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Amidst this period of uncertainty, anxiousness and in some cases panic, organisations are focusing on short-term measures to ensure continuity, as well as looking ahead at what the new world will look like. The sheer extent and range of unknowns are making it very difficult for organisations to model, predict and act accordingly.

As the world responds to the ongoing impact of COVID-19, finance teams are having to review a wide range of scenarios, with the Financial Planning & Analysis (FP&A) function being in the front line. FP&A teams are having to move from individual time set planning and forecast exercises to rapid scenario modelling, with an incessant demand for insights covering a wide range of financial and commercial aspects. One could argue that in such an exceptional circumstance, merely moving from time-based forecasting to scenario modelling isn’t enough. What is required is a dynamic, rapid response scenario modelling solution that can swiftly implement assumptions for some of the unknowns.

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Fig 1: Comparison: Static vs. Dynamic Planning

The severity of the pandemic, combined with the complication of numerous unknowns, is likely to result in organisations taking this offline and attempt to model manually. This might work as a one off; however, with the emergence of a new normal and the grim likelihood of COVID-19 influenced recession, the usefulness of a disconnected, inflexible and limited modelling solution will surely be in question. An integrated business planning solution, complete with a combination of operating models, analytics and sound predictive capabilities, is going to be key to help organisations understand what impact the pandemic will have across their operations by way of meaningful insights and flexible forecasts.

Cost Control

One of the core focuses will be controlling cost; optimising the overall cost and reducing non-essential costs will be a key priority. Manufacturing firms have already initiated short-term measures such as discretionary spend cuts, workforce reductions and implemented stringent cash management and forecasting measures. In order to implement effective forecasts, FP&A teams will need to look at the systems in place to ensure they are able to offer the flexibility needed to model various scenarios and the necessary speed of response to get the results to the business. FP&A teams need to update their forecasting models to assess the likely impact of reducing costs on the business and the impact this will have on sales, production (in the case of labour reduction) and operational efficiency. Organisations that have integrated business planning and driver-based forecasting will be able to develop enterprise-wide scenarios to envisage the effect of cost cuts across the business.

There are additional benefits of undertaking a detailed analysis of future-operational costs. It provides the opportunity to look in depth at what costs are critical and others that may be dispensed with. Organisations may be able to look at reducing or removing non-essential costs from plans and review the impact this has on the bottom line. Organisations can also take this opportunity to look at non-business critical activities and assess the impact of removing and replacing them with automated processes, if required.

Margin Analysis

One key area will be analysing the impact on margins. Cost accuracy is an essential element of margin analysis, and part of scenario planning will be focused on cost variations based on factors such as lower volumes, difficulties in sourcing raw materials and possibly operating with a cut-down production workforce. Whilst cost analysis is key, another important factor is understanding what the impact of a depressed market and drop in customer confidence will have on the margin, particularly during a pandemic of such a global scale.

Organisations will need to look at these revised conditions and the effect these will have on margins, with a focus on safety, quality and efficacy rather than luxury and brand value. A key component of the planning process will be the emergence of new customer and channels, with organisations increasing the use of technology to make offerings available online, with direct-to-consumer becoming more prevalent.

Another core focus will be the impact of cost controls on the supply chain and presence in the market. The FP&A function will need to have access to not only highly detailed internal data, but also look at external data to forecast impacts on a highly fluctuating market. The essence of this will rely on access to Big Data and the presence of dynamic planning solutions to provide flexible modelling functionality.

Planning in a crisis

Connected planning solutions in the modern age are designed to cope with vast amounts of data, both external and internal, and can be used improve insight strategy, decision-making and performance. These solutions are able to focus on looking forward and making qualitative predictions on business outcomes. They can use the large datasets and apply predictive algorithms to provide accurate information to users. But it isn’t the simple implementation of a connected planning solution and new technology that will provide the business with the answers it needs during periods of uncertainty. An essential element of connected planning is a centralised repository of data stored in a common data structure, which is accepted by both Finance & IT. A common data structure enables efficient processing and analysis, as users are able to refer to a standardised data structure and a single version of the truth. In addition to standardised data, it is imperative to be able to access real-time data, without hindrances and without the need for complex mapping and data transfers driven by limitations inherent in a substandard system.

In summary, the key aspects of dynamic planning solutions are as follows:

  • An integrated planning landscape that integrates financial planning with operational planning, providing alignment of data and objectives using a common data structure
  • A flexible planning landscape that can incorporate change and accommodate adjustments or changes to drivers
  • A collaborative landscape that can connect various stakeholders, communicating results and data-driven decisions in real-time
  • An intelligent landscape with embedded analytics, providing easy access to information and transparency

Dynamic connected planning is definitely challenging, both to implement and to encourage the organisation to adopt. A major success factor is to use an integrated solution to reduce the inefficiencies that can arise with individual functions using disparate systems and data structures. A dynamic planning solution needs to follow a structured approach with as much integration and automation as possible, with each participant understanding the overall planning process rather than just their particular part in the process.

Organisations will need to ready themselves to plan and forecast more frequently during a crisis, and as a connected planning solution requires a wide range of people and skills, this might make the process difficult to manage. Nonetheless, it is evident that organisations would gain a huge benefit from a dynamic planning solution, compete with access to detailed data sets, predictive analytics and efficient processing capability. In truth, this cannot be achieved using standard spreadsheets, no matter how large and complex they become. Dynamic solutions need the efficiency that is provided by in-memory processing and core forecasting functionality of advanced planning solutions to deliver accurate predictions for an uncertain future.


About the Author

Raj Thapar
Program Director

The overriding theme of Raj’s career has been helping clients overcome reporting, consolidation and budgeting complexities using effective EPM solutions. As a result, they can accurately report and analyse data and make more informed business decisions. He is a qualified accountant, with over 20 years of experience in the EPM market. Raj has led engagements for clients such as Reckitt Benckiser, AIA Group, Tata Global Beverages, ACE Insurance Europe, Sumitomo Corporation and Old Mutual Plc, focusing on Finance Transformation, Record to Report and Integrated Business Planning.

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