A CFO’s Perspective: The Journey to a More Economically Intelligent Organization

Welcome to the second installment of “A CFO’s Perspective.”

The goal of this 3-part series is to help more CFOs realize the benefits of economic intelligence using the experiences of Doug Garis, a then Division CFO at Masonite International, as a guide. Doug shared his story at the 2019 CFO Live conference.

Part 1 covered the role Doug sees for economic intelligence in financial forecasting. In this blog, we summarize the steps Doug and his team took to operationalize economic intelligence in the business planning process.

Building the Capacity for Economic Intelligence

Realizing the advantages of economic intelligence takes more than a technology solution with AI, machine learning and millions of external data sources. It also requires a strategy for putting economic insights to work across the business.

For Doug, this involved a phased, inclusive approach taken in partnership with Prevedere. Here are some of the major points along his journey.

  • Proof of Value (POV)
    Doug’s journey began with a POV that involved building predictive models based on five years of monthly unit sales and revenue data. His goal was to improve forecast accuracy and “put more confidence behind our short and medium-range planning.” The potential payoff was big since off-base forecasts are costly for manufacturers with a lot of working capital.
  • Backtesting
    POVs often include backtesting to see how well Prevedere would have predicted actual results. In Masonite’s case, Prevedere’s models helped explain why the company’s residential business bounced back from the housing crisis more slowly than anticipated. Doug said that “backtesting the data told us, clear as day, that the bodies we normally depended on for forecasting were absolutely incorrect.”
  • Business-Level Insights
    Doug’s “big solve” was the top-line forecast for Masonite’s architectural business. Working with Prevedere, he isolated the economic factors that were leading indicators for that market. From there, the team produced an economic baseline forecast—a projection of future outcomes given current conditions.  With this directional benchmark, Doug had a “much better sense of where the business is going.”
  • CFO Advocacy and Alignment
    Doug actively shared forward-looking economic insights from Prevedere with the senior executive team as well as sales and supply chain planning. He called this inclusive approach “democratizing the process.” His goal was to set a data-driven baseline that other business leaders could rally around and use to drive strategy and planning.
  • Informing the S&OP Process
    Thanks to Doug’s partnership with the business, economic insights became a key input to the annual operating plan and quarterly forecasts. Business leaders know whether leading indicators signal an upturn or downturn in future demand. As a result, sales and supply chain can make more informed resource allocation decisions, such as when to invest in promotions and how much inventory to keep in stock.
  • Regular Refreshes
    Doug’s experience is that “it’s imperative to continuously refresh your viewpoint because things change over time.” Economic baseline models are updated once a year; leading indicators are reviewed quarterly. This allows the business to test planning assumptions and stay alert to the early signs of shifting market conditions.
  • More Use Cases
    Looking ahead, Doug said he sees opportunities to use Prevedere in several European businesses and to sharpen the planning assumptions for input costs. “There’s an exploratory benefit to using a scalable tool like Prevedere,” he noted. “You’re using the power of software and machine learning to do the FP&A analyst function.”

Putting Economic Intelligence to Work

Today’s CFOs are being asked to play a more strategic role in the business. Operationalizing economic intelligence is a proven way to drive growth and mitigate risk.

As a CFO, Doug said he values being able to guide business strategy with a “simple barometer of where we think the market factors and performance benchmarks are going.”

And the good news is that you don’t need a staff of data scientists to get started. As Doug told the CFO Live audience, “all you need to understand is positive and negative correlation.”

Coming Up Next

In part 3 of this series, we’ll look at the benefits of economic intelligence in supply chain planning for manufacturers. Can’t wait for the next installment? Download “The Value of Economic Intelligence: 10 Takeaways for CFOs.” Or, get in touch with our team of experts to discuss how economic intelligence can benefit your organization.