Finance professionals can serve in a wide variety of areas within an organization. However, some of these areas have had high demands over the last few years, especially the demand for professionals with specific skill sets and experience in business and financial analysis, and data analytics.
We’ve all come across checkpoints in our personal lives where we commonly think about or use phrases such as “let’s take a few steps back”, “I need to reset things” and “let’s start all over again”. These reflections either run through our minds or perhaps, received as advise from somebody who’s relatively close to us. This normally happens during times of stress, when things seem to become overwhelmingly uncontrollable and it appears to be like an appropriate time to stop and reassess or rethink everything that revolves around us. We then go through the process of executing this stage probably by taking a good long break to free ourselves from the environment causing the stress and start the process of ‘soul searching’ and end it with a plan to move forward and do things that are relevant and important.
Ironically, this entire conceptual process of ‘resetting’ as mentioned above is aligned with this idea called “Zero Based Budgeting (ZBB)” in the world of Finance. Organizations also go through similar stages in their life cycle and do need to take a few steps back to recalibrate and reassess their actual expenditures and targets occasionally. ZBB is generally the concept of budgeting from ‘ground zero’ where all components of the budget are somewhat zeroized and new budgets are set, based on cost or revenue drivers that are only relevant for the new budgeting period. Everything is assessed, to some extent, as though the business is starting up afresh, without any past year’s numbers as a guide (ideally).
Traditional budget setting on the other hand, basically adds an incremental growth over actual (or forecasted) expenses of the preceding year. It’s no doubt a much easier approach to budget setting, and not to mention still very relevant, but it does carry some risk of either over or under budgeting for the new year, and this could somewhat negate growth or profitability if it’s not checked. In good times, organizations could live with this, but in tough times, especially in a competitive market, it can be the differentiating factor.
Having said this, it becomes imperative for organizations to know at which point of their business, a reset or ZBB exercise will need to be conducted. Very commonly, most organizations do this when profits seem to be on a downward trend or have been stagnant for some time. This is difficult since, at this point, there is a risk of rushing a ZBB exercise, which could cause more harm than good, where cost-cutting initiatives may result in expenses that are critical in supporting growth is optimized, essential marketing expenses left out and even retrenchment of key personnel.
Thus, it has become increasingly more important for an organization to institutionalize ZBB, by having a structured approach to detect faults early and execute ZBB, and lay out effective plans to manage the organizations’ performance keeping it aligned to its overall strategy. Early warning signals such as detailed performance ratios, which track expenditure against expense drivers such as units produced or sold, headcount, cost centres etc., need to be monitored and presented to Management frequently. There should also be limits set to these warning signals that will trigger a need to analyse further and probably initiate a ZBB exercise within the organization.
ZBB can be a costly and time-consuming exercise if it’s done across the organization. If it’s a small organization, it’s probably much easier as compared to large corporates that could possibly have multiple business sectors, subsidiaries or even regional and global presence. Therefore, it is imperative for Management and the planning team to understand and to execute ZBB as a targeted exercise depending on the need to do so. Sound Management Reporting framework and processes come extremely handy here for such decisions to be made, especially in these large corporates.
Notwithstanding this, there are areas within any organization, be it a large or small one, where ZBB is worth doing on a yearly basis. Such expenditure related to capital and marketing expenditures, need to be aligned to the flavours of the next year (and future), thus, having a fresh set of initiatives which is aligned to the overall corporate and business strategies is essential. This will allow all relevant parties to relook at their business objectives, reassess its alignment to overall strategy and spend accordingly. A central team to evaluate these planned expenditures with Management team is necessary so that only corporate level expenses that are of priority are approved.
Henceforth, it’s worthwhile for most organisations to have a blended budgeting exercise where traditional and ZBB is employed to achieve an optimal outcome. This entire exercise will need to be planned well by the planning team so that time is spent effectively. Organizations could also have plans to ensure all parts of the organization go through a staggered ZBB exercise over a period of a few years to ensure there some sort of hygiene in the organization’s finances. This is extremely vital especially with the current speed of changes organizations are facing in the world economy, particularly with the onset of the digital economy.
Having said all the above, ZBB can only be effective if the organization’s Management fully supports it. The entire exercise is tedious and time-consuming, and times create animosity among employees within the organization. This needs to be managed and communicated effectively across the organization, making it clear that such exercises are to benefit the organization and employees, making it more sustainable.
ZBB will also test the organization’s Management’s commitment and determination to make tough but right decisions which could make them seem unpopular in the short term. Such decisions could range from exiting projects, contracts, shutting down operations and entertainment plans, venturing into new businesses and reallocating resources.
In a nutshell, it is extremely healthy for organizations to incorporate ZBB into their budget setting cycle, as it gives them an opportunity to trim off unnecessary ‘fat’ expenses that could have been accumulating over the years and stay lean and toned. This entire exercise needs to be focused and aligned with the strategic direction of the organization. It must be communicated well, and any changes dealt with appropriately through effective change management strategies. This will minimize resistance among employees, allowing energy to be channelled to much more productive activities within the organization.
We can’t deny the vast content that’s being discussed with regards to Financial Planning & Analysis nowadays, notwithstanding the countless professionals graduating, being trained and working in such environments that require this skill set. In addition to this, the current drive towards digitalization of such activities has also heightened the excitement surrounding such work. However, the burning question here is if the output of all these activities satisfies the expectations of the end users? Have these expectations changed over time, and do we all as FP&A practitioners understand, appreciate it and deliver as expected consistently?
Generally, we can agree that individual expectations with regards to almost everything surrounding us have changed over time. Heraclitus, the famous pre- Socrates Greek philosopher quoted “Change is the only constant in life”. Our expectations with regards to products we purchase, the services we get, kid’s academic performance, the organization we work for, and so forth, has changed. These expectations have somewhat increased to the extent that at some point, what’s expected is nothing less than perfection (hypothetically). It’s expected that an item purchased must be perfectly produced, packaged and sold, especially if it was pricy, if not we would be disappointed and may not patronize that organization again. Similarly, we are experiencing such changes in expectations in the area of financial analysis and planning.
What’s fuelling this change in expectation
Fortunately, finance professionals can serve in a wide variety of areas within an organization doing financial reporting, management accounting, tax planning, business analysis, data analytics, credit, investment portfolio management, etc. However, some of these areas have had high demands over the last few years, especially the demand for professionals with specific skill sets and experience in business and financial analysis, and data analytics. Accordingly, the price we pay these finance professionals has increased over the years, and so have the levels of expectation. Unfortunately, levels of expectations are somewhat proportionate to the price we pay for goods or services. So usually, if we pay a higher price for a branded product, we’d expect it to be of better quality. Thus, likewise, for these professionals.
In addition to the price that’s being forked out to pay these professionals, the availability of an abundance of data has amplified this expectation exponentially. This may also be related also to the price organizations pay for investing in the latest IT technology in keeping their businesses competitive. As organizations digitize and digitalize their processes, data with regards to their organization’s financial health, customers and suppliers activities, payments, banking activities and so forth, are made readily available to employees within the organization. Furthermore, this information reaches these users efficiently and accurately, sometimes on a real-time basis, which in turn, exerts pressure on these employees to turnaround any form of analysis with speeds matching the availability of that information.
In the past, when information and data were limited, such analysis was very much explained by a limited group of senior and experienced employees or managers that would have had years of experience in any specific field and could provide a fairly convincing reason for variances or trends. They would make a calculated forecast based on their vast and rich knowledge, and it would be taken as good. However, advances in technology have made such information readily available to any employee tasked with such analytical roles, thus making it less dependent on any particular employee. This also serves to minimize the risk of having such information concentrated or limited to any one individual in an organization, making it a lot more sustainable.
Hence, finance professionals, especially in the areas of analysis and planning, are the ones who would feel a load of this additional expectation, as they’re expected to correlate the financial information to the non-financial data. The need to explain and justify variances or forecasts, by linking the financial numbers to key business drivers and data trends is the minimum expectation. Such linkages will need to be clearly made available to users upon request or at presentations, in order to have favorable or positive outcomes. Presenting such information in the form of relative charts and diagrams, and giving recommendations, do add value in such forums.
For eq. a basic financial analysis with regards to changes in sales volumes of a specific period would normally be presented in terms of percentage changes over that period, either in terms of sales value or number of products sold. The additional analysis expected would probably include a detailed association to sales personnel, points of sale, demographics of population, seasonal factors, stock availability, delivery times, etc., and possibly made available within a short period of time, perhaps within a day or two (don’t be surprised if the request is for the same day) and with a recommendation moving forward.
Dealing with this rise in expectations
To do all this, it would require an analyst to deep dive into the vast sea of data available and make inferences that make sense. A well-structured IT system would possibly assist analysts to see the linkage via queries done through a structured reporting platform, but, not all organizations have this. Either way, expectations are that analyst need to be able to connect the dots and explain in detail the variances, trends and be able to use such data to make recommendations and forecast future trends for planning purposes.
This is where the expectation builds for those involved in such analytical roles. There is a need to understand how to connect the dots fast so that the information can be relayed timely and accurately. For new joiners, the learning curve is extremely steep, as they’ll need to learn and adapt fast. To do this, having good interpersonal skills to assist in building good relationships within the organization to seek information and develop a good understanding of the business, having some basic knowledge about IT infrastructures and tools, and identifying the various sources of data within the organization or externally (not to mention its reliability too) is imperative. For existing or experienced employees who take on roles in analysis and planning, the steep learning curve would be mostly focused on understanding IT technology, sources of information and its availability, and the various tools used in analysis and presentations.
Be adequate, preferably desirable
Thus, it is vital for any professional in this field to appreciate this expectation and work towards setting themselves up for the challenges ahead. Expectations can be managed effectively if it’s approached correctly taking into consideration the reliability of the information produced, and the experience of the users during the entire process of this activity. Professionals need to understand that the minimum requirement is to deliver outputs that are ‘adequate’, anything less is considered inadequate and could affect a user’s perception. However, if an analysis is delivered to a ‘desired’ level, you would attain unwavering support. Such levels of adequacy and desirable can be somewhat subjective, thus, it does require a fair bit of assessment of your surroundings.
Is there a Job in the Future?
There’s a lot of buzz nowadays with regards to digitalization and how we all need to be ready for significant changes in our working environment and businesses. We’re beginning to feel the impact of these changes in the Finance and Accounting field and ecosystem. Thus, the biggest fear that may linger in the minds of finance practitioners and students, as these ‘digital disruptions’ occur, would probably be, if there will be any relevance or jobs for them in the future.
The pleasant news, in my opinion, is that there will always be finance related jobs going into the future, but the type of work that’s being done now, will evolve to something much different, which, at this point, seem to be moving in the direction of designing financial models, financial/data analytics and planning/forecasting. In other words, the nature of how we do things (or use to do) would branch out into different directions or dimensions, and could probably be very new to current finance professionals.
Taking a step back in time
So let’s deep dive a little into this perspective. Taking a step back in time, if we did ask our fore-fathers and friends who used to do finance and accounting functions in the past, such as bookkeeping, reporting, tax matters and so forth, they’d surely make statements which reflect on how much ‘brain power’ they would use in calculations, filling up forms, filing documents, managing logistics manually etc. and probably boast about using some groovy mental arithmetic methodologies.
This, over time, changed, to some extent, with the onset of pocket calculators in the 70s. These machines did help with accuracy and speed, but also paved way for larger volumes of casting to be done, which in turn, required more finance personnel. Overtime, computers and spreadsheets came about, such as Lotus and Excel, which changed the landscape tremendously. Again, this paved the way for even more information and data to be processed and analysed, in turn, requiring a lot more finance personnel.
Our jobs had also somewhat evolved from the preparation of mere simple financial reports to complex reports with multiple dimensions of the same set of information and data using these spreadsheets, presentation and documentation softwares. These were to facilitate any decision making by the various stakeholders, with the hope that good decisions made. Prior to this, a lot of decisions are made through conscious (or subconscious) analysis of the reports, information and data provided, very much dependent on the decision makers’ vast experience and intelligence (nevertheless, this is still very important!).
Digitalization of Finance Function
Thus, keeping this momentum going, we’re at a stage now, where there’s a lot of activity on going with regards to digitalizing finance functions, by putting in place systems that allow for transactions to be processed ‘straight through’, encompassing the entire spectrum of processing including accounting entries, exception reporting, reconciliations, management and financial reports, financial analysis, budget setting and not to mention, the triggering of next actions steps (which can be associated to the topic on Machine Learning, Predictive Analysis and Artificial Intelligence).
These developments would naturally give many people the impression or feeling that there’s no room for finance personnel in this end to end process, which in turn, may result in negative ‘resistance to change’ behaviours that can slow down or affect the progress of organization towards their digitalization plans and business goals.
So, what should we expects from all this? Generally, we will need appreciate the fact that the roles finance personnel would eventually (or probably have begun to) move to the ‘peripherals’ of the activities being done now. Basically, if you’re currently doing work that’s related to compiling or imputing data, analysing them, preparing reports, filling up budget templates and probably doing some forecasting, all this can and will be automated. But your roles will move away to the ends of this chain of processes, where you will assume roles that would require the preparation of a functional design of the system that would handle these processes, ensuring the designs are customized and caters for all the various scenarios that could possibly happen, ensuring the accounting entries and analysis meets the required standards, preparation of test plans and scripts required for testing the system and actually performing the tests, ensuring proper reconciliation reports are produced for monitoring etc. Furthermore, roles will also focus on monitoring system performances and activities via the reconciliation reports and exception reports and ensuing activities to manage these exceptions are well undertaken and executed.
In addition to this, one particular role that is already being dwelled into large scale as a result of the digitalization and automation of processes in organizations, is financial/data analytics, planning and forecasting, using unstructured data, with the idea to transform some of it into structured data sets, which can be used predictively. Very commonly used terminologies which we tend to come across nowadays includes Big Data and Data / Text Analytics, and the various business intelligence platforms that assist with managing these large sets of data. This is one area where, the demand for finance workforce would probably be, gazing into the future.
As data is made available and in abundance, there will be a need to analyse them and structure them to provide fresh insights, facilitate strategy and business plans. This has become the focus of many businesses. Having such detailed insights into consumers’ demographics, spending and transaction patterns, lifestyle preferences, emotions, social media activities etc., and matching these with detailed consumer level spending analytics and forecasting, would set the stage for businesses to be extremely competitive or possibly give them the competitive edge in whichever industry or landscape they operate in.
Let us Prepare for the Future
Thus, in general, drawing a parallel to how advancing technology over the years has changed the global business and communication landscape, where we are connected 24/7, with loads of information transfers, and continuously giving us the feeling being overloaded, it has also created an abundance of opportunities for people in terms of employments and business. The finance profession is beginning to experience such advancements and changes, and its best we acknowledge and prepare for these changes by acquiring these new skills sets or even influencing curriculums in educational institutions to do so accordingly, in order to be ready to seize any opportunities along the way.
There’s a lot of buzz nowadays with regards to digitalization and how we all need to be ready for significant changes in our working environment and businesses.