to the certainty that numbers give and often have a dislike of operating with estimates rather than specifics. Going forward, this will need to change. Budgeting should be about equipping management with enough information to make an informed decision and, where there is uncertainty, providing them with ranges and options to help them decide how to navigate that uncertainty.

Finally, uncertainty needs to be made an integral part of the budgeting process. Virus surges or regional lockdowns can occur with little warning, so financial planners can’t tie themselves too closely to one view of the future.

Budgeting is no longer something you do only once or twice a year. It has to become a continuous, proactive process—but if you do it carefully, rapidly and with sufficient insight, it leads to better resource allocation, more effective operations, and higher profits.

Learn more at the Oracle Cloud EPM Virtual Summit.

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