COVID-19

FP&A Done Right: Planning for What’s Next in Uncertain Times

September 18, 2020 by Revelwood Leave a Comment

This is a guest blog post from our partner Workday Adaptive Planning, written by Michael Magaro. The blog post was originally published on FEI Daily.

The COVID-19 pandemic changed our world, almost overnight, and businesses are having to adjust. The unprecedented nature of the pandemic means no one knows how deep the economic downturn will be, or how long it will last, which makes financial planning for businesses especially difficult.

Fitch Ratings’ “Global Economic Outlook” states that global economic activity will decline by 1.9% this year with the U.S., Eurozone and UK GDP down by 3.3%, 4.2% and 3.9%, respectively. Some industries will be more impacted than others, and next to no one has historical experience with pandemic conditions.

Companies are clearly having a hard time planning. A survey from Gartner of 99 CFOs and finance leaders taken April 14-19 revealed that 42% of CFOs have not incorporated a second wave outbreak of COVID-19 in the financial scenarios they are building for the remainder of 2020, a finding dubbed “surprising,” by Alexander Bant, practice vice president, research, for the Gartner Finance. Many public companies have also withdrawn guidance due to lack of visibility.

So how do companies plan when visibility is so cloudy, and unknowns are so numerous?

For the finance team at Workday, we are embracing scenario planning—basically harnessing the power of “what if”—to respond to COVID-19, and so are many of our customers. Our cloud planning platform is processing up to 30 times more forecasts and build-out scenarios for customers than in a typical, pre-pandemic week. And given the volatility and unpredictability we’ve seen, it’s not likely to ease up soon.

But the reality is that agility starts with planning. Not long before the pandemic hit, we, like many companies, had our plan in hand and were evaluating many different potential outcomes, including whether the long-running economic expansion would begin to show signs of slowing. As the realities of the pandemic came into view, we stepped up scenario planning in order to adapt to changing market conditions–and achieve the level of agility our business demands. And, while we continue to adjust and adapt like all companies, we identified five critical steps for successful scenario planning.

Step One: Assess potential impact to the top line

How will what’s happening impact revenue and the various revenue streams that feed the top line number? For many companies, this will include impacts to new business activity, customer retention, and assumptions that went into the impact of new product launches — if any exist.

Each business faces a different situation. During the pandemic, many hospitality businesses are struggling. Meanwhile, many online retailers are going strong. Each industry’s history can be instructive. During the 2002 Dotcom crash and the 2008 financial crisis, for instance, software companies with a higher percentage of SMB customers took a bigger hit to monthly renewal rates.

Because no one has historical data for a pandemic, it’s important to start off fairly basic with scenario planning. Model some elements from the top line, such as new sales, business renewal activity, and up-sell to existing customers by quarter throughout the year. Consider a range of scenarios possible for your business, perhaps 50%, 65% and 80% of a pre-pandemic plan. This gives a good view into what could happen to the income statement and balance sheet and help businesses understand variances on metrics that matter most to them. For organizations similar to Workday, that’s subscription revenue growth, non-GAAP operating margin, and, ultimately, cash flow.

Step Two: Identify levers on the investment side of the business

What levers do you have to pull? For most companies, people are the biggest cost. Do you hire as planned before the pandemic? What are the differences between hiring as planned, freezing hiring for the rest of the year, and the range of options in between? No business wants to cut job cuts at any time, so it’s important to understand other cost levers at your disposal, and the various outcomes possible when you pull them. To understand your big levers, you have to really understand your business.

Step Three: Align leadership

The finance team alone should not decide steps one and two. Involve all leaders so you get the right picture and analysis, and make sure you’ve identified the right levers. Involving leaders keeps everyone aligned and thinking about the right things. For many companies this may take the form of dashboards shared across the leadership team or creating regular review meetings.

Step Four: Identify a good outcome

Ask what a good outcome looks like for your organization. This will differ for each organization. Is it to retain existing customers? Is it to retain your workforce, or to maintain a customer satisfaction standard? Is it to expand and win market share from distracted competitors? By identifying what matters most to your organization, you’ll better prioritize through steps one, two, and three. And in today’s climate, that desired outcome may change, further elevating the importance of a continuous approach to planning.

Step Five: Dive deeper

Once you have your various scenarios, and have received feedback on them, dive deeper. For some companies, this will mean digging into supply chain issues, for others it may be assessing risk by segment, etc. Third-party research can help you decide how to respond. For instance, if you know a number of your suppliers or customers are feeling a lot of pain, how can you be proactive in supporting them? Align various teams on this topic, too. For instance, sales and customer service hear directly from customers. Their knowledge should inform your analysis and drive your ability to help your customers, partners, and your own top line.

Scenario planning to continuous planning

Even prior to the pandemic, Workday’s finance organization was working toward a continuous planning framework. Our aim is to shift from annual planning and budgeting to continuous planning via more frequent reviews and assessment of how changing conditions impact our product roadmaps, and vice-a-versa. Along the way, we look at such things as margins and cash flow. Whenever conditions change, we anticipate being able to take action and adjust our model. For instance, if product development runs behind schedule, do we adjust by upping investment to get it back up to speed or do we adjust our top line estimates? If we’re operating correctly under the continuous planning framework, planning is not a point in time—it is continuous.

Embracing flexibility

The pandemic is challenging us as humans, as companies, and as business partners in all kinds of new ways. When any crisis hits, finance teams need to be able to seamlessly navigate the kinks that come with uncertainty. Scenario planning—and eventually continuous planning—enables us to embrace flexibility and to use it our advantage.

This blog post was also published by Workday Adaptive Planning and appeared here.

FP&A Done Right: How CFOs Can Lead in Today’s Challenging Environment

September 11, 2020 by Revelwood Leave a Comment

This is a guest blog post from our partner Workday Adaptive Planning, written by Steve Dunne. It is the second in a series looking at macro trends in the economy. This post explains how the CFO can play a strategic role in today’s uncertain business environment.

Even before the COVID-19 pandemic, businesses were facing a plethora of social, economic, and technological challenges, as discussed in the first article of this series. Yet change and uncertainty—while sometimes painful—can create new opportunities, as long as people and organizations have the agility to leverage change for the better.

This is particularly true for the finance function. CFOs must be prepared for both short-term and long-term uncertainty to fully understand and mitigate risk for their organization. This requires a fundamental shift: To become the strategic guide the business needs, finance leaders and their teams must embrace and accept continuous change as part of the new normal.

But how? Below are five key areas for finance leaders to explore in order to guide their businesses through persistent change.

Planning, Liquidity, and Risk Management Are Key to Finance Agility

During uncertain times, it’s difficult to forecast specific revenue and expense targets with any degree of accuracy. Businesses must be able to model rapidly changing conditions, and this demands organizational agility. Uncertainty heightens the need for more dynamic business planning based on a range of scenarios rather than traditional quarterly or annual planning cycles.

Having the ability to conduct more dynamic business planning means organizations can respond to changes and course correct to better understand the impact on top-line revenue and bottom-line expenses. For example, are customers paying on time? What are the implications of a percentage of those customers not settling invoices? Which supplier contracts need to be renegotiated based on changes in demand?

Discussing her own experience of business planning during COVID-19, Workday Senior Director of Corporate Finance Kinnari Desai says, “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.”

Similarly, during tough times finance functions are also well placed to help business leaders forecast cash and liquidity and identify risks with greater speed and accuracy. Many organizations have multiple sources of cash and creating a complete picture of their overall cash position and liquidity can be challenging without the right tools.

Keep Stakeholders Informed and Aligned with Key Insights

The need to make insights more accessible across an organization is heightened during times of uncertainty, and it doesn’t help when data is trapped in departmental silos or locked away in different tools and requiring time-consuming integrations. Workday research shows that over half of respondents we surveyed believe access to data within their organization is somewhat accessible but remains outdated and siloed within functional teams.

Businesses should have access to financial, workforce, and operational data together, as a single source, to answer fundamental stakeholder questions. Other C-suite leaders are increasingly looking for deeper insights from a wider range of data sources to help them make better decisions. For finance, this means having the ability to share credible insights with the wider business and, more importantly, encouraging these stakeholders to take action based on this data.

For example, finance needs to provide the business with better insights into working capital to better understand minimum cash and liquidity requirements. While the primary focus for most companies is on growing the top line while carefully managing the bottom line, this can lead businesses to take for granted routine but critical back-office activities, such as paying bills and turning receivables into cash.

Thomas Willman, principal, finance advisory global practice leader at The Hackett Group, told me, “Finance organizations must take advantage of opportunities to extend payables while still taking care of their most strategic suppliers. They must also share these insights with the wider business. It will be imperative for CFOs to put a sound plan in place to preserve cash and liberate cash that is tied up in working capital.”

Similarly, executives are looking for insights from finance on how they should manage investor expectations during periods of persistent change. This includes thoughtful and proactive communication and risk mitigation planning in advance of regularly scheduled earnings reports.

CFO Efficacy: Report from Any Location

The COVID-19 outbreak changed the rules completely in terms of how and where businesses operate. With employees now working from home, many finance functions had to consider new ways to keep delivering critical services, such as closing the books. This raised questions for finance leaders around the processes and controls required to support a remote close and the risks associated with performing “finance-as-usual” tasks outside the walls of the business.

The need for finance to embrace more efficient, dynamic ways of working pre-dates the global pandemic, yet it is now proving to be a significant catalyst for transformation. For finance, that means embracing automation and emerging technologies, such as machine learning, that can be applied to key processes. CFOs have long since been looking to reduce the time spent on processes such as closes, consolidations, reporting, and payroll—what’s happened in 2020 has now made this an imperative.

The Hackett Group’s Willman explains, “Finance has had to transform in so many ways in 2020. What hasn’t changed is that all of this work still has to be done; what has changed is that it has to be done away from the office. Finance professionals are exploring things such as machine learning and how it can identify patterns and make recommendations that previously would have required manual intervention.”

In addition, compliance and audit don’t suddenly stop during times of crises. Finance is still required to provide effective controls to enable auditing—even if it has to be done remotely. When discussing the company’s remote close, Philippa Lawrence, chief accounting officer at Workday, says, “We asked our internal audit team to review some of the more important and impactful controls to confirm they were operating as they should. Financial controls need to operate the same remotely as they would during any quarter-end close.”

Understand Skills and Opportunity for the Future of Finance

More than half of respondents to a global Workday survey said they planned to reskill at least 50% of their workforce by 2024 to contend with the changing world of work. Today, how will the plethora of macro-challenges to global business further intensify this conversation? How will the emergence of machine learning and other data-driven technologies influence how business leaders—including the CFO—reskill or upskill talent for their organization?

We are at the crossroads of a technology and people transformation. Finance has traditionally been stuck in the role of gatekeeper, intrinsically bound to manual transaction processing and tied to systems that prevent it from becoming a strategic guide to the business. Now, with the global appetite for automation and the technological capability in place, finance should seek to transform.

And this should be viewed as an opportunity for finance, rather than a threat from the rise of the robots, as long as AI is used in a way that continues to put people first. A poll of 375 executives by MIT Technology Review Insights revealed that “pandemic preparedness will speed up AI deployment and accelerate the pace of AI innovation in high-risk job categories, causing both ‘job-positive’ and ‘job-negative’ effects.”

Finance is well-placed to cast aside legacy technology challenges and develop the skills of its existing workforce to benefit from emerging technologies. Now may be the optimal time to drive this transformation.

Collaborate and Communicate to Build Trust and Integrity

According to Deloitte, in the article “COVID-19: Maintaining Customer Loyalty and Trust During Times of Uncertainty,” consumers—whether purchasing for themselves or for their organization—increasingly want to buy from companies that demonstrate integrity in how they treat their employees, their customers, and the environment. These consumers seek trust, honesty, transparency, equality, and a better overall experience.

Blake Morgan, author and customer experience futurist, wrote in Forbes, “An amazing customer experience is one of the biggest competitive advantages a company can have. Instead of competing on price, more than two-thirds of companies now compete mostly on the basis of customer experience.” And, based on Edelman’s analysis of stock prices in 2018, high-trust companies beat the rest of their sector by 5% on average.

For businesses, this is often about making bold internal changes and committing to operating differently. It’s about being open and transparent, as well as being able to pivot and adapt to meet customers’ changing needs. Finance has its own part in this journey toward trust and transparency by delivering real-time data from a variety of sources and delivering these insights to the rest of the organization to drive collaboration and better decision-making.

Large businesses are being asked by stakeholders to stop merely promising to put purpose over profit, and instead make trust an organic value ingrained within their organization. This requires the right technology and processes to enable these businesses to track and analyze the data, then deliver it — whether financial, legal, or compliance—to key constituents in order to be held accountable.

Focusing on the right areas will be absolutely key for finance leaders as the world starts to spin again. Making agility a priority, while arming the organization with the right insights to make better decisions and understanding how finance will deliver what the business needs — potentially from any location — will also be paramount. All of these factors exist alongside a heightened need for brand trust and transparency — something which the finance function will play a key role in delivering.

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

FP&A Done Right: Reforecasting in a COVID-19 World – Best Practices you Can Implement Now

August 7, 2020 by Revelwood Leave a Comment

This is a guest blog post from our partner Adaptive Insights, written by Bob Hansen. The article shares insights from Workday’s internal finance leaders on how they are adjusting to the impact of COVID-19.

COVID-19 has hit the entire world with unprecedented disruption, and you are no doubt feeling it in your plans and forecasts. Ironically, just as you likely completed your 2020 revenue, headcount, hiring, opex, and capex forecasts, COVID-19 rendered them moot.

In a recent webinar, we asked finance professionals where they’re focusing their attention in terms of scenario planning and reforecasting. More than a third of attendees (34%) are interested in planning for the top line to accommodate unexpected changes in sales or demand. Nearly one in three (31%) want to better understand and game out their cash position. Nearly a quarter (22%) are focused on how to plan for workforce factors like headcount, hiring, capacity, and utilization. For 13%, the priority is determining a way forward for opex, capex, and discretionary expenses.

Taken as a whole, these concerns paint a picture of businesses working hard to anticipate what the future holds when they realize many of their prior assumptions no longer apply.

So where to go from here? How can you chart a new course when time is of the essence and the waters are murky? The good news is that Workday Adaptive Planning can help.

The need for more granularity and flexibility

As we’ve been helping customers adapt and respond to the current climate, we’re seeing an increased need for two things across the board: more granular forecasts and a finer time horizon.

These two dominant asks point to the demand for business agility. As Kinnari Desai, senior director of FP&A at Workday, points out, “Flexibility and the ability to react quickly are the two most important things.”

For CFOs and their teams, navigating an uncertain future requires up-to-the-minute, data-driven forecasting that can be done monthly, weekly, or even daily. With the COVID-19 pandemic sending waves of disruption throughout every aspect of an operation, businesses need a real-time view into their cash flow to make the right decisions in the moment.

At Workday, our team of finance professionals has gathered timely and actionable tips for dealing with revenue shocks and workforce and capacity planning when income is hard to predict, and strategies for emerging from this pandemic in a position of strength.

Focus on 3 elements of driver-based top-line modeling

Along with the right attitude, a flexible planning environment, and a good dose of business agility, it’s vital to boil down your most important business drivers and optimize your plan to those key drivers.

When implementing driver-based top-line modeling, Desai says to focus on three key elements.

Align around the metrics that matter. Query your senior managers across the business on which metric or metrics are the most important in these times so you know what to optimize for when you run what-if scenarios.
Identify your largest business drivers. Focus on adjusting those levers to realize the largest financial impact (rather than trying to optimize for every single lever).
Home in on the top two to three meaningful scenarios. By now, you probably have a sense of the impact the pandemic has made on your business, so focus your energy and recommendations on the three most likely or meaningful scenarios. Don’t waste your time, cycles, and sanity spinning 10 or more scenarios that are only slightly different from one another. Iterate and refine the scenarios that will matter the most.

You can use Workday Adaptive Planning to tee up your top-line model without a lot of versioning headaches, number crunching or toggling between spreadsheets. Top-line modeling also helps ensure you and your leadership are marching toward the same goal—something that’s never been more crucial.

Understand the value of the common data model

As these changes impact your data model, as you encounter unforeseen expenses, and as you face the prospect of making critical decisions on an accelerated timeline, the true value of a common data model becomes clear. “At Workday, our common data model really helps us,” explains Desai. “At the end of the day, having the same data model being used in your planning system and your ERP system (and if it’s one and the same, that’s even better) is very important to react quickly and understand the data. I can’t emphasize enough the value of the common data model when you need to know what’s really happening in the business right now.”

Working from a single source of truth, notes Desai, you can better explore data, understand the source of that data, and identify viable, numbers-backed opportunities. Say you’re exploring the idea of moving all your new hires out by a quarter. Historically, that may have been done on a quick Excel workup or even a back-of-the-envelope calculation, with decisions based on a glance at the actual data. But neither of those comes close to what anyone would legitimately describe as “data-driven.” With Workday Adaptive Planning and a common data model, we’re seeing customers forecast quickly, adjust variables in real time, and identify the right moment for taking specific action.

From our own experience at Workday, we realized that to move quickly, we had to iterate multiple times. And we realized that revenue, headcount, and cash flow are all driver-based. A single source of truth is making those iterations easier because those drivers are always accurately represented.

Another key advantage: The platform also helps you isolate and measure the impact of specific variables, instead of the detail just disappearing in a never-ending stream of formulas and sheets. For example, many companies now face (hopefully) one-time expenses like supporting a remote workforce. (We created a special “COVID-19” project code so we could track these one-off expenses, like the relief package Workday provided its employees, separate from typical ongoing business expenses.) Operating on a common data model helps you trace the impact of that expense and present true business-related actuals-to-forecast variance.

Keep management in a forecasting feedback loop

Especially in a time like this, the most valuable role of FP&A is to provide expert insight and well-modeled scenarios to senior management early on so they can make informed decisions on issues like expense reduction, hiring, workforce deployment, customer payment options, and more. The faster they can understand and digest those scenarios and the data, the better suited your organization will be to see the other side of this with minimal lasting damage.

This new pace will most likely not let up anytime soon, so now more than ever, you need to utilize Workday Adaptive Planning to ensure your models, plans, and forecasts reflect the latest expectations and data. You have to be able to make changes on the fly and be ready with an answer when you’re asked, rather than spending the next two to three days calculating it.

So to help ensure your leadership is up to speed, turn to our platform to:

Build your Active Dashboard to showcase the top business drivers for quick reference and fast, high-level adjustments
Drill down into a specific number, or into specific areas of the company to better help understand relationships and correlations across departments or business units. Top-line numbers don’t always provide the insights you need, but discovering what’s behind the numbers can help you see, say, where that opex increase is really coming from
Automate as much as you reasonably can, including ingesting data instead of copying and pasting into reports, to free yourself of the manual minutiae and save time to serve as the strategic force you are

How quickly can you get Workday Adaptive Planning up and running?

This is a question we’re hearing frequently these days as FP&A professionals realize their spreadsheets and legacy planning systems have left them at a disadvantage—and they’re looking for something that will give them greater agility fast.

Depending on what you want with your initial build, getting up and running could take as little as a couple of weeks. As with anything, the timeline depends on a variety of considerations.

Workday Adaptive Planning is vendor-agnostic and easily integrated with most any other system. You’re going to want to pipe in any data source you’re currently using that’s valuable to your plan
There’s no real limit to the amount of data you can sync with Workday Adaptive Planning. Just determine what makes sense for your business—and if your need is urgent, decide what data is critical now and what can wait for later
Workday Adaptive Planning lets you plan as far into the future as you like. This is a significant differentiator from some tools like Salesforce, which allow you to forecast relatively near term or the quarterly pipeline but remains a transactional element. With Workday, you can look past the near term
If you’re still dependent on external files for your planning, no worries. OfficeConnect is a helpful add-on that lets you interact with live numbers in your Excel, PowerPoint, and Word documents

Change is always a constant. Yet unprecedented changes such as those we’re seeing today require more insight and support. That’s why we’ll be rolling out more webinars and education for you to learn how to get the most from Workday Adaptive Planning—and keep your business agile and responsive in these uncertain times.

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

FP&A Done Right: FP&A Tips for Scenario Modeling During COVID-19

July 24, 2020 by Revelwood Leave a Comment

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.

FP&A Done Right: The Office of Finance in the COVID-19 Economy

May 8, 2020 by Lisa Minneci Leave a Comment

Three months ago, we could not have imagined life as it is today. We’re experiencing an economic slowdown that none of us have seen before. Not a single industry is immune from the impact of the U.S. and other countries sheltering-in. Many businesses and industries are down, decimated and are temporarily or permanently closed. Others, like those in the streaming and video conferencing industries, online grocery shopping and third-party restaurant delivery services are booming.

This volatility puts tremendous pressure – both in the form of threats and opportunities – on the CFO and the Office of Finance. There are many questions facing the CFO. Let’s take a look at what some recent reports indicate, and how CFOs and the Office of Finance can arm themselves to be better positioned to respond to both the threats and the opportunities presented by today’s market.

CFOs’ Concerns

CFOs are concerned with the potential length of this downturn. CFO surveyed financial executives and found that they are taking immediate financial action to “survive revenue and profit impacts.” More than half of these executives are estimating a drop in sales between 1 – 20% in the first quarter of 2020. But on a positive note, 46% said they expected a “V-shaped recovery.”

The Office of Finance in the COVID-19 Economy

McKinsey & Company recently wrote about The CFO’s Role in Helping Companies Navigate the Coronavirus Crisis. In it, they state,

“The CFO can play a strong, central role, alongside executive peers, in stabilizing the business and positioning it to thrive when conditions improve … The CFO is the leader, after all, who most directly contributes to a company’s financial health and organizational resilience day to day.”

CFO reports their second concern was cash flow. This is critical, but not unmanageable. This is where the Office of Finance plays a central role in helping the organization survive. Your 2020 budget, plan, and forecast are all irrelevant now. You need to adjust your forecast to give an accurate financial outlook to senior management and investors. Your forecast must reflect new operational metrics for changes in production facilities, staffing and purchasing. It is imperative to change your forecast to show long-term plans for banks and other lenders.

To do that you need to understand what your business model looks like now. Not what it did when you put together your original FY2020 forecast. But what it looks like today, with schools, malls and restaurants closed, production lines stopped or transformed into making PPE, shipments delayed, and vital parts of our supply chains overwhelmed.

Do you have an accurate understanding of your model? The time to act is now. The business environment is uncertain now, and it’s impossible to predict what the next few quarters will look like – regardless of your industry, size, or location.

FP&A Done Right: Planning for What’s Next in Uncertain Times

Step One: Assess potential impact to the top line