Financial planning methods are evolving quickly for CFOs as they help their companies recover from the COVID-19 pandemic and grasp emerging opportunities. For many, the rapidly changing situation has forced out old ways of planning and forecasting and ushered in newer, more advanced scenario-planning techniques.
Rather than relying on historically based ranges, finance professionals are being forced to expand the possibilities they consider and use more real-time planning methods, rapid simulation, and modelling techniques to adjust to evolving events.
The four critical steps to successful scenario planning, according to Accenture, are now:
- Determining the right time horizon for forecasting;
- Identifying drivers of the forecast;
- Modelling rapid changes to external factors; and
- Creating agile planning processes and solutions.
Examples are emerging of companies already using such advanced scenario planning to survive the pandemic and harness the gradual recovery.
According to benchmarking organisation APQC, to protect and grow a company, planned scenarios should include extreme highs and lows — however unlikely they may seem — with a playbook of plans that companies can turn to quickly in every scenario.
Netherlands-based Janneke Abels, vice-president, group planning for energy company Shell, said it is vital for leaders to challenge their own assumptions.
“Shell scenarios ask ‘what if’ questions, encouraging leaders, including those in strategic and financial planning, to consider events that may only be remote possibilities and stretch their thinking,” Abels said. “For example, we expect big data and digitisation to impact energy systems significantly. So, we account for that when planning. The pandemic has also changed the world fundamentally, so we are exploring possible economic, political, and social changes to help us assess implications for energy markets, climate, and energy transitions.”
COVID-19 forces change
Regular planning is essential because speed of response to changes is a key business metric that can affect your company’s performance.
As the pandemic spread, planning frequency became a pressing issue for Emarsys, an international omnichannel customer engagement platform. Chris Ortega, director of finance, Americas at Emarsys, changed planning meetings from monthly to weekly, daily, or sometimes hourly, to be ready for any eventuality with an evidence-based plan.
However, Ortega realised quickly that the company needed better technology to improve the agility and cohesion of responses.
“Our scenario planning looks at business drivers and how changes affect revenue, cash, and customer attrition,” he said. “We were doing all that planning in Excel, but I realised we can be ten or even 20 times more efficient and effective if we have scenario-planning technology.
“We need tools that make us more agile and provide a consistent model rather than everyone doing their own offline planning in Excel. I was looking at a host of factors while other groups looked at different things. It was hard to compare the figures or get an accurate global picture.
“So now we are looking to invest in planning, analysis, and business intelligence technology to make us more agile in the future.”
Recovery arms race
A report by Gartner said CFOs are now analysing multiple scenarios with more accurate and sophisticated criteria, so they can act with more confidence or correct course more quickly and efficiently as conditions change.
To grasp opportunities in the recovery, they need to map data in areas such as virus persistence and resocialisation, and economic, sector, and geographic factors. Tracking wide criteria with the right frequency should help finance leaders spot trends and respond as the recovery unfolds.
Ortega said tracking economic factors will be the best way to identify opportunities for Emarsys. “For example, I will look at air travel resurgence as states reopen; how that might correlate with improved retail spend in those states; and whether that affects physical retail outlets or just e-commerce,” he said.
“I will also compare figures such as unemployment rates and those connected with government stimuli with online and offline spending data by state to see how spending patterns might change. If you can figure out what new buying behaviours and cycles will be, it will be a gold mine. There’s a retail arms race to do that.”
Big data collaboration
Some companies are taking scenario planning further by using big data techniques and collaborations that use data analysis to help the world out of recession.
Ortega said Emarsys partnered with GoodData to review, aggregate, and analyse customer buying behaviour across different industries, verticals, products, and countries.
“That uses data from all our customers to spot insightful trends during and after the pandemic,” Ortega said. “Partnering with a data analysis and visualisation tool helps us meet the challenge around getting reliable data. We need to know it is correct; robust — not just a small survey of people’s opinions; unbiased; comes directly from our customers; and is validated by an independent third party.”
Emarsys has created its own weekly-updated website (ccinsights.org) to help retailers understand global data on consumers and brands related to COVID-19.
Another example of collaboration is Rapid Assistance in Modelling the Pandemic (RAMP), an initiative of the UK’s Royal Society that uses data modelling to generate scenario planning for re-entry strategies. RAMP has recruited 1,800 volunteers already.
Meanwhile, R2 Data Labs — Rolls-Royce’s data innovation catalyst — is a founding member of the Emergent Alliance collaboration, set up to share expertise and data to support decisions about economic recovery. The alliance has more than 40 members, including IBM, Google Cloud, and Microsoft.
Professor Mark Birkin, co-director of Leeds Institute for Data Analytics (LIDA), which is working with the Emergent Alliance, said: “Scenario tracking and analysis make lots of sense now [that] increasing amounts of data are available at, or close to, real time. COVID is providing interesting examples, such as the way Google Mobility Reports are changing continuously for individual cities.”
Birkin recommended CFOs’ plans look for evidence of adjustments to new economic environments rather than back to business as usual. “For example, what trends can we see in mobility, home working, or leisure activities and spending?” he said. “Where are they leading and how can we stay ahead?”
People, businesses, and governments around the world have changed the way they spend, move, communicate, and travel because of COVID-19, said Caroline Gorski, global director for R2 Data Labs. “We can use that insight, along with other data, to provide the basis for identifying what new insights and trends may emerge that signify the world’s adjustment to a ‘new normal’ after the pandemic.”
Shell’s Abels also supported the idea of working together to improve scenario-planning techniques. “Collaboration between companies, policymakers, academia, and civil organisations will be vital in the coming years,” she said. Economic conditions may improve gradually, but many aspects of doing business — from managing supplier and customer relationships to predicting demand and maintaining liquidity — will be different post-crisis.
— Tim Cooper is a freelance writer based in the UK. To comment on this article or to suggest an idea for another article, contact Neil Amato, an FM magazine senior editor, at Neil.Amato@aicpa-cima.com.