Controllers are hot on forecasting. With both the controller and the CFO looking to increase their hold on financial planning and analysis in 2021, according to our first annual Contemporary Controller study (free for Controllers Council Members), many see 2021 as a year where accuracy is key. This is doubly so for those seeking funding or credit, as the crash and recovery threw a wrench into forecasting models.

Shorter Windows, Deeper Understanding: Did 2020 Shatter Forecasting Models?

It makes sense. 2020 and the associated coronavirus outbreak have thrown traditional models out the window and put significant pressure on leaders to do whatever it takes to keep the financial house in order.

When a Model Breaks: Unexpected Numbers Lead to Unexpected Outcomes

Models are great, until they get broken. Take airline ticket pricing in 2020. Plane tickets are a textbook example of price elasticity, and systems are in place to adjust prices algorithmically. Companies could have a clear picture of demand for any given day, using historical data and recent trends to set prices. This was a perfect model for airlines. Was.

When demand plummeted or travel was shut down, systems tried to make up by lowering prices. When demand didn’t increase, the system entered a feedback loop. It did what it was supposed to—get as much revenue as possible from a flight based on current demand. For a much deeper analysis, see Wendover Productions video, How COVID-19 Broke the Airline Pricing Model.

How COVID Broke the Long-Term Forecasting Model

Three-year, five-year, and ten-year plans were built on huge growth—in the years leading up to 2020. When things got up and running again, leaders entered numbers that simply didn’t make sense to the model. Much like airline pricing the outputs were… wonky.

Only difference? Instead of being able to find a round-trip ticket from New York to London for $100, your system is spitting out unreliable projections.

Deeper Understanding and Agile Forecasting: The New Competitive Advantage

Short-term cash-flow planning remains a top priority heading into 2021, and according to Accountancy Age, technology is making this a reality. In turn, corporate finance leadership needs to develop agile forecasts built on a clear understanding.

“Traditionally, clients have told accountants that they need a three-year forecast which has primarily been used as a means of proving that the loan they wish to take out with their bank or another lender is serviceable,” according to Adam McGowan, partner at Mitchell Charlesworth. “But what we are finding now is that that clients increasingly want to look at their short-term cashflow planning and with new financial forecasting software available to them, it is far more possible to provide that sort of insight than ever before.”

This is because ‘standard practices’ are no longer standard. For example, traditional cashflow planning would attempt to use 30 debtor days as standard, but in 2020, this is no longer the case. When the figure can increase to anywhere up to 90 days, traditional models can’t fit—and spreadsheets don’t cut it. Imagine trying to make edits to your forecasting models when nothing is certain—the process is cumbersome and unreliable.

The Path to Improvement Rests on Technology

The reason that companies had been reluctant to adopt an agile forecasting methodology often rested in the spreadsheets used to handle the process.

“Short-term financial forecasting like this was once simply awkward and arduous prior to the emergence of new software tools, but now it is simple and easy to offer cashflow projections on the fly. […] This can help companies not only plan for future growth but serve as an early warning system for potential issues that may lie ahead, which is particularly helpful is these exceptionally challenging times.”

In turn, companies have found that intelligence and automation can connect forecasting processes to deliver a greater understanding of cash flow. But—only if their systems can feed new models.

“Financial forecasting technology and accounting software more broadly has certainly advanced in leaps and bounds, but the ability and awareness of businesses to embrace the most advanced options available is often quite limited. In this new data rich environment, very few businesses have the resources to capture and store the data let alone start to work with it to build sophisticated automated systems.”

Many Paths to Thrive: Setting Yourself up for 2021

Better technology may sound like a stretch right now, but it’s just one area of improvement you can set your sights on. That’s why we’re excited to announce a new webcast on your path out of survival and into thriv…al? Setting your business up to thrive in 2021 takes a village, and if you’re looking for advice, join the Controllers Council and our esteemed panelists for You Survived 2020, How to Thrive in 2021.

Scheduled for December 15, this brief webcast brings in expertise from across the corporate finance and accounting world to discuss how you can best utilize people, processes and technology to build a strategy to allow your organization to achieve sustainable, profitable, long-term growth.

Panelists include Ryan Prindiville, Partner, Armanino Consulting, and Gerry Clancy, Partner, Armanino Tax. Moderated by Lindy Antonelli, Controllers Council Board Chair, and Partner, Armanino Technology.

Register here.

Additional Resources

The Power of Financial Analytics: How Finance Professionals Are Slicing and Dicing Information More Effectively

Three Cloud Migration Lessons for Controllers

Should Payroll Become a Part of Payments Innovation?