Every business needs to predict and manage their current year performance to make informed decisions about the future of their company. CFOs should collaborate closely with the wider business throughout the year to monitor performance against budgets, anticipate any variances and manage outcomes by implementing mitigating actions.
Your starting point for managing outcomes is to closely monitor budgets throughout the year. CFOs should implement ongoing management review processes to monitor performance against budgets. These are typically performed monthly, although you may be able to do this weekly if you have access to live information.
There are four stages involved in managing outcomes:
When delivering these four stages, you should consider the following questions:
- How often do you hold budget performance meetings with your Board, management teams and wider business?
- What else could you do to anticipate variances and quantify their net impact on business performance?
- Have you modelled the impact of any likely scenarios that would have a significant impact on your results?
The company’s budget needs to become part of everyday life and be fully ingrained in the business.
To stay on track and meet your financial goals, CFOs need to be prepared for unexpected events by periodically reforecasting their numbers. Finance teams that use predictive modelling to manage outcomes can stay one step ahead of the competition. By harnessing the power of data, businesses can more accurately forecast financial outcomes and make better decisions to achieve their goals.
Predictive modelling is a powerful tool that your team can use to manage outcomes. By understanding how past data can predict future trends, businesses can make better decisions about where to allocate their resources. This technique can be used to forecast everything from sales and marketing ROI to inventory levels and employee productivity.
There are a variety of predictive modelling techniques available, each with its own strengths and weaknesses. Some common techniques include regression analysis, time series analysis, and Monte Carlo simulations. Finance teams should select the technique or combination of techniques that best suits your needs and the characteristics of your data set.
Scenario planning focuses upon preparing for a range of possibilities by modelling the financial impact of each scenario. It is not about predicting the future, but rather about preparing strategies to maximize the long-term benefits, should any of your scenarios arise.
Your financial models should allow you to quickly run scenarios based upon the real drivers of your business to move from predictive to prescriptive analysis. This should form a key part of your regular planning exercise to reflect your latest thinking across each key driver, including customer demand, liquidity and supply chain stability.
No matter how focused your business is on hitting budgetary targets, it is almost inevitable that there will be times when some numbers are missed. This may be due to unexpected market conditions, workforce issues or a lucrative new opportunity that justified additional expenditure. Regardless of the reasons, CFOs play a vital role in helping to manage outcomes of budgetary performance during each financial period.
Develop your Financial Planning & Analysis skills
GrowCFO has plenty of offerings to help you quickly develop your Financial Planning and Analysis skills:
- Free members should start by reading our valued Insights page where we are constantly adding new blogs, podcasts, interviews, guides, polls and research articles.
- As a GrowCFO Premium member, you will have full access to our online financial planning and analysis training courses (which include allocating capital, building financial models, creating investment cases, analysing data and managing outcomes), and our mentor-led virtual workshops.
- We also want to remind you about our library of webinar recordings for GrowCFO Premium members that are available to you 24/7. There are some great recordings, such as FP&A for evolving companies, Why strong foundations are key to success and An Audience with the FP&A Guy.
Register for GrowCFO Premium to access these valuable resources.