The role of FP&A just became bigger

McKinsey have recently published their insights on the CFO’s role in helping companies to navigate this time of crisis. There is plenty of advice within and the implication is clear – FP&A is essential to enabling CFOs to carry out the following suggestions effectively.

Establish a cash war room

We’ve already asserted the position that a lack of cash will be the fastest thing to bring about the end of businesses in this time. In a situation where it’s possible that entire markets are closed and critical supply lines are blocked, everything comes down to prioritising activities to optimise cash flow.

Putting a cash war room in place, ensures a focus on identifying, analysis and managing risks and opportunities related to cash:

• What is your current access to capital?
• Do your investors have the capacity and desire to support you at the moment?
• Are your creditors willing to be flexible in delaying loan payments?
• Looking are cost, volume and stock variance impacts: Are there plays to be made? Are there any likely shifts that you need to plan for?
• What productivity gains / cost savings can you make? The cheapest form of capital is that which comes from improving operational efficiency by reducing expenses.
• How much revenue can your sales team generate in the next 90 days and what proportion of it is collectible?
• How far will your suppliers let you stretch your payment terms?

Develop a range of scenarios

Traditional forecasting methods are not going to be suitable for planning for future recovery out of this crisis. The global economy is in an unprecedented state and there are no historical trends to accurately base strategies around. Models will not be able to take recent events into account and your finance function will be required to run multiple what-if scenarios on what they think will happen – we are going to see a lot of educated guesswork taking place. We’ve shown how using Excel can prevent teams from carrying out these processes effectively and at the required speeds.

Now, more than ever, accurate analysis of risks and opportunities based on a range of models is going to be crucial in creating ideas and possibilities to act upon when trying to manage the unpredictability you are facing.

Communicate proactively

Effective communication, both internal and external, should always be a focus for any business but it is of paramount importance in times of crisis. It is essential for all parts of the organisation to be working together towards the same goals. For this collective effort to happen, shared understanding needs to be established.

New information will become available all the time as the situation evolves and the resulting changes need to be conveyed to both employees and external stakeholders and investors in order to maintain commitment to the business. The best way to do this is using formats appropriate to the audience, presenting all of the details in such a way that the recipient can always understand them relative to the impact on themselves.

The McKinsey findings are that:

Under crisis conditions, the FP&A team must accelerate its budgeting and forecasting work, providing continually updated business information that the CFO and the finance organization can then incorporate into an integrated forecast. The FP&A team should use collaborative tools to monitor and manage key performance indicators; in a crisis period, issues with data latency will not be acceptable. And the team’s updates need to become a true rolling forecast, supported by a “decision cockpit”—a real-time dashboard business leaders can use to focus on the seven to ten key metrics that will guide the organization’s operations through the coming months.

The right tools for the job

As shown above, FP&A is fundamental to the successful enactment of all of these strategies, but only if the necessary resources are available.

• Cash forecasting in the face of so many unpredictable variables requires a multi-dimensional functionality not found within Excel.
• A sandboxing capability is needed to run a comprehensive range of what-if scenarios and multiple models, providing the best basis for profitable decision making.
• A dashboard space where data can be presented in a range of formats appropriate to recipient enables the most effective communication of information within and without the business.

All of these elements are core features of IBM® Planning Analytics. This agile planning tool has now been opened up to more potential users with the release of Planning Analytics Digital, an ideal low-cost entry point to the software. The joy of this solution is you can be up and running in no time at all and if you decide to expand it out across your business in the future, everything  you have already worked on will still be in place – it is a perfectly scalable offering.

If you’d like to know more about how you can best equip your finance team to meet your FP&A needs, contact us today.