This blog is the tenth in a series developed from research underwritten by SAP, which explores how new technologies such as cloud computing, mobility, and in-memory processing of Big Data are expanding planning, budgeting and forecasting best practices.
This blog describes the global uncertainties that are driving financial planning and analysis (FP&A) teams to expand their approach to planning to include far greater use of scenario planning to deal with uncertainties.
By amplifying the use of scenario planning, FP&A teams can more effectively anticipate potential risks and uncertainties, understand the underlying drivers, and develop effective ways of responding. In doing so, they are finding that mobility is a key enabler to:
- Involving more people to develop more comprehensive responses.
- Reaching people on a timely basis when they are needed.
- Gathering input from wherever they are located.
- Enabling teams to make rapid responses to changing conditions.
Mobility greatly amplifies the scenario planning options available. This new, rapidly changing world drives the need for organizations to plan with greater agility and faster response. Those who do so successfully can become future ready.
The re-election of Barack Obama added some clarity to the U.S. direction but many questions remain as a divided Congress still faces a financial cliff due to expiring tax breaks and automatic spending cuts. Both of these will pull funds from the economy. But the U.S. financial cliff is not the only potential pitfall that organizations face. A collapse in the European Union is possible due to the situations in Greece and Spain where growth and unemployment are as concerning as government deficits. Several other EU members are not far behind. China's growth has slowed which has likewise slowed countries like Australia that are driven by high commodity prices. Like China, India faces the need to keep expanding jobs for a growing middle class.
And it's not just financial uncertainty. Catastrophic weather events like the recent Hurricane Sandy in the U.S. are still popping up around the globe. In the last few years global supply chains have also been disrupted by earthquakes, floods, tornadoes, volcanic eruptions, droughts and oil spills. Sectarian and religious violence plague many parts of the world. Government regulations remain uncertain. Currencies continue to fluctuate as do oil prices. How can financial planning and analysis teams be effective when surrounded by so much unpredictable uncertainty?
The good news is that many are finding ways with the aid of enterprise mobility, in-memory computing and new approaches to real-time planning. This combination is creating faster, more nimble organizations. How are they doing it?
The first step is a change in their planning focus. Most planners know that any prediction is likely to be wrong. So instead of trying to predict exactly what will happen, they are adopting "most likely to happen" run-rate projections. These forecasts are driver-based and updated frequently (at least monthly). Advanced companies have added the power of in-memory computing to run these forecasts more quickly using greater sets of data. These innovations bring computing speeds that allow teams to run daily or hourly simulations which then can be feedback to the mobile field teams.
But using a single-view forecast (even rapidly developed) can leave organizations at risk. Some events—such as whether an acquisition takes place, the winning or losing of a large contract, or the result of clinical tests for new drugs—create "either/or" events. Planning for some probability in between is not very useful. As a result, FP&A teams are taking a second step of including scenario planning, which looks at multiple possible potential future outcomes—both upside opportunities as well as downside risks.
This scenario planning has organizations creating playbooks on what they will do to defend against risks and take advantage of opportunities. Here again, in-memory computing dramatically expands FP&A's ability to deeply plan for different possibilities. In essence this approach and these capabilities allow FP&A to create "future ready" organizations.
This is also where enterprise mobility is greatly expanding the usefulness of scenario planning. Mobility means:
- Scenario planning can be pushed deeper into field operations, making planning occur closer to customers whose actions are often the trigger that signals overall market direction.
- Scenario planning can be more complete in that local units can develop their playbooks all the way to the front lines.
- FP&A can become embedded in front-line operations and still support the entire organization because they can work from anywhere.
- Actions and countermeasures can be tested more readily because of deeper understanding of operations. This can create more thoughtful plans and quicker testing of what will work.
- Better leading indicators can be identified to tell when action plans need to be triggered.
"The goal is really getting more people engaged into the planning process," notes Muthu Ranganathan, who runs the Global Center of Excellence for Planning at SAP. Ranganathan notes that enterprise mobility "enables more integrated planning across different divisions and departments." More engaged team members lead to greater agility and more coordinated responses.
Next week, join us as we look at using Big Data, mobile and cloud in combination to take planning and performance management to the next level.