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FP&A Done Right: Finance’s Role in ESG Reporting

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ESG (environmental, social, governance) reporting is a growing market. According to McKinsey, “ESG issues represent critical challenges for both boards and executive teams.” One question companies are facing is “who is responsible for ESG reporting?”

Some companies have – or will have – a Chief Sustainability Officer (CSO). Nike, Mastercard, P&G, Nissan and others have CSOs. As companies develop their ESG strategies, they need to find a “home” for ESG reporting. That “home” is often in the Office of Finance.

According to the CFO of a software company, “Sustainability is now a key consideration for the finance function. Sustainability work requires alignment with financial priorities such as ESG reporting, investor relations, capital management, carbon accounting, impact measurement, corporate development and even product development.”

Picture this: embedding sustainability metrics into the finance department. This approach brings the discipline and structure of financial management and reporting to those sustainability metrics. Companies can set key performance indicators (KPIs) for ESG scorecards, create ESG dashboards and more.

This approach makes a lot of sense. CFOs have a broad skill set. CFOs are experts at measuring, analyzing and reporting data. They understand the need to have a “single source of the truth,” accurate numbers, automation to reduce manual errors and the need for auditability and transparency.

More importantly, the SEC has proposed regulations that would require public companies to disclose extensive ESG information in SEC filings. CFOs, along with CEOs, will have to certify the accuracy of the data in the filing. This means that public companies will need to address ESG reporting with the same discipline they have with financial data. It needs to be accurate, complete and auditable.

According to EY, “There is increased pressure on corporates to improve their ESG reporting – from equity investors, insurers, lenders, bondholders and asset managers, as well as customers who all want more detail on ESG factors to assess the full impact of their decisions. Finance leaders should move quickly to meet stakeholders’ expectations and articulate a unique narrative of how they create long-term value.”

EY also states that enhanced ESG reporting is an opportunity for CFOs to “build the advanced analytics capability to extract insights from data and reboot the approach to FP&A to create more agile scenario planning capabilities.”

If you are a CFO of a public company, now is the time to develop an ESG reporting strategy.

Read more in our series on ESG reporting:

FP&A Done Right: ESG Reporting Tools

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FP&A Done Right: Financial Forecasting Processes that Guide Business Strategy

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This is a guest blog post from our partner Workday Adaptive Planning, outlining nine ways to plan in the changing world of finance.

Table of contents

To thrive in a competitive and global marketplace, you need exceptional financial forecasting processes and a finance team capable of orchestrating them.

Financial forecasting is a key part of business planning, using past company performance and current conditions or trends to predict what is going to happen in the future.

It helps organizations adapt to uncertainty based on predicted demand for products or services.

When financial forecasting is executed well, organizations can withstand economic disruptions, adapt to revenue and expense fluctuations, and change course when challenges or opportunities arise. Poor forecasting, on the other hand, can sabotage your business.

Read on, and discover the nine steps that you can take to orchestrate financial forecasting processes that truly guide business strategy.

Step 1: Define Your Terms

What is financial forecasting and where does it fit in with traditional budgeting and planning processes? Financial planning and analysis (FP&A) practitioners use these terms in different ways, so here are a couple of definitions to get on the same page:

Forecast vs. plan. A plan refers to an annual forecast prepared for the upcoming fiscal or calendar year. The term “forecast” is usually reserved for periodic exercises to adjust your plan to reflect actual performance.

Forecast vs. budget. A budget is a plan for how you’re going to spend specific amounts of money. While this is a vital piece of any forecast, it is just one piece of the puzzle. A complete forecast should also include projected revenue, assets, liabilities, and cash flow. Truly strategic planners will even take operational key performance indicators (KPIs) into account.

Step 2: Model Your Revenue

Before you can build a comprehensive financial forecast, you need to build an accurate business model. One way to do that is by modeling revenue. An effective revenue model should be able to answer questions such as, “Which investments are necessary to grow revenue by 25% next year?” Or, “If revenue remains flat, which programs should we cut to maintain profitability?” With the right model in place, you’ll have the flexibility to run scenarios and examine assumptions so you can answer these questions with confidence.

Revenue models will vary widely based on your industry and business model. For example, a manufacturer might consider variables such as capacity and utilization, while a law firm might look at client lists and billing rates. Whatever the nature of your business, the right model will help you get a better handle on revenue so you can drive your business forward.

Here are a few common considerations:

  • Get into the drivers. Challenge what you think you know. When modeling revenue, give yourself the flexibility to test and adjust your assumptions so you can gain fresh insights into untapped sources of revenue.
  • Start with the relationship between price and volume. Terms and formulas may differ from one industry to the next, but most models boil down to the relationship between price and volume, so that’s a good place to start when modeling revenue.
  • Consider tops down and bottoms up. Top-down financial forecasting and planning software models start with the big picture by focusing on high-level market trends, while bottom-up models are grounded in the operational details of your business. By taking both models into consideration, you can identify gaps in your current capabilities—and transform those gaps into opportunities.

Step 3: Model Your Expenses

In addition to the money coming in, your forecast will need to consider the money going out. Consider these key factors when modeling your expenses:

  • Personnel. This is likely your largest expense. If your organization is primarily salaried employees, you might forecast personnel expenses on a per-employee basis. If, however, you are a national retailer or restaurant chain with a large number of hourly employees, you may prefer to build a forecast based on shifts or roles.
  • Operating expenses (OPEX). Operating expenses are often tightly correlated with head count. Your expense model should reflect that.
  • Cost of goods sold (COGS). You will need to forecast all costs associated with the delivery of revenue—including labor, materials, and overhead.
  • Fixed vs. variable costs. Understanding what drives an expense is critical to getting the modeling right. A fixed cost (such as a data center) should be modeled on its own schedule, while a variable cost (such as raw materials and packaging) might be modeled according to a formula (e.g., as a percentage of total revenue).
  • Allocations. In some cases, you’ll want to spread costs across segments or cost centers. Distributing IT expenses across multiple departments, for example, may help you understand the “fully loaded cost” of these services. Begin by identifying a key metric as the basis of your distribution. For instance, some costs might be allocated per employee, while others might be allocated per square foot.

Step 4: Set Your Cadence

Once you’ve built your model, it’s important to define a cadence and a calendar. Financial forecasting is not a one-off exercise, but rather a practice to develop and refine over time.

Plan. Begin with an annual plan or budgeting process that integrates input from stakeholders across the business to set targets and define requirements. The models you’ve developed will help you translate these objectives into a financial and operational plan for the year.

Quarterly and monthly forecasts. Inevitably, your organization will drift from your forecast. When that happens, you will need to revisit your plan, assess your performance, and revise your expectations. This periodic reckoning should never come as a surprise, but rather as part of a continuous and dynamic planning process.

Find a forecast cadence that works for you. Sometimes these constraints are set externally. For example, you may be obligated to make periodic reports to shareholders or trustees. While some reforecasts may occur on an ad hoc basis, you should establish a consistent cadence, whether semiannually, quarterly, or monthly. Each reforecast is an opportunity to assess performance and revise assumptions about the future. These shouldn’t replace the annual plan, which will remain relevant for compensation and other targets. Your reforecasts will live alongside your original plan and represent your latest and best predictions of business performance.

Daily and weekly forecasts. In some cases, you may need to generate forecasts on a much more frequent basis. Retail, hospitality, and other highly seasonal businesses may engage in daily or weekly monitoring to reflect customer shopping patterns. Other businesses may choose to do a flash weekly forecast around sales or other operational KPIs to ensure that they remain on track.

Step 5: Forecast What Matters

A useful financial forecast should encompass more than just the strict general ledger chart of accounts. It should also model your underlying operational assumptions. For example, manufacturers might focus on plant uptime, yield, and bar codes, while nonprofits might look closely at grants and membership.

For some organizations, the income statement offers sufficient insight into financial performance. Others, however, will generate a balance sheet and cash flow statement in addition to an income statement. For capital-intensive businesses (such as banks with assets under management or telecom companies building network infrastructure), forecasting capital expenditures (CAPEX) in the balance sheet is critical.

In some cases, building out a full balance sheet for the future may not be worth the trouble, but an abbreviated set of metrics will be sufficient to forecast how net cash will change over time.

“Getting to cash”—and having an understanding of how your operations will impact your future cash position—is essential for smaller organizations without significant reserves, as well as companies looking to raise funds.

Step 6: Define Your Reporting Process

Once you construct a comprehensive model of your business and incorporate your insights into the financial forecasting process, you need to define a set of reports you want to use (both internally and externally). Your reports should provide an easy-to-understand view of company health. They should include more than just a balance-sheet view of your company’s finances, incorporating performance of operational KPIs and “packs” of data you can easily share with your board of directors and management teams.

An efficient reporting process isn’t just about the reports you generate. It’s about how you get there.

If you manage reports using only spreadsheets, then you’re familiar with the process of bringing together all your data sources, manually importing them into various spreadsheets, and emailing them for approval. And that doesn’t even include the ad hoc requests you receive by email or from people you pass in the hallway.

The key to getting everyone the reports they need, faster and more accurately, is automation. An automated platform simplifies the gathering, reconciliation, and extraction of your data. That alone can transform your reporting processes from a monthly hassle to a dynamic, ongoing driver of organizational change.

Step 7: Drive Collaboration

You’ve automated your reporting. You’ve established a regular cadence. And you’ve amazed your stakeholders with the insights you’ve shared. But if you’re still the gatekeeper of information, you may be missing out on a tremendous opportunity. When stakeholders are not directly involved in the planning process, they don’t feel a sense of ownership.

When data is accessible through self-service financial forecasting tools, people will be more likely to adopt a proactive approach to gathering critical finance data, and they’ll come to embrace your plan as their own.

Step 8: Pick Your Financial Forecasting Tools

To help you take these steps, you’ll need the right financial forecasting tools. While Excel is where most finance teams get started, it’s not built for scale. As organizations grow and data sources multiply, organizations must turn to a cloud finance solution that can:

  • Facilitate collaboration. Get everyone in your organization involved in the planning process by giving them access to real-time data so that business partners can take ownership of their numbers.
  • Enable multiple-scenario planning. Combine high-level, top-down growth- and margin-based models with detailed, bottom-up personnel rosters and schedules in a single platform so you can quickly reconcile differences and address gaps.
  • Provide a single source of truth. With a core set of operational and financial data that’s common across the company, you can align the organization and track your performance.
  • Automate reporting. With centralized reporting and automated data integration, you can eliminate the need to hunt for and manually aggregate data. That frees you to focus on analysis while providing stakeholders with the information they need to make better, faster decisions

Step 9: Learn More

Financial forecasting comes down to answering a few key questions. How well can you understand your company’s position in the context of the economic environment? How much insight can you get into what’s driving opportunity and risk? And perhaps most important of all, how ably can you communicate these insights to decision-makers throughout your organization? 

With the right financial forecasting software, you can have all those answers right at your fingertips—and you can help every team member feel that they’re part of the process.

This blog post was originally published on the Workday Adaptive Planning blog.

Read more FP&A Done Right posts:

FP&A Done Right: Accurate Forecasting = Insightful Decisions

FP&A Done Right: Continuous Planning Leads to Agile Businesses

FP&A Done Right: Dynamic Forecasting

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FP&A Done Right: ESG Reporting Tools

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There is a wide range of reasons why ESG (environmental, social, governance) reporting is an exploding market. One reason is that consumers care about ESG. PwC’s 2021 Consumer Intelligence Series survey reports that 91% of business leaders believe their company has a responsibility to act on ESG issues. Another is that the SEC is proposing rules that require SEC-registered companies to include “certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business.”

As such, the industry is expecting a standardization around ESG accounting – most likely coming this year.

What is ESG?

Gartner defines ESG as: “a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts. Examples of ESG data include the quantification of a company’s carbon emissions, water consumption or customer privacy breaches. Institutional investors, stock exchanges and boards increasingly use sustainability and social responsibility disclosure information to explore the relationship between a company’s management of ESG risk factors and its business performance.”

According to one study from Harvard University, “Throughout 2021, the importance of environmental, social and governance matters proved to be even greater than expected, with ESG becoming a key area of focus for a range of stakeholders, particularly in the board room.”

When you take all these data points together, you can safely conclude that many companies, not just public companies, will soon be tracking, measuring and reporting on ESG factors.

The ESG Market

One can look at the ESG market in several ways:

  • How much companies are investing in ESG practices
  • How much VCs and other sources of funding are investing in ESG reporting
  • How many established software vendors are easily adapting existing reporting solutions for ESG reporting

Earlier this spring Deloitte announced a $1 billion investment to expand its Sustainability & Climate practice. The practice “supports the firm’s clients in defining their strategies, embedding sustainability into their operations, meeting tax, disclosure and regulatory requirements, and accelerating their organizational and value chain transformation … [it] will span the firm’s advisory, assurance, audit, consulting, finance and tax services.

The global investor ESG software market is projected to expand at a CAGR of 15.8%, as a result of the emergence of new technologies, approaches, and players with a renewed focus on ESG integration driven by data. The market report cites a “growing emphasis on high quality, verifiable, and consistent data.”

The market is seeking software that provides KPIs, reporting platforms and other solutions that make it easier to collect, measure, analyze and report on ESG initiatives and programs.

Highlighting Select ESG Solutions

There are clear drivers indicating more and more US-based companies will be evaluating ESG software options. Other regions, such as Europe, are ahead of the US in this aspect. Take note – just because you haven’t heard of ESG implementations in the US yet, you will soon. It’s not a matter of if, but when.

Revelwood is not in the software space. We deliver solutions for the Office of Finance. The Office of Finance will be taking the lead on ESG software. We are here to help.

Over the next few months, we’ll take a look at the role of Finance in ESG and will highlight how our partners, IBM, Workday Adaptive Planning, BlackLine and more are approaching ESG. Stay tuned for blog posts on these partners!

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FP&A Done Right: The Value of Scenario Planning

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This is a guest blog post from our partner Workday Adaptive Planning, highlighting the value of scenario planning in modern finance.

Considering all that’s happened over the last year, the case for robust scenario planning has rarely been stronger. Scenario planning—the practice of establishing strategies for variables (possible futures) in key business factors—helps organizations thrive amid uncertainty. To put it simply, scenario planning arms finance with the ability to incorporate responses as changes happen.

Without the ability to adjust revenue and expense assumptions over time, model multiple scenarios simultaneously, or see the impacts of new markets, staffing changes, or regulations, companies won’t have the ability to weather whatever comes next—much less respond to changes in real time.

In a recent webinar by the Association for Financial Professionals, two panelists explored the value of scenario planning and management in modern finance.

“COVID-19 has been described as being the great accelerator and really has forced all of us to do some sort of scenario or contingency planning over the last year,” said Jack Alexander, a former CFO turned adviser, author, and coach. “And my hope is that finance and operating executives will utilize scenario planning broadly in the future and integrate those more into the key planning and management activities.”

Alexander described working with a client pre-pandemic that was facing two major uncertainties. “In this case, the company was unsure whether the economy would continue to expand or contract, and they also had a significant contract that was up for recompete. So they had basically four possible scenarios on a two-by-two matrix combining those two uncertainties,” he said. “And then I also encourage the development of a black swan scenario too—low-probability, high-impact events—and that sort of covers things including what happened with COVID.”

Kinnari Desai, vice president and head of corporate finance at Workday, described a multistep process for accelerating the scenario planning process.

Align leaders’ top priorities

First, organizations need to identify their top two or three priorities. “This could be top-line growth, margins, or cash flow, but it’s very important to be clear on those upfront,” Desai said. “We get perspectives from our executive team and align with them on what is important.”

It’s also critical to understand what is top of mind for business leaders, whether they’re in sales, services, G&A, technology, or other departments. “We need to ensure we have scenarios that are relevant cross-functionally and not only within finance,” she said. “This really helps us incorporate multiple perspectives and inputs into what is important, and we know where that knowledge belongs.”

Alexander echoed Desai’s process of speaking to the C-suite to understand competitive threats, market forces, and developing factors, as well as key personnel who have a view of such areas as critical raw materials and supply chains. “So it really has to be a broad participation across all functions,” he said.

Identify key drivers of sustained value creation

Another key step is to perform analyses to pinpoint the relevance of important factors and focus on the ones that matter. “How much could they influence the outcome? We also get an understanding of which variables and outcomes can be controlled in a short timespan versus ones that will take longer to pivot,” Desai said. “We do not try to optimize every variable but just focus on the ones that matter incrementally, and then we bring them all together in our scenarios.”

Bring in external data where relevant

Finance should develop a perspective that is informed by outside data. “It could be from industry, our peers, customers, economic data,” Desai said. “And at Workday, we use our software called Workday Prism Analytics, and that helps us marry this external data to our internal data, which informs our scenarios.”

Evaluate the frequency of scenario planning and adjust accordingly

“Not all variables, as we know, change on a similar cadence. Some need weekly attention, some monthly, or some even daily,” she said. “And our finance organization combines this power of scenario planning and continuous planning, which allows us to move in an agile fashion.”

Desai added that while there are many variables that impact the business, not all of them have a material impact. For her team, the top six variables garnered most of their attention. “And then we spent all our time understanding how they were going to shift,” she said. “Now, no one has a crystal ball, but the best we could do was to determine how those six variables would move. And those were the big rocks for us that were going to change our outcomes, not the 15 others.”

Three elements to enable agility

Alexander’s approach emphasizes three elements: vision, recognition, and response—all of which are aided by scenario planning and lead to better business agility.

“Even in terms of the vision, it helps because you’re going to be identifying critical assumptions, and you’re going to consider alternative outcomes other than the primary plan,” he said. “And if you combine that with business intelligence, external outlooks, a focus on customers and competitors, that really helps.”

As a year of uncertainty has shown, organizations better able to adapt to rapidly changing environments are often more optimally positioned to withstand crises or uncertainty. In order to build organizational resiliency, scenario planning performed correctly can help the enterprise identify its key business factors, take into account critical cross-functional needs, and create the agility necessary not only to survive, but to succeed.

This blog post was originally published on the Workday Adaptive Planning blog.

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FP&A Done Right: CFOs See a Bright Future for the Remainder of 2021

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This is a guest blog post from our partner Workday Adaptive Planning, examining trends and data presented in a PwC Pulse Survey of finance leaders.

As CFOs look ahead to the remainder of 2021 and beyond, a new survey finds them increasingly optimistic about their organization’s economic prospects.

They are interested in the growth of the digital economy, lasting shifts in consumer behavior, and the prevalence of work-from-home arrangements. Finance leaders are also looking to grow their influence within their companies and are keen to learn how to navigate staffing challenges.

A PwC Pulse Survey of 182 finance leaders from Fortune 1000 and private companies, along with other C-suite executives, finds many CFOs pivoting from a defensive posture to expecting a boost from shifts spurred by the COVID-19 pandemic.

Mostly sunny outlook

As the pandemic accelerated trends on a large scale and enterprises sought to adapt to ever-changing realities over the past year, CFOs are looking to increase their influence within their company—and doing so more efficiently.

CFOs’ top priority for the finance function in 2021 is to establish finance as the business partner across the enterprise (47%). While driving deeper collaboration among functional business partners isn’t a new goal for finance, the pandemic has been a catalyst to expand the level and access of these partnerships. CFOs’ second-highest priority is automating processes using intelligent automation (41%).

In the meantime, economic optimism is high. Nearly half (46%) of respondents polled in March 2021 anticipate high growth from the rise of the digital economy, while 36% predict moderate growth. They also expect high growth from pandemic-related changes in consumer behavior (34%) and the work-from-home trend (21%). When it comes to their views of the U.S. economic recovery, a whopping 81% of CFOs express optimism, a higher percentage than other C-suite leaders (76%) polled.

CFOs are also hopeful about their own company’s performance, with 87% of them forecasting growth over the next 12 months—a significant leap from positive poll responses in September (25%) and October (28%). Now, the pessimists are in the minority, with only 4% expecting lower revenue, down from more than half (51%) who held that outlook six months ago.

Yet the optimistic sentiment is tempered by an increasingly challenging regulatory environment (31%), tensions between Washington and Beijing (27%), and global trade and tax policy (26%). Nearly a quarter of respondents (23%) identify inflation as a high risk.

Finance leaders driving change

Finance leaders are thinking about more than just balance sheets, with top priorities including such considerations as advancing goals for diversity and inclusion (D&I), increasing investment in compliance functions, and revising enterprise risk management practices.

With an eye on the future, CFOs are thinking about hiring, developing, and diversifying their workforce—even as 93% identified the availability of talented job candidates as critical. More than 60% of CFOs say their organization plans to boost D&I training, and 51% anticipate an increase in reporting D&I data to internal stakeholders.

While the economic impacts of the past year had a high profile, the pandemic also took its toll on employees’ well-being, emphasized the importance of mental health, and brought to the forefront environmental, social, and governance (ESG) issues. Against a backdrop of the U.S. recovering from the crisis, 69% of CFOs identify better reporting of ESG issues among their top two priorities—recognizing that those factors and related disclosures will continue to receive more attention from investors, customers, employees, and other stakeholders in the future.

The evolving business considerations around ESG factors have also created the need for a way to measure and manage them. Most CFOs acknowledge the challenge, with 68% saying that identifying frameworks, material issues, and metrics to focus on are a priority. The shift comes as large institutional investors and the Securities and Exchange Commission have sought to improve disclosures from companies.

Looking at internal processes, CFOs also cite the following as priorities: communicating to the board and audit committees on progress (63%); implementing technology, processes, and controls around reporting (63%); and establishing ownership of ESG reporting (62%).

CFOs say producing investor-grade ESG information (60%) and demonstrating value to stakeholders through ESG reporting (60%) are among their top concerns, while identifying appropriate talent to build and maintain their company’s ESG reporting programs is cited by 58% of respondents.

Finance leaders are confident in the U.S. economic recovery and more so in their own organization’s prospects for the coming year, but they are also aware that the road map requires organizational adjustments in a variety of areas. Uniquely positioned to provide enterprise leadership, CFOs have recognized the growing importance of working across departments, utilizing technology to improve efficiency, establishing and developing nonfinancial metrics, and hiring and retaining talented employees.

This blog post was originally published on the Workday Adaptive Planning blog.

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FP&A Done Right: 3 Pitfalls to Avoid with Rolling Forecasts

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This is a guest blog post from our partner Workday Adaptive Planning, detailing three mistakes you don’t want to make with your rolling forecasts.

It’s not just meteorologists who can get forecasting wrong. If FP&A pros don’t take a thoughtful approach to establishing rolling forecasts, they can hit some unexpected stormy weather along the way. When that occurs, you run the risk of forecasts ending up, well, not being forecasts at all. They morph into updated versions of the annual budget as opposed to dynamic tools for creating visibility into the opportunities and challenges on the horizon.

Here are three pitfalls to avoid as you work to get the most strategic value out of forecasting and generate buy-in and momentum with your leadership team and business partners.

Pitfall #1: Don’t use the year-end as the stopping point

Let’s start with a driving analogy. Rolling forecasts should act like your headlights, providing steady and consistent visibility for what lies ahead. Too often, however, rolling forecasts become simply budget updates—which end up being the equivalent of driving so fast that the visibility provided by your headlights becomes increasingly limited.

The most common way organizations fall into this trap is by using the end of the year as a stopping point for forecasting. That may work in the first quarter, but by mid-year your forecast faces a hard stop in six months. And, of course, by the end of the third quarter you have a forecast that offers only three months of visibility.

When you’re forecasting with year-end being the stopping point, you’re just engaged in the process of determining if you are going to hit the year-end numbers that were established in the annual budget process.

The trouble with this approach is that it often encourages business partners to provide numbers and projections that are focused on “hitting the year-end numbers” as opposed to what is actually occurring in the business. With true rolling forecasts that don’t have an established endpoint you encourage transparency, because the focus is on assessing what is truly happening in your business and the market so you can plan and react accordingly. Not only that, but you can also generate a consistent long-range view to aid in better decision-making.

Pitfall #2: Know the difference between forecasts and targets

Forecast and targets are sometimes viewed as interchangeable. They’re not. In the simplest terms, a target is where you want to go, while the forecast continually tracks where you’re headed. In the ideal world, forecasts lead neatly toward your target. In the real world, a forecast represents the ever-changing dynamics of your business and the marketplace.

If you start viewing forecasts and targets interchangeably, you run the risk of facing mounting pressure to adjust the forecast to hit the target—regardless of other factors that might be cause for a course correction—or making decisions that help assure the target is still in your crosshairs.

If you separate forecast and target, you can then have much more robust conversations about what the business is doing to make the adjustments needed to where you want to go. That gives you a much richer, more robust planning conversation than you’d have otherwise. If you keep the definitions straight in your mind, you’ll avoid this pitfall, and really get to the heart of what you’re really planning to do and the risks you’re trying to run.

Making this distinction helps unleash the power of rolling forecasts. You can emphasize that the long-term focus is on the target, but that the nimbleness of a rolling forecast helps assure you will ultimately hit that target.

Pitfall #3: Don’t throw in the kitchen sink

With forecasts, it’s often best to keep it simple. The biggest problem often is that FP&A teams include too much information, thinking that, by putting more and more detail into the forecast, they can really nail it down.

In reality, adding too much detail leads to two pervasive problems that ultimately can undermine your forecasting success. First, it requires much more work for your FP&A team and business partners. Second, handling more data and information increases the chances that your forecasts will miss the mark or be error prone.

For example, the more drivers you include, the more things you must look at, the less time you have for analysis. So if you have hundreds of drivers, you’ve got to spend hours and hours—80% or more of your time—gathering up the data, leaving precious little time to do any real analysis.”

Some experts recommend the 80-20 rule: Aim to spend 80% of your forecasting time on analysis and generating insights, and 20% on collecting data. The only way to effectively do that is to simplify and only rely on the key drivers and data points that will 

This is a guest blog post from our partner Workday Adaptive Planning, detailing three mistakes you don’t want to make with your rolling forecasts.

It’s not just meteorologists who can get forecasting wrong. If FP&A pros don’t take a thoughtful approach to establishing rolling forecasts, they can hit some unexpected stormy weather along the way. When that occurs, you run the risk of forecasts ending up, well, not being forecasts at all. They morph into updated versions of the annual budget as opposed to dynamic tools for creating visibility into the opportunities and challenges on the horizon.

Here are three pitfalls to avoid as you work to get the most strategic value out of forecasting and generate buy-in and momentum with your leadership team and business partners.

Pitfall #1: Don’t use the year-end as the stopping point

Let’s start with a driving analogy. Rolling forecasts should act like your headlights, providing steady and consistent visibility for what lies ahead. Too often, however, rolling forecasts become simply budget updates—which end up being the equivalent of driving so fast that the visibility provided by your headlights becomes increasingly limited.

The most common way organizations fall into this trap is by using the end of the year as a stopping point for forecasting. That may work in the first quarter, but by mid-year your forecast faces a hard stop in six months. And, of course, by the end of the third quarter you have a forecast that offers only three months of visibility.

When you’re forecasting with year-end being the stopping point, you’re just engaged in the process of determining if you are going to hit the year-end numbers that were established in the annual budget process.

The trouble with this approach is that it often encourages business partners to provide numbers and projections that are focused on “hitting the year-end numbers” as opposed to what is actually occurring in the business. With true rolling forecasts that don’t have an established endpoint you encourage transparency, because the focus is on assessing what is truly happening in your business and the market so you can plan and react accordingly. Not only that, but you can also generate a consistent long-range view to aid in better decision-making.

Pitfall #2: Know the difference between forecasts and targets

Forecast and targets are sometimes viewed as interchangeable. They’re not. In the simplest terms, a target is where you want to go, while the forecast continually tracks where you’re headed. In the ideal world, forecasts lead neatly toward your target. In the real world, a forecast represents the ever-changing dynamics of your business and the marketplace.

If you start viewing forecasts and targets interchangeably, you run the risk of facing mounting pressure to adjust the forecast to hit the target—regardless of other factors that might be cause for a course correction—or making decisions that help assure the target is still in your crosshairs.

If you separate forecast and target, you can then have much more robust conversations about what the business is doing to make the adjustments needed to where you want to go. That gives you a much richer, more robust planning conversation than you’d have otherwise. If you keep the definitions straight in your mind, you’ll avoid this pitfall, and really get to the heart of what you’re really planning to do and the risks you’re trying to run.

Making this distinction helps unleash the power of rolling forecasts. You can emphasize that the long-term focus is on the target, but that the nimbleness of a rolling forecast helps assure you will ultimately hit that target.

Pitfall #3: Don’t throw in the kitchen sink

With forecasts, it’s often best to keep it simple. The biggest problem often is that FP&A teams include too much information, thinking that, by putting more and more detail into the forecast, they can really nail it down.

In reality, adding too much detail leads to two pervasive problems that ultimately can undermine your forecasting success. First, it requires much more work for your FP&A team and business partners. Second, handling more data and information increases the chances that your forecasts will miss the mark or be error prone.

For example, the more drivers you include, the more things you must look at, the less time you have for analysis. So if you have hundreds of drivers, you’ve got to spend hours and hours—80% or more of your time—gathering up the data, leaving precious little time to do any real analysis.”

Some experts recommend the 80-20 rule: Aim to spend 80% of your forecasting time on analysis and generating insights, and 20% on collecting data. The only way to effectively do that is to simplify and only rely on the key drivers and data points that will provide clean and accessible forecasts.

The end result will be rolling forecasts that you can readily create and update—and that your business partners can easily understand.

This blog post was originally published on the Workday Adaptive Planning blog.

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FP&A Done Right: Overcoming Obstacles to Collaboration in the Office of Finance

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This is a guest blog post from our partner Workday Adaptive Planning, highlighting how to better improve collaboration in the Office of Finance.

As the role of CFO continues to become more strategic and collaborative, CFOs are expecting their teams to follow suit. As such, many finance leaders are requiring their teams to broaden their understanding of other functions and pushing them to communicate and collaborate more effectively, both internally and externally. According to our studies, collaborative work now consumes a significant portion of the finance team’s week.

The limitations of legacy tech

One of the primary obstacles to better collaboration is outdated technology. With many finance departments still relying on email and spreadsheets to drive their reporting process, collaboration is a time-consuming, frustrating task.

Think about this common scenario: A report identifies a variance and is emailed out to multiple stakeholders for review. This triggers a massive email chain of variance queries, change requests, and edits. Soon you have multiple versions of the spreadsheet existing on different computers. Which one is the right one? And if it’s not saved on the server, who can access it?

Of course, the other issue is accuracy. How does anyone know whether the numbers in the spreadsheet are correct in the first place? Manual-driven processes are susceptible to errors like entering data in the wrong cell, messing up a formula, or adding an extra digit by mistake. As stakeholders copy and paste information into spreadsheets and email them along, you lose the ability to easily track who is entering data or verify where that data originally came from.

The role of nonfinance managers in financial reporting

When some finance departments talk about collaboration, they think about ways of making it easier to collaborate within the department. While that’s important, true collaboration means making it just as easy for nonfinance managers to be able to access and make changes to a report.

Going back to spreadsheets, often the finance department works to get the report perfect before sending it off to an operational manager for review. If the operational manager adds a last-minute update, it can require a massive amount of work to incorporate, review, and verify.

While accurate data is obviously the top priority, something else to consider when collaborating with nonfinance managers is data visualization. Even after you have all the numbers together in a report, a spreadsheet can be difficult to interpret and understand. A report is only as good as the action your team can take from it; to improve collaboration, you must improve both access and understanding of the data.

The 3 steps to making reporting collaborative

If you wish to make your reporting a more collaborative process, here are three keys to keep in mind:

Step 1. Access
Instead of static spreadsheets and email, it’s critical to move your reporting process to the cloud using smart financial reporting software like Workday Adaptive Planning. Because it’s accessible through the web, all your stakeholders can work from the same set of numbers at the same time without confusion or delay. And since you can control and track at the user level who has access and who enters data, you can greatly increase transparency and accountability throughout the reporting process.

Step 2. Ownership
In addition, Workday Adaptive Planning can automatically import data from both your financial and nonfinancial systems. This not only saves time and reduces errors, but it also takes all your data out of departmental silos and brings it together to give your entire company a single source of truth to work from.

Step 3. Understanding
Once you’ve automated data collection, you can focus on delivering insights. Workday Adaptive Planning lets you easily distribute board reports, slice and dice management and financial reports for specific departments, and drill down into the details. Because it’s connected to all your systems, you can also easily create real-time, visually appealing dashboards that give nonfinancial managers instant insight into their department’s performance.

Collaboration is integral to today’s finance initiatives

The marriage of traditional accounting and analytic skills with interpersonal communication and collaboration skills reflects the changing face of today’s finance team and leaders. Data alone is not valuable to today’s organizations. But the ability to aggregate, align, and interpret company-wide data that guides corporate performance continues to separate the traditional from the modern CFO.

This blog post was originally published on the Workday Adaptive Planning blog.

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FP&A Done Right: 3 Ways to Improve Collaboration with Colleagues Outside of Finance

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This is a guest blog post from our partner Workday Adaptive Planning, explaining how to improve collaboration between the Office of Finance and business managers.

Many companies suffer from poor communication and collaboration between financial and nonfinancial managers. Operating managers don’t have sufficient input or buy-in to the financial planning process, and they aren’t educated about how their decisions can influence overall profitability. For its part, finance isn’t able to offer real performance insights that might truly help managers improve their results.

Instead of working closely together to plan and forecast, finance and business resort to negotiations that can involve high levels of conflict. Why is this, and how can it be changed to strengthen collaboration between finance and the business—and therefore transform FP&A?

Drowning in metrics, measurements, and spreadsheets

First of all, companies sometimes flood managers with measurements and metrics, too few of which effectively help managers understand and improve their performance. Too much measuring can add cost and complexity to an organization.

Secondly, spreadsheets continue to dominate planning processes in most companies. While spreadsheets work well for individual productivity, they cause problems when it comes to sharing and aggregating. Finance gets bogged down in low-value-added work—such as formatting and troubleshooting spreadsheets—and can’t provide useful service to business managers.

Meanwhile, business managers waste time managing to budgets instead of managing their business. They often don’t get the information they need, when they need it, from finance. Instead, they’re deluged with data, metrics, and reports, much of which provides little value.

Furthermore, many planning systems are designed and implemented by finance and are seen as irrelevant by business managers. The result is lack of buy-in and enthusiasm.

Clearing the decks for useful analysis and true collaboration

Finance can make room for higher-value work for both themselves and managers by leading the way to less detail and complexity, simplifying internal systems, and reducing the amount of time managers spend producing counterproductive reports and analyzing too many measurements.

In so doing, finance can provide effective decision support and performance insight that can truly help managers improve their results, making finance a real partner rather than an adversary. Here are three best practices that will help you make these changes.

1. Continuous planning

First, replace detailed annual planning cycles, which take too long and result in a budget that is already out of date as soon as it is complete. A more effective planning system is a continuous process, focused on rolling views that look 12 to 18 months ahead. These continuous plans should enable managers to respond more rapidly to emerging events and trends and to changing business environments.

Replacing the annual budget with a rolling forecast can save huge amounts of work, freeing all managers to spend more time on value-added work. It will also improve the relationship between finance and business managers, as finance will have more time to provide better service.

2. Move from monthly variance reporting to KPIs and dashboards

Most companies manage through annual budgets and use monthly variance reporting as the primary feedback mechanism for managers. But monthly variance reporting is too slow and fails to reveal underlying causes of problems.

What is more effective is fast feedback of financial results, summarized and shown as trends and moving averages. KPIs should act as a management dashboard. They should provide managers with early warning signs when problems are brewing and action needs to be taken.

Defining measurements is just the first step. “The next step, and perhaps the hardest part, is to set in motion a cadence for the management team to know and really understand performance through KPIs so that they can use that knowledge to make the right decisions.

These KPIs should be few in number and appropriate to the level of management. A small number of key metrics should be reported daily and weekly. KPIs should provide a fast, high-level view of what is happening today and what is likely to happen in the short-term future. Moving to KPIs in this fashion will not only provide true value to managers but will also lighten the reporting load for the entire organization.

3. Deploy cloud technology that provides fast, relevant information, enabling collaboration

Finance can use technology to provide a performance management system that delivers what managers need—fast, relevant information. Avoid investing in complex IT systems that consume valuable time and money without providing reasonable value.

Instead, implement a dedicated system that employs cloud-based technology to enable unlimited numbers of managers to work together on driver-based forecasts, which are automatically aggregated at every level. This system should also have tight integration with data from other enterprise systems, so that it serves as the primary performance management system.

Why wait?

By implementing these three best practices, your finance team can transform itself and your company’s performance management practices. Your finance team can move beyond simply being effective at financial management and scorekeeping, and instead become a trusted and integral member of the strategic management team. And finance can offer real performance insights that can truly help your managers improve their results.

This blog post was originally published on the Workday Adaptive Planning blog.

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FP&A Done Right: 3 Strategic Skills for FP&A Leaders

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This is a guest blog post from our partner Workday Adaptive Planning, recommending strategic skills for FP&A leaders.

You stay late to meet your deadlines. You triple-check your reports to keep them error-free. You turn around one-off requests at the drop of a dime.

But you still haven’t gotten that big promotion.

That may mean there’s a disconnect between the work you’re doing and the work your boss would like you to do. Research from Robert Half Management Resources has found that finance leaders want FP&A professionals who can look beyond the bottom line to see the big picture. A study found that 86% of CFOs said strategic thinking abilities are important for accounting and finance professionals, with 30% of those reporting that these skills are now mandatory.

And this demand is only expected to increase. In one popular Workday Adaptive Planning survey, CFOs predicted that the time spent by the FP&A team on strategic tasks will double—to as much as 50%.

To show that you’re ready to take on more strategic responsibilities, start by demonstrating that you can make smart decisions. Developing these three skills will help you highlight your potential—and get picked for the next promotion.

1. Study Every Angle

Strategic thinkers plan by identifying several potential paths forward and weighing their likely outcomes against each other. And according to another survey of ours, 48% of CFOs said that, during a market contraction, finance teams provide the most strategic value by planning for multiple scenarios.

That means FP&A professionals who can identify, model and analyze how different factors could impact the company are more likely to stand out as problem solvers. The right software can help you quickly create projections based on potential risks and opportunities on the horizon—and identify actions that could help your company meet its strategic goals. This type of proactive planning can give you the ammo you need to make well-informed recommendations when it’s time for your boss to make the next big decision.

2. Create Compelling Visuals

When making a presentation to your CFO or board, don’t make your numbers do all the talking. Data is an integral part of the conversation, but it doesn’t tell the whole story. Leaders need you to explain what metrics really mean.

Data visualization can help you cut through the clutter and deliver comprehensive, easy-to-digest analysis. And this is exactly the kind of presentation executive teams crave. According to published reports, 31% of CFOs indicated that improving visualization skills would help FP&A teams represent data more effectively.

Learning how to create visuals that explain variances, period-over-period performance and sales projections will help you deliver the wow factor that will put you in the leadership pipeline.

3. Build Bridges

Sometimes, sitting down with people from other departments is all you need to gain a fresh perspective or uncover a new approach to a common problem. And this type of collaboration is what execs are looking for from their finance team.

According to an off-cited EY report, when CFOs were asked about their top goals for the finance function over the next five years, 95% listed improving business partnering with other units as either critical (58%) or a significant priority (37%)—making it by far the most popular priority.

But collaboration doesn’t have to happen around a table, looking atspreadsheets and a whiteboard. If the company’s data exists in a centralized repository, collaboration can happen virtually. Different teams can drag and drop figures into sharable reports that others can comment on in real time, making it easier to get leaders the fast feedback they need to make more informed decisions.

FP&A needs to put itself in the business leaders’ shoes. Anticipate their needs, and creatively look for ways to add value by providing insights and unique perspectives, improving the efficiency of key activities and introducing frameworks, models and structure to enable these business leaders to better plan, manage and run their operational areas.

Grow next-gen FP&A skills

Modern finance teams are more than number crunchers; they’re key partners in support of a company’s strategic vision. But not every new hire (or, frankly, finance team member) is going to have strong strategic acumen from the start. That’s OK, as long as CFOs and finance leaders are willing to nurture those skills with hands-on coaching.

It’s one thing to hire someone and then give them a list of functions they’re responsible for. It’s another to really check in on them, give them guidance, help them avoid certain potholes, and really help them bridge any gaps. Starting early with leadership training, having team members give presentations to strengthen their communication skills, and emphasizing one-on-one coaching sessions over classroom trainings can all be effective ways to build up skills that stretch beyond classic FP&A duties.

Above we presented the top 3 skills that will help you highlight your potential. In closing, we present the top 8 skills needed in FP&A teams, according to a leading publication for finance professionals:

1. Strategic and critical thinking

Automation technology frees you from the manual work and allows you to have more time to think about data critically and strategically.

2. Communication

To be successful, an FP&A professional needs to ask questions, listen objectively to various viewpoints, consider the information at their disposal, and respond appropriately to various stakeholders across multiple communication channels.

3. Tech Savvy Data analytics

New technologies can benefit your organization in various ways. To recognize them, you need to develop an enthusiasm for new technological advances and intellectual curiosity about what’s coming next. Being a tech savvy finance professional gives you a competitive advantage.

4. Technical accounting and finance skills

Undoubtedly, FP&A professionals must be skilled in their areas of expertise. You need to continue working on your education by learning new aspects of the professional.

5. Innovation

Automation will require finance professionals to be innovative and creative when it comes to solving business problems. This is one of the ways to contribute value to your organization.

6. Anticipating and serving evolving needs

Modern FP&A is not only about mastering skills in data analysis. You will need to recognize emerging requirements around you.

7. Leadership

Finance does not work exclusively with numbers. If you have emotional and cross-cultural intelligence and empathy, it will be easier for you to understand the needs of those around you. There comes a time when finance must be the reassuring voice and visionary.

8. Collaboration

Cross-functional collaboration is playing a major part in the overall success of your organization. FP&A professionals need to learn how to work with colleagues who have other skills. Their expertise and specialties can help finance develop the big-picture ideas. It is also important to keep working on your virtual collaboration and management skills.

This blog post was originally published on the Workday Adaptive Planning blog.

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