Creating An Agile Financial Environment

The Future of Forecasting

Forecast is a static cut of the multiple possible futures. And it is even more so given the current volatility. Managing this volatility requires agility in a range of areas, forecasting being one of them.

In order to manage data complexity and create a benchmark,  it is important to create one ‘budget’ and to run sensitivities on the same, more importantly  align the key stakeholders on the range in which the key numbers can fall in, and the causalities thereof. In areas where some numbers are sacrosanct, it is extremely important to actively manage the delivery of the  same, in collaboration with other functions.

We do it through an extremely interactive annual operating plan process where finance works as a facilitator for dialogue across functions and resolution of trade-offs between various priorities.

"Mutual trust between CFO and peer senior management is also extremely important in taking appropriate actions"

This requires an extremely enabled finance team that has a keen connect with business and an understanding of the market we operate in.

We have invested heavily in IT systems to make the systems across functions talk to each other since data availability is a must.

Finally, effective forecasting and managing it requires the whole organization to come together.

Budgeting For Innovation

I do not really see any conflict between the responsibilities and focus of CFO vs. CEO/Board. The entire C-suite should see delivering both growth and profitability as their collective responsibility. Now within that collective responsibility, CFOs are tasked by organizations to keep holding the mirror on ‘analytics’ to the senior management team.

I see ‘resource allocation’ as a key responsibility of CFO, in addition of course to the core functional role of financial control and reporting. While at any point of time, it is important to ensure current business is efficiently run and costs and profitability are managed equally, CFO must provide adequate resources for investing in areas of future growth, be it products, markets, customers, or business model.

It goes without saying that growth projects are inherently riskier. Finance needs to understand the key success factors, help project owners to lay down clear milestones and review gates, and make sure reviews do happen. A rich project pipeline and the dictum ‘fail early and fail often’ in allocating resources behind new initiatives enables early cutting of losses wherever required.

Growth projects aside, unexpected events such as unexpected costs or revenue surprises do invariably occur even in running businesses. Difficult decisions are indeed required in such
situations. A good understanding of the room to play and key deliverables are important for Finance in such situations. Mutual trust between CFO and peer senior management is also extremely important in taking appropriate actions.