23-Mar-2021, a day that none of the business leaders across the globe can forget easily! On a windy early morning at the Suez Canal, one of the largest ships was crossing the canal and was stuck due to heavy winds. The Suez Canal is one of the busiest canals that is used for major trading between Eastern and Western parts of the world. For the next 5 days, approximately 369 ships were stuck; they could not cross the Suez Canal and this ended up preventing $9.6 billion worth of trade.
Imagine the state of those business CFOs and the estimate of losses incurred in coping during the subsequent months. In the post-covid pandemic period, being a CFO of a company is no longer merely about ensuring the reports to the Board of Directors or ensuring completion of planning, budgeting, or adhering to multiple compliances. Owing to the level of uncertainty that the pandemic has created, it is necessary for every CFO to work collaboratively with peer leaders.
The FP&A
The CFO runs the business with his FP&A (Financial Planning & Analysis) team, which efficiently collates data for better collaboration, planning and reporting and works with business units in defining the forecasts and getting the expected numbers. A situation like the Suez Canal incident may result in enormous deviations which could take months to recover from and regain normalcy. However, each business unit makes its decisions based on its respective methodologies and perspectives. So, what is lacking in the existing FP&A-centric process?
- It misses the visibility of operational planning from a business planning perspective.
- It lags on the real-time condition of business activities.
- It is primarily omni-directional instead of being collaborative with BU teams.
- The opportunity for adding metrics or drivers specific to business units is minimal.
- Lack of ownership for the business units.
Though the FP&A team is very effective in successfully addressing the planning, budgeting, and reporting needs with the help of BU teams, it requires lots of refinement and directions to get a final commitment from the numbers.
While changes in business are continuous, CFO and FP&A organizations were traditionally able to tackle them as they were predictable to a great extent. For e.g., a seasonal increase in demand would deem that the production unit adds additional shifts or when there was a working capital crunch, the business would follow-up on pending payments or talk to banks to increase the line of credit.
However, with the above-mentioned challenges and increasing market uncertainties, business leaders require a new way of thinking. The CFO offices accomplish this by collaborating with other leaders and moving beyond their FP&A organizations with a newer approach.
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