A forecast that simply assigns the future values based on prior experiences is not a model. In this article, I elaborate on the meaning of specifying the cause of change by showing why 3-statement forecasting is not enough for FP&A.
If FP&A professionals previously thought we had a tough job, the new reality of a very different world after COVID-19 will make our previous issues seem like a walk in the park. Where should we focus our efforts and how can we provide the businesses with the best ways to move forward?
Developing predictive models, forecasts and scenarios to assess risk and assist decision making is one of a finance department’s most important activities. If finance managers neglect this activity, the company may encounter serious problems.
A Deloitte survey of 600 global finance leaders, as highlighted in CFO.COM, found that: "companies spent nearly half their time creating and updating reports, and just a fraction of that time devoted to uncovering insights in the data — insights that could prove vital to the business”.
One day in November, a worried operations manager for a transport company was preparing for a meeting with the group’s financial director. He’d been ordered to explain the overspending on his region’s fuel account for the first 10 months of the financial year. The variance was huge and the MD had hit the roof! There were many reasons for the variance.
During 2019 I have contributed articles to FP&A Trends that have addressed financial planning. The articles have addressed financial planning from the perspectives of financial statements, fields of study, and business functions. The purpose of addressing financial planning from these perspectives is to provide insights into usage. Usage of financial planning is important because it begins a process of improving financial health. Improving financial health can be achieved when finance professionals use financial planning.