As the Covid-19 crisis takes hold of our economy, one immediate impact is the need for the office of finance to be at the centre of business decisions.
We’re seeing many organisations rightly prioritising an assessment of their financial agility. And chasing fast and accurate answers to the many ‘What-if’ questions as they plan for different scenarios.
Combine this with tricky decisions on workforce planning. The BBC reported at the beginning of June that more than one in four workers were furloughed. Today, finance professionals are looking for a better way to plan and navigate complex decisions through a pandemic that offers no assurances, in the face of uncertainty and the threat of a second wave.
Planning for the economic impact of Covid-19
After the immediate and tragic shock of the Covid-19 pandemic, the magnitude and duration of the impact still remains unknown. A paper in ScienceDirect COVID-19 and finance: Agendas for future research draws on research which highlights that this pandemic will incur “costs to the health system; loss of employment productivity; social distancing disrupting economic activity; the impact of tourism; impact on foreign direct investment”.
These costs are part of what has contributed to the OECD forecast that the UK economy will contract by 11.5% in 2020, if the world avoids a second wave, as reported in The Financial Times. It’s a forecast that projects the UK will suffer the deepest downturn in 2020, compared to other wealthy nations. The OECD stated that because Britain’s economy is focussed on services, it would be “heavily affected” by Covid-19. They referenced the delay in lockdown as contributing to a heavier economic impact.
The need for financial agility
There’s no escaping the stark economic truths. Every organisation has had to re-budget and re-forecast because of Covid-19. While organisations have been talking about change, the VUCA world and the impact of technology for over a decade, there is now an urgent requirement for systems to be world-class. And for time-consuming and tedious financial planning tasks to be automated, leaving more space for all-important strategy.
Agility, especially financial agility, means the office of finance needs business information at their fingertips. For robust business and financial plans input data should be:
- Efficiently gathered from across the organisation.
- Properly reported.
- Accurately analysed.
Only then can organisations make strategically, well-informed decisions and pivot with confidence.
Planning for the unpredictable with financial performance management systems
While many finance teams still rely on Excel to produce models and scenario-plan, the speed of change required during the pandemic has placed extreme pressures on desktop applications. The complications of a dispersed workforce, with many teams working remotely, means that errors and version conflicts can impact accuracy and verification of figures. There is one thing that is required now more than ever: confidence in the calculations so decisions can be made.
Organisations need to be able to rely on a single point of data truth in financial reporting. And technology can help. We’ve seen it in other parts of the business where Covid-19 has led to organisations quickly implementing and adopting new technology. It’s just as important for the office of finance. Which is why organisations should implement cloud-based financial performance management systems, often referred to as Corporate or Enterprise Performance Management (EPM/ CPM).
Modern financial planning practices and tools have become more crucial. Take budgeting for example. Research conducted by Axiom found that for 34% of Higher Education institutions, the budget cycle was greater than six months. In today’s environment, a budget is likely to be irrelevant in six weeks, rather than six months. And it’s possible that financial teams will need to produce financial scenarios in six hours rather than six weeks. A figure that’s impossible to achieve without the utilisation of automation and sophisticated financial planning software.
4 key ways to improve financial agility
1. One point of data truth for accurate decision making
Future financial decisions must be made on more than historic financial data. Use supporting information from all areas of the business. From human resources, production, operations, marketing, revenue, CAPEX projects, supply chain, to name but a small selection. This information is typically housed in disparate systems. If consolidated into spreadsheets, this process is prone to error and introduces data security risks.
Aggregating data into one single system allows for the capture of both financial and non-financial data. Essential when budgeting, reporting, analysis, forecasting and planning.
2. Automating and speeding up the process
As we have addressed, using stand-alone spreadsheets lacks an audit trail and is prone to errors. Equally, with the requirement for rapid financial planning, there is not the time to gather information, manage inputs and assumptions and seek approval.
Modern financial technology, such as Axiom’s software, shifts the focus from data organisation into analysis. By managing planning assumptions and real-time reporting, financial teams can take advantage of driver-based planning models. Enabling greater financial agility and better decision making.
3. Collaboration across the organisation
Covid-19 has clearly demonstrated the requirement for collaboration across organisations. Input from budget owners through to negotiations, trade-offs and approvals, means non-finance users can review and submit requests. Increasing confidence and fostering buy-in. And enabling distributed decision making and increasing financial agility.
4. Focusing on strategic activities
Helping businesses make the right strategic decisions needs to be based on sound financial reporting and predictive modelling. Remove time-consuming tasks through automation. And redeploy your people. Utilising them to help steer your organisations through the many and unpredictable challenges from Covid-19.
To find out more about how we can help you become more financially agile, call Axiom on +44 (0)1932 548 465, or email us at hello@verostone.com.