The FP&A Trends Webinar: Mastering Analytical Transformation with FP&A Trends Maturity Model
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The FP&A Trends Webinar: Mastering Analytical Transformation with FP&A Trends Maturity Model
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By Amrish Shah, CFO at Metabolic
The purpose of this article is to explore what consequences and costs a move to rolling forecasting has for the other actors involved in the process.
The traditional approach to once a year annual planning supplemented by a number of in-year re-forecasts has come under increasing criticism. Part of the frustration comes from the input side around the time consumed to create plans. This might even be acceptable if the value generated would be meaningful. But this is increasingly not the case.
Business is now requiring better and quicker feedback. Also, the fixed mindset that comes with fixed internal targets stands directly in the way of the cultural shift required to foster more flexibility, agility and risk-taking in the organisation.
Rolling forecasting promises to address some of these issues.
A rolling forecast is DIFFERENT from a traditional forecast in that:
A rolling forecast MAY or MAY NOT be different from a traditional forecast in:
The focus of a forecast is to show a realistic picture of where the organisation is now and can expect to be in the future period and how that deviates from any budgeted targets and commitments made to external stakeholders.
The focus of a ROLLING forecast goes beyond this by casting the beam beyond any arbitrary cut-off date.
A rolling forecast is a management tool that is used to help decision making around resources and priorities. Therefore, the forecast is also by definition by and for the business.
The role of FP&A is around process leadership, which tackles the following elements:
A rolling forecast is a tool like any other. It needs to be used at the right time for the right purpose.
Dealing with the issues that increased transparency may lead to any passive resistance is a leadership imperative, not just a finance one. A culture of transparency for the sake of learning needs to be embedded as opposed to a focus on measuring forecasting performance for the sake of blaming.
To make sure rolling forecasts drive a qualitatively and quantitatively different discussion, the leadership team has to set the tone and expectations clearly. The CFO needs to play a very important role here.
Financial planning and analysis (FP&A) can really address misgivings in balancing the inputs versus the outputs. Going back to their leadership of the process design, FP&A has to think deeply about the right design choices for a rolling forecast and manage the communication and transition for the business.
The use of algorithms to generate statistical baseline forecasts has improved dramatically. In-memory computing, data visualisation tools, predictive analytics are all developments that can definitely reduce the time taken to generate forecasts whilst generating more robust forecasts.
One watch out: doing these requires deep organisational integration – in order to avoid the “black box” trap. It requires an investment in not just advanced analytic capabilities but the basic plumbing of data management as well as the integration of the human intelligence aspect from the business perspective. This is a significant change management challenge.
In this article, I have tried to show that while rolling forecasts have clear benefits, any successful implementation needs to recognise the same causes of resistance to more traditional forecasting and even budgeting.
In essence, these are social and organisational challenges, not technical ones. Until some of these organisational challenges are sufficiently addressed, the impact of rolling forecasts will still be limited.
The article was first published in Unit 4 Prevero Blog.
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