As a result of volatility throughout 2020 and still in 2021, there are several recurring questions about forecasting and planning within organizations. In this Q&A, Rich Wagner, Prevedere CEO, dives into some of these frequently asked questions and addresses common concerns in business leaders’ minds. Specifically, these questions center around digital transformation for FP&A teams and the role that data, analytics, and Intelligent Forecasting plays within the process.
Q: How has digital transformation evolved the role of the FP&A team?
To answer this question, it can be helpful to look at the role of FP&A across different periods. When the pandemic began in 2020, FP&A teams were solving for a defensive play. It was all about assessing cash positions and liquidity and understanding how a remote workforce could accomplish day-to-day tasks like closing the books. As the pandemic began, it was about starting to assess the potential impact of the pandemic on current business plans. At the time, common concerns for FP&A teams centered around whether this would be a short-term disruption to 2020 plans or whether it would be a more significant adjustment, and if so, how businesses would deal with that.
As the pandemic continued, FP&A and the Office of Finance moved towards a more offensive approach and started to create some new processes and procedures. First and foremost was developing a more agile planning process. FP&A teams collaborated more frequently with other areas of the company to understand the impact of the pandemic on each aspect of the business. One of the main concerns was if there would be a recession, and if so, how could they get ahead of it.
At the beginning of the pandemic, no one knew for sure that a recession was coming. However, FP&A teams that had shifted towards the offense were already starting to create contingency plans if it happened. The shift from a defensive approach to an offensive one began with an increase in the frequency in which people collaborated, forecasted, and planned. That kind of collaborative, proactive approach included gathering data to create some new plans to replace any for 2020 that had existed before the pandemic.
Q: How should companies define the new capabilities that now exist within the FP&A team as a result of the digital transformation?
During the pandemic, FP&A teams realized that they had to extend their understanding of data outside their four walls. This included external data about the pandemic, consumer behavior, supply and demand, and supply chain issues. Because of this, FP&A teams shifted from an inward focus to a more outward focus to gather information. Once they had some more data points, they had to start learning how to build scenario forecasts rather than just a single-point forecast. Now, FP&A typically had three scenario plans based on potential outcomes instead of just one that they focused on before the pandemic. Ultimately, they have become more data-aware, giving them the capability to create multiple scenarios within their forecasts and planning process.
Q: What is the role of data and analytics in the digital transformation process?
FP&A teams have become an essential source for gathering data outside a company’s four walls, such as economic conditions, consumer behavior signals, and pandemic impact and recovery estimates that should be included in the planning process. However, data by itself is just noise. Without actually analyzing how these new data sets could impact a business, they are essentially useless. Companies need to identify external leading drivers or things that are truly related to their business and learn how to use those signals to predict potential outcomes.
Q: Is digital transformation solely about implementing new technology and data platforms or about integration?
Overall, digital transformation must be accompanied by procedural change. In today’s volatile world, companies cannot afford science experiments. They must implement a repeatable process to incorporate new digital insight into forecasting and planning long term, and they need to partner with companies that can help them create necessary deliverables.
Part of this process is identifying what format businesses need information in and when or how often they need it. This is even better if new insights can be integrated right into existing tools and planning processes. Successful digital transformation is about finding someone capable of identifying needed information, creating predictive models, and integrating change into existing procedures to become a repeatable and automated systematic process.
Q: How has FP&A teams’ position with an organization changed due to the global pandemic, the recession, and digital transformation?
In these times of crisis and volatility, finance leaders became more important to the viability of the business. When faced with uncertainty, cash positions and external risk planning needed to be in place, and finance moved from this back-office accountant to the front of the ship. They become involved in identifying risk and helping create plans to steer clear of things that may impact business performance.
About Rich Wagner, Prevedere CEO
Rich’s career spans more than 20 years of technology innovation and leadership, during which he has provided extraordinary value to global enterprise companies. In 2012, Rich launched Prevedére to provide corporations worldwide the ability to significantly improve their financial forecasts, projections and reporting capabilities combining internal and related global external data. With Prevedere, companies gain a competitive advantage because they are able to generate profitable business insights with accurate forecasting that encompasses ever-changing external factors.
Prior to Prevedere, Rich was Director of IT Innovation and Strategy for Momentive, a global leader in Specialty Chemicals. While at Momentive, Rich noticed a significant void in the ways companies managed financial planning and analytics, which led to the birth of Prevedere’s innovative SaaS solution that ensures companies are looking at the right factors that drive business revenue and profit.
As a forward-thinking predictive analytics thought leader, Rich has contributed to publications such as ChiefExecutive, Supply and Demand Chain Executive, Wired, Manufacturing Business Technology, CMSWire, Website Magazine and FORBES.