By Steve Beam - Expert Partner, Bain & Company
Accurate financial forecasting is growing increasingly more important and more challenging in our current dynamic macroeconomic environment. Over the past few years, faster, more directionally accurate forecasting that delivers decision-quality insights continues to be critical to most organizations’ success.
Given present global disruptions that include inflation, war, recession, market turmoil, and so on, volatility is part of our daily lives.
Faced with these vectors of disruption, companies will continue to have their financial planning processes severely tested. This emphasizes the need for more dynamic planning mindsets, improving internal decision making, and limiting shareholder impact. It is no longer acceptable to have a backward-looking finance function that simply reports numbers.
Dynamic financial planning—which replaces a fixed annual exercise with a flexible approach that responds to changing conditions—is not a new concept, but some companies are finally seeing its necessity and playing catch-up. Business leaders have struggled to change time-consuming and rigid traditional processes that have caused firms to be caught flat-footed by external shocks, unable to quickly adapt. Unfortunately, few companies have cracked this code, but when we do see success, it is powerful.
Companies take three paths to make financial planning more dynamic.
- Streamline the current process.
- Augment existing activities with new techniques.
- Reinvent these processes altogether.
Streamline. Some companies take six months to prepare an annual budget, multiple months to forecast within the year, or even weeks to forecast the current month. Streamlining shortens planning cycle times, using technology to automate manual processes and free up time for finance teams to focus on the business.
Augment. Applying artificial intelligence (AI), specifically machine learning, to forecasting can improve accuracy, increase objectivity, and promote continuous improvement. Machine learning–driven forecasts yield unbiased views of the future, identifying complex trends undistinguishable by humans while constantly learning how to better interpret internal and external drivers and data.
Reinvent. One larger-scale way to address flaws in traditional planning methods is to reimagine how your company performs annual budgeting and planning. For example, companies could allocate funding to activities instead of business units, or make budgeting targets relative rather than absolute.
Ultimately, companies that find the best blend of the right processes with new technology, creating truly dynamic financial planning, will be best positioned to adjust quickly and confidently to the shocks coming their way.
Please join me at AFP 2022, where I will copresent with Ruben Rutten, program lead for Next Generation Financial Planning & Analysis (FP&A) transformation at Coca-Cola. Together, we will discuss Coca-Cola’s initiative to improve how the company completes financial forecasting and planning.
We will spotlight our journey to develop and deploy an AI-based algorithm that delivers monthly volume and revenue forecasts at the product level, enabling sufficiently accurate planning, a simplified user experience, and data-driven decision making.
We will also share Coca-Cola’s efforts to streamline current forecasting processes, shortening planning cycle time, reducing manual effort, and standardizing how the business thinks about FP&A.
We will reference key lessons learned from this forecasting transformation, namely the importance of change management and clean data.
Despite challenges, this initiative is the catalyst for dynamic forecasting and planning at Coca-Cola beyond finance, ensuring that the company is well positioned to withstand impending challenges to forecasting brought about by macroeconomic conditions.
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