The bursting of the dot-com bubble, the 2008 global financial crisis, the U.S. trade war with China and the COVID-19 pandemic were all market shocks. They came on top of rapid globalisation and accelerated technology-driven changes to the way we do almost everything in our work and private lives.
Even in these turbulent and unpredictable times, most businesses we recently polled set fixed targets in their business plans. Is this because most businesses are immune to such events? Looking at equity asset price trends over this period, it’s clear that they are not. Managers have come to accept long periods of post-war stable and predictable economic growth interrupted only by major volatility in the seventies when the gold standard was dropped and the oil crisis struck. Against such a stable and predictable backdrop, why bother considering risks to business targets, particularly as processes and technology would have made scenario-planning a burden for CFOs?
Well, times are not as stable, and advanced technology makes scenario planning both good practice and a realistic prospect for business finance professionals. Scenario planning not only allows managers to set a range of results commensurate with risks but also enables them to select options based on an assessment of risks versus likely impacts on planned outcomes. Instead, politics and protectionism influences what gets selected for implementation in plans, according to half of finance executives.
We polled finance professionals during a series of CGMA® webcasts on creating a performance culture. Only a third said that they plan for measures and targets for these approved activities. This means that nearly two-thirds of respondents admitted that they waste time scrambling for data to fulfil ad-hoc requests during the year. In ongoing research, the CFO at a global FMCG business explained, ’The right information after you needed it is as useless as the wrong information’. So, why are most planners not also planning for the data that will invariably be needed to assess performance as business plans are implemented?
One of our ongoing research projects (findings coming soon) highlights widespread concern about the time it takes to complete business plans. A finance executive at a leading retailer captured the sentiment, ‘We’re just about to start our budget process again and I would echo that we’re still going through the objectives of the year that we’re currently in’. Perhaps layering scenario analyses, risk-driven target ranges and data planning on top of what’s already a time-consuming process in many businesses would be beyond the capacity of the average finance function. However, the available technology today should allow management accountants to plan for data as part of developing business plans. In such uncertain times, these same technologies should facilitate risk-driven scenario planning and make it easier for business activities to be managed against these scenarios as plans are implemented.
There are other benefits of including data plans and risk-driven scenarios in business plans. Operational risks of scenarios are integrated with plans, measures are pre-agreed with by decision-makers and results are promptly available to them. Data is trusted and there is one version of the truth. Business plans document trigger points and remedial actions — the approved ‘playbook’ that supports decision-making as plans unfold.
After all, ‘In God we trust; all others bring data’. (W. Edwards Deming, MIT).