5. Implementing dynamic business planning and scenario testing
Today’s business landscape is changing at a rapid rate, continuously presenting new risks and new opportunities. For this reason, more and more entrepreneurial businesses are moving away from the traditional annual and quarterly planning processes toward more dynamic planning that allows for agile decision-making. They are asking their finance functions to build and stress-test integrated financial scenarios, factoring in cost and revenue forecasts, as well as the likelihood of macroeconomic and government intervention. These scenarios help to boost the resilience of entrepreneurial businesses by enabling them to plan for different events that could impact on their market or operations.
Increasingly, artificial intelligence and machine learning are being used to enable dynamic business planning and scenario testing. As an example, a leading infrastructure company applied machine learning to improve its earnings before interest and taxes (EBIT) forecasting. Previously, forecasts for relevant KPIs (such as EBIT) had been inaccurate, fueling mistrust around the company’s financial planning. Furthermore, the implementation of a rolling forecast was complicated by missing data on which deviations from plans were leading to the overall deviation. As a result, historical deviations could not be excluded from future forecasts, leading to unreliable forecasts.
The infrastructure company developed a data model for scenario-based planning and integrated business rules, based on segment-specific behaviors, to improve the model’s forecasting accuracy. This led to a self-learning system that improves over time, based on business rules and external factors. The implementation of a rolling forecast and agile planning cycles enabled the company to adjust rapidly to market changes and resulted in a 36% improvement of EBIT forecasting accuracy.
Shift from cost to value
The five priorities outlined above are broadly reflective of the general transformation taking place within finance today. Enabled by technology, the finance function is shifting from a focus on cost, with much time spent on transaction processing, to a focus on value, where most time is spent on analysis and delivering the insights that will empower the business to take the right decisions in the pursuit of growth.
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