Advice and Information for Finance Professionals
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Financial Planning & Analysis
December 3, 2020
Why event-based forecasting needs connected planning
By Muthu Ranganathan, Director, EPM Product Management, Oracle
We live in a complex world beset by unpredictable events. The biggest over the past year has been the covid-19 pandemic. The global health crisis has disrupted economic activity, travel, commuting, socializing—nearly everything about how we live and work. Sales and revenue forecasts made at the beginning of 2020 are obsolete. New sales are dropping precipitously in some industries and taking off in others.
On top of the pandemic, there are the usual political and economic events that we all must deal with: elections, border tensions, even industrial espionage, to name a few. On the business side, disruptive events could include a new competitor, a new product or service, or an innovative new business model—or it could be one of your competitors declaring bankruptcy. Some of these events could offer opportunities; others might present some cash flow challenges. An event like an acquisition could result in major organizational restructuring, workforce reskilling, training, or large payouts.
Events can be seen as risks or opportunities, and each of them could impact your business. So, when preparing plans and forecasts, account for these events and model their potential impact—not just on finance, but on other parts of the business too.
Why connected planning?
Creating only single annual operating plans have been redundant for few years now. Companies have to build their forecasts more frequently: quarterly, monthly, or even adjusted weekly in some cases. Rolling forecasts are becoming best practice. But do companies have the right framework, processes, and people in place to do rolling forecasts?
Often, the answer is no. Many companies still capture their plans in silos across lines of business and departments, with each one doing their own plan in isolation. This results in different views of the business; and often the C-suite and the board get perspectives that are not aligned.
While finance teams are seen as custodians of the overall plan, a true connected plan where financial and operational plans are owned and created by lines of business is the only way for a business to get a true reflection of what is happening.
In Oracle Fusion Cloud EPM, various risks and opportunities can be configured as “events,” acting as drivers for business plans that can be adjusted as events happen or drivers change. Some of our customers are exploring connected planning to model events (and their potential impact) across various use cases:
- Sales: Exploring how trade promotions impact sales uplift, and assessing the overall ROI for trade spend. “Competitive promotions” can be configured as an event for making such adjustments.
- Operations: Modeling scenarios that will help get better pricing on large contracts, based on assessing and modeling costs. There are risks associated with regulatory changes that could potentially impact a contract (for example, a change in customs and duties for cross-border shipments).
- HR: Assessing the impact of re-skilling staff and ensuring the people strategy supports the corporate strategy. Usually when there is a major business shift (M&A, new business models, entering a new market, etc.) it’s important to plan for this re-skilling exercise.
- Marketing: Modeling the right marketing mix to ensure better return on marketing investment for marketing spends, as well as campaigns. In this use case, the event might be the introduction of a new service or a new product launch.
- IT: Ensuring the right level of IT spend across service and project portfolios, along with an accurate accounting of IT costs by department for better visibility. Major events, such as we’re seeing in the present with companies moving to more digital business models, offers an opportunity to revisit IT spending.
- Finance: Forecasting cash flow for both the short and long term—a use case that has become critical in the age of Covid. While indirect type cash flows worked well in the past, the process today has been transformed into direct cash flow driven by operational drivers.
To be more agile and respond better to events, it’s important to be able to quickly capture potential opportunities and risks in your business, and model them as events in an integrated set of connected business planning solutions.