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Improving financial forecasting in a post-COVID world


This year’s pandemic has caused a financial performance separation across the global corporate landscape. Due to the uncertainty of today’s economy, we are seeing companies fall into two categories — thriving and surviving. Thriving companies, like Amazon and Walmart, have been propelled into a hyper-growth mode due to high-demand products and successful supply chain operations. Surviving companies are those intensely focused on simply making it through this current economic downturn.

Both categories are seeing an even greater to need improve their financial forecasts. Transforming forecasting processes and deploying financial cloud solutions, such as Workday Financials, Workday Adaptive Planning and Workday Prism Analytics, can enable both thriving and surviving companies to make informed, smart decisions that position them well for 2021 and beyond.

While “thrivers” are focused on understanding strategic options such as new markets and acquisition targets, “survivors” are squarely focused on forecasting cash and deciding which capital projects to halt. Improving financial forecasting capabilities can enable timely, actionable insights, and lead to business decisions that may prove beneficial to both thrivers and survivors.

The increased stakes of financial forecasting

All finance organizations perform variance analysis and forecasts. They analyze and forecast by comparing to baselines, such as budget and prior year. Many organizations see the same variances each month with very little improvement in forecasting; few are truly learning from this and becoming better forecasters and decision makers.

The stakes are rising in nearly every organization.

CEO's are looking to the CFO and Controller to provide actionable insights via their forecasts to be able to merge operational performance with financial results and to enable the organization to make timely, optimum decisions to maximize margins.

CFO’s are increasingly under pressure to become excellent forecasters of financial performance.  They need structure and an approach to link the past performance to the present and future. They need to establish standard, meaningful variance categories and they must analyze and understand not only how they are doing against themselves, but also how they measure against competitors. Finally, they need to understand their true potential, which may unlock strategic considerations such as entering new markets.

Improvements in financial forecasting

Forecasting excellence does not happen by accident. It is generally the result of a prioritized, well-funded and formalized project sponsored by the CFO. These projects are not easy, but they are always a worthy endeavor. Any forecasting improvements pay dividends in better decision making. However, improved forecasting requires performing analysis continuously throughout each month, not just after closing the books. This significant, continuous effort requires skill, dedication, focus and funding. Formal project management, CFO sponsorship and active engagement are critical success factors.

Technology is key to success

In addition to financial and leadership support, an optimized technology infrastructure and systems integration are critical. This systems infrastructure should enable the merging, analysis and visualization of operational and financial data, such as volumes and dollars. Additionally, having the ability to automatically connect and integrate external data allows for the analysis and calculation of external market impacts on past and future profitability. Accountants and analysts are assembling increasingly more rolling forecasts and scenario plans, and do not have time to manipulate or recalculate data that is in other systems, such as labor allocations in human capital systems. They need real-time systems integration.

Companies that lack a well-integrated systems infrastructure often find themselves consuming large amounts of time and talent manually managing data. They simply run out of time to analyze that data.  Hiring more analysts won’t solve the problem. They must first eliminate bottlenecks in the analysis process by automating and integrating their systems architecture.

The traits of financial forecasting success

Companies that have achieved forecasting excellence share several common traits. They include:

  • Separate what’s controllable in the short-term versus what is not (external market vs. internal productivity)
  • Standardize variance analysis categories across the organization (one-time events, management decisions, investment impacts and operational excellence)
  • Implement daily or weekly forecasts and dashboards
  • Automate basic variance categorization and calculations
  • Incorporate big data, machine learning and artificial intelligence

Achieving forecasting excellence is an evolution that requires a programmatic approach.  Finding a partner who can help you achieve forecasting excellence through the transformation of forecasting processes and the implementation of cloud solutions, like Workday Financials, Workday Adaptive Planning and Workday Prism Analytics, can be the difference.

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