Data is the crucial component to agile financial forecasting

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The COVID-19 pandemic has had a deep-reaching impact on economies throughout the globe. With businesses falling by the wayside left, right and centre, organisations are understandably cautious of making investments. Many have simply switched to survival mode. With so many unexpected variables, accurate financial forecasting has never been more difficult. Businesses are forced to switch their strategy at a moment’s notice. Therefore, having an inbuilt agility to financial forecasting is vital for businesses wanting to ensure they have the necessary resilience for navigating the years to come. Legacy systems have simply not been able to cope. So how can organisations best plan ahead by using financial data as the crucial component of the planning puzzle?

Data has an expiration date

Companies are collecting more information than ever before. Nevertheless, many are unable to convert the various sources of data into valuable information and insights. Data-driven organisations are those that have been able to unlock their data and make a positive difference on their bottom line.

Simple one-year financial projections used to be the norm. However, now many businesses require their teams to forecast up to three years ahead to provide stability for the future. Moreover, the uncertainty of the pandemic has required a rethink. While a longer-term projection is still beneficial, this needs to be supplemented. Specifically, by the ability to adjust as and when mitigating forces come to the fore. There is a need for agility. The ability to make tweaks “on the fly” is now imperative. It means organisations can negotiate new contracts with both customers and suppliers. This hopefully counteracts any negative consequences of the decrease in trading due to the pandemic.

During periods of economic uncertainty, such as the one we are in right now, financial forecasting and the role it plays within the wider business receives greater scrutiny from the board. It is not a time for mistakes. Leaders want robust financial information to drive their decision making. The importance of accessing real-time data and actionable data for financial planning cannot be understated to ensure accuracy. More than ever before, data has an expiration date. Such is the pace of change today. Data that is even a few weeks old may no longer provide an accurate picture required for effective planning.

 

Connected systems

To have access to the relevant data required in a timely manner, organisations must ensure that internal systems are connected across departments. Moreover, they must share a common understanding of what drives future forecasting. This is not the time for siloed data. There is good news. With hybrid approaches to working likely continuing for some time, emphasis has already been placed on the need to digitise data within a central repository in many companies. But, work needs to be done.

Connected data leads to a connected business. It can help manage risks better and optimise working capital. As well, it can communicate more personally with your customers at a time when customer loyalty has never been more tested.

Technology that enables better management and visibility of financial data is key to ensure businesses have access to more accurate performance figures to define their forecasting models. From risk management, e-invoicing and automatic payment processing to debtor management and dispute management. Technology can provide CFOs with everything they need to be able to continue along their path of digital transformation.

As digitisation moves forward, the potential of artificial intelligence (AI) fed by accurate data from across the business could help organisations better plan for possible future crises. Nonetheless, it is clear that this is still a developing area and one that many businesses remain reticent of – rightly or wrongly.

 

The need for nuance

Whilst technology undoubtably has an important role to play, it is crucial for organisations to remember not to rely on it alone to ensure agile forecasting. The human element remains key. After all, it is about taking a collaborative approach and leveraging all available talent and technology instead of gatekeeping the knowledge between senior leaders. Plus, it is important that organisations learn from various industry experts and feed insights from outside of the organisation into their financial forecasts. While it is likely that we will see technology-powered data insight drive the vast majority of financial forecasting in the future, expect to see the human element still playing a crucial role. All the same, humans will continue to buy from humans and technology remains weak at nuance.

A perfect example is the unique role that humans play in the accounts receivable process. Of course, data can give a real-time picture of a customer’s outstanding payment situation. However, a trained finance professional is far more adept at making an informed decision based on personal circumstances. Similarly, human experience can provide unique insights and valuable contributions as to how the financial industry will change or develop in the coming years. Data cannot provide this on its own.

What is clear, is that the role of the finance professional will need to develop a fresh set of skills in order to compete, with a fresh focus on skill sets such as data literacy and analytics. Gartner research shows that a lack of skills in data literacy – for example – can cost a company as much as 1% of revenue.

 

Driving forward decision making

Some companies are rapidly expanding, while others are seeing their financial reserves evaporate and struggle to make ends meet. One thing for certain is that the pandemic has shrouded businesses in uncertainty. Even loyal customers and successful large organisations are unsure of whether they’ll be able to pay their bills on time. The greater need for control and flexibility requires extra vigilance. Especially when it comes to the order-to-cash process, and particularly for close customer contact, at that.

During periods of economic uncertainty, leaders are looking for robust financial information more than ever to drive their decision making. Insights from accurate data and a human expertise play a vital part in effective financial forecasting. Enhancements are starting to arrive from the advent of new technology too. It is time to let the latest technologies in AI, APIs and data work for you. This can allow you to maintain long-term customer relationships and ensure good cash flow within your company.

 

How to ensure future success

Organisations should keep in mind the potential external factors that can’t be planned for. Here, a business which has factored in the need for agility will stand out. To ensure this level of agility, organisations need to automate repetitive processes. Employees’ roles should focus on the key decision-making areas of the business as well. Through implementing the right technology, organisations can have the tools they need, giving them insight to set up effective and efficient processes. This allows them to focus on more personalised communication with the customer and provides them with the best possible customer experience to foster loyalty.

Making small but incremental changes helps ensure success. These improvements lead to increased agility throughout every department in the business, removing the need for large-scale changes that can prove disruptive to financial forecasting.

 

This was also published by International Accountant Magazine.

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