As organizations enter 2017, they find themselves in a chaotic macroeconomic environment. With a great deal of change in 2016, and much more in store for 2017 as the effects of Brexit, the new American government, and countless other factors take hold, it has the potential to be a volatile year. Indeed, in a recent Adaptive Insights CFO Indicator report, eight out of 10 CFOs considered it likely or very likely that market volatility will continue.
To cope with these market conditions, finance teams are needing to become more strategic, and visibility into business data—including both financial and non-financial KPIs—is key. In another CFO Indicator report, we found that 45% of CFOs report that they are currently fulfilling the role of chief data officer, compared to only 16% who said the chief information officer has this responsibility. It is clear that CFOs and their teams are well placed to become the strategic business advisor as data ownership is shifting to the office of the CFO.
In a constantly changing environment, finance departments can become more agile by taking an active vs. static approach to planning. Specifically, finance teams must embrace a process that is collaborative, comprehensive, and continuous to adopt an active planning process. This active planning approach allows finance to shift into a leadership and guiding role, instead of being mired in the drudgery of back-office transactional tasks.
And, as teams embrace active planning, three clear benefits start to emerge:
- Better collaboration: Active planning encourages broader participation across the organization, by leveraging technology that makes it easier to establish a single source of shared data and customized dashboards that give users ready access to information.
- Comprehensive capabilities: A single, comprehensive process drives optimization widely across the diverse parts of the business and the organization. You can reap huge benefits from real bottom-up planning and develop a robust picture of the business.
- Continuous planning: Plans are produced rapidly and can be quickly iterated so ongoing, real-time planning and rolling forecasts become the norm. FP&A can provide insights to help the business respond rapidly to changing market conditions or competitor activity.
A holistic view of the business
CFOs are being tasked with not only understanding and communicating financial results but with helping the organization to understand the operational drivers behind them—a key factor for business agility in a volatile market. This requires much more detailed analysis of business KPIs, many of which are non-financial, and therefore involves greater collaboration and integration across the business. As such, to be agile in 2017’s changing market conditions, the finance department must have a holistic view of the business.
Fundamentally, there needs to be a single source of trusted data that is always fresh and always live, meaning that you never have to manually recalculate to be sure the numbers are up-to-date or consistent across models and reports. To be truly effective, teams will need to integrate systems into a single source, including data integration from enterprise resource planning, customer relationship management, and HR systems, to name a few.
According to the CFO Indicator report, CFOs expect non-financial KPIs to comprise up to 30% of the total KPIs tracked in two years’ time, including data as varied as customer satisfaction, employee retention, supply chain contract renewals, and more. Once operational and financial data are assimilated into a single source of truth, it can be incorporated into reporting, planning, and forecasting. By bringing these together, the office of finance can help business leaders across the organization to spot trends early, which will help mitigate risk and open up opportunities.
That said, identifying non-financial KPIs can be a difficult process. It requires the finance team to dig deeply into the business and to spend time engaging in analysis that leads to greater business insights. This can be done by a member of the finance team spending time in another part of the business or through training programs that aim to generate broader business knowledge. It is important that both finance and business users are involved in everyday planning and forecasting. This inherently leads to collaboration and consequently better overall plans, budgets, and forecasts, as well as organization-wide visibility into KPIs and business performance. After all, the impact of missed forecasts can be felt far and wide, from resource allocations and supply chain management to shareholder confidence.
What-if analysis and multiple scenario models
The macroeconomic environment is a vitally important consideration for any business, not least because it is a factor which no business can control. A business can, however, plan and model for different scenarios to ensure that it can withstand a variety of potential consequences. In 2017, this could be a change in exchange rates due to the shifting value of the pound or taking into account a different level of taxation due to amended trade agreements between the United Kingdom and United States.
Ultimately, ensuring a business can remain agile and withstand the tremors of a volatile market is no easy task. With data that stretches across the breadth of the business—incorporating both financial and non-financial elements—it is possible for CFOs to get a real-time, accurate picture of what the business looks like in the current environment. If done effectively, the true expertise of the finance team can then be put into play, as it has the data to analyze, model, and forecast for the future. Creating what-if scenarios, based on highly accurate and reliable data, will be invaluable to businesses in 2017 as they traverse an unpredictable landscape.
Rob Douglas is vice president of United Kingdom and Ireland for Adaptive Insights.
This article originally appeared in Finance Monthly.