Budgeting Planning & Forecasting

This is a guest blog post from our partner Adaptive Insights, written by Steve Dunne. It is a unique Q&A with Kinnari Desai, Workday’s senior director of corporate finance, on how Workday responded to the FP&A impact of COVID-19.

Kinnari Desai, Workday’s senior director of corporate finance, has deep insight into scenario modeling and how Workday approached this following the outbreak of COVID-19. We spoke with her to get more best practices and tips for financial planning and analysis (FP&A) teams.

How did Workday have to adapt its business planning process following the start of the crisis?

We were coming off the back of our annual planning cycle and thanking our teams for their efforts in delivering “Plan A.” Then of course, everything changed with COVID-19. We had to spring right back into action, modelling scenarios in an environment that was so new—and seemingly changing hour by hour.

I believe that in an uncertain environment like this, it’s very important the FP&A team aligns with the leadership team, understands the context of what’s happening, and looks at a small number of relevant scenarios. It can be easy to get carried away producing several scenarios, but the goal is to provide the leadership with a range of likely outcomes and provide data, in a simple way, that would enable decision making.

In these situations, I’d imagine speed is of the essence, but you have to get it right if scenario modeling data is going to be valuable to your business leadership?

I do think it’s important to execute quickly, but in order to achieve our objectives, we had to be thoughtful in our approach.

As a business, you have to agree on your priorities. Are you going to focus on top-line growth, cash, the impact of employee relief programs, hiring pauses, and so on? Then you should consider the impact of those on the P&L and cash flow.

The next big thing is getting input from the business. While we are always in lock-step with our business partners since we can’t model in a vacuum, it’s more important than ever to meet with the operational business leaders, gather their perspectives, and understand what’s top-of-mind for them. You should be meeting with leaders multiple times to quickly narrow down focus areas that are a priority for them, such as support for employees, availability of equipment, and hiring direction.

From there, how do you start thinking about how you’ll use scenario modeling to drive decision making and elements such as forecasting?

In our case we had to adapt our scenario modeling frequency to help us make decisions faster. This impacts things like forecasting —we could no longer rely entirely on a monthly forecast process, so we adjusted the process slightly. This has led our FP&A team to a more continuous approach to planning, versus point-in-time or quarterly updates.

There are areas like revenue and cash that we are visiting on a weekly or even a daily basis. Then there are other areas that we may not review daily, but look at more frequently than before. We also discussed as a team that at times, the level of guidance we can give to other internal teams may not be as detailed or defined as it has historically been, since the situation is constantly evolving. As a result, we all need to remain agile.

Last but not least, we also identified drivers of large spend, and cost levers that can be pulled should the need arise.

Technology obviously plays a key part in enabling scenario modeling. Can you tell us a bit about how you used Workday Adaptive Planning to drive the whole process?

Part of our job is to provide a sense of calm amidst chaos, and the Workday tools and data model enabled us to do just that. We spun up different versions in Workday Adaptive Planning, and adjusted the drivers like new business and renewal rates for revenue. For expenses, for example, we tweaked the timing of hiring, and the related impact on other expenses like benefits and employee relations costs were updated right away since they are based on timing of hire.

We were able to leverage actuals data from Workday Financial Management into our forecasts. This enabled us to see the resulting impact on the P&L and cash flow right away. All in all, we were able to speed up the process and operate 50% faster versus using spreadsheets. And the ability to use one data model and driver-based forecasting was very valuable.

What is the magic number when it comes to scenario modeling?

We modeled three different scenarios, and I think that’s a good number to work with during a fluid situation like this. I strongly recommend for my friends and colleagues in FP&A that they don’t drive themselves crazy doing 15 different scenarios! We don’t know everything yet, and spinning up more scenarios isn’t necessarily going to provide the answers.

We aligned on three possibilities and reasoned why these are important. This allowed us to focus on what matters, keeping it manageable so important decisions can be made without data overload.

What would your advice be to other FP&A professionals looking at ways to improve their business planning models today?

I’d start with “over-communicate.” I really can’t emphasize enough the importance of communication. We’ve moved to a remote, digital world, so hallway conversations are no longer a possibility. We needed to ensure emails are not misinterpreted, so we checked in via Slack or had quick Zoom calls. We provided financial guidelines on how to operate in the near term and why these are key.

For publishing updated forecasts to finance, accounting, and lines of business, we heavily leveraged our management reporting capability in Workday. Keeping these stakeholders informed on the approach and current thinking, even when all decisions have not been made yet, goes a long way.

Educate the business as well as accounting. In a changing environment, accounting also needs to be informed of the latest plan so they know what to expect (actuals) relative to the plan. This helps them as they prepare for and move through a remote close —with confidence and in concert with FP&A. The business will also need guidance to understand the latest plan and take action accordingly. Keep an eye on the fundamentals of the business, and take this as an opportunity to rethink some of the processes and outputs.

And lastly, remain agile. As the market continues to shift, we will need to remain flexible so that we can continue to pivot as needed. This is not a one-time shift in light of COVID-19, but a new and more agile way of operating that will allow finance to continuously adapt to change.

This blog post was originally published by Adaptive Insights and appeared here.

Read more guest posts from Adaptive Insights:

FP&A Done Right: 3 Words for a COVID-19 World –“Flexible Budget Variance”

FP&A Done Right: What FP&A Must Do Differently to Make Planning a Success

FP&A Done Right: Modernize your Budget Process to Anticipate Change