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Proactive vs reactive: The element of success in uncertain times

April 7, 2020
Thought Leadership
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With the recent pandemic and the actions taken by countries across the world to protect their citizens, the amount of uncertainty we face in our lives today has increased by several magnitudes in just a few short weeks. A flexible approach to financial planning and budgeting can help.Some businesses are being required to shutter in the short term. Others have been forced to rapidly shift to remote work. Business leaders may be wondering how to plan in the midst of a shifting tide.The truth, while the current situation is substantial, companies are constantly faced with planning while uncontrollable forces act around them. Markets shift, weather changes supply chain availability, and companies adjust their strategies to better align with their new reality. As McKinsey & Company points out, “Without uncertainty, we would just need a plan to go from A to B.”Your organization has weathered change before. Adapting your financial planning and budgeting today to better meet whatever lies ahead is certainly crucial in today’s market climate. But learning to proactively plan and adjust for change instead of being reactive is how your organization will weather today’s storm and stay successful for years to come.

Proactive vs reactive planning

Companies have two choices when it comes to planning. They can stick with a rigid approach to forecasting and budgeting, or they can gain a timely understanding of their current position and be willing to be agile using the data available to them.Traditional budgeting sets a defined path forward. With a clearly defined goal ahead, rails are put around a plan to get a company from A to B. Small deviations — a minor drop in sales, the loss of a client, a sudden and short-lived increase in demand — can be taken up within the context of the forecast. But big changes will break the fragile balance of the forecasts and budgets. The result is reactive measures are taken to try and drive the business back to the path defined, or drastic changes made to change the goal and the plan midstream.When an organization's financial planning and forecasting remain flexible, however, changes outside of a company’s control can be taken in stride and, if used correctly, can even result in opportunities otherwise missed. For a company in a position to pivot quickly, crisis becomes less terrifying and change is not only recognized, but embraced, to keep a business well grounded.To be in control of these changes, however, businesses must be able to be proactive in when and where they will adapt their plans. When it comes to financial planning and budgeting, the office of finance needs information and flexible tools to help drive data-driven decisions.

Creating opportunity with data-driven decisions

Rigid tools like Excel don’t facilitate rapid information processing or deep understanding of potential outcomes. It’s difficult to understand what the impact of unforeseen changes may have on your budget if you can’t quickly access financial data from across the business or use that data to get a handle on what it means.Understanding how forces outside of your control can impact your strategy and planning requires the ability to pull together financial data and reports quickly. Taking weeks to import data from various systems isn’t an option during a rapidly changing market.The same is true with being able to quickly model what that data means. For instance, the ability to quickly create forecast scenarios based on changes in the market puts you in control of making decisions based on an uncertain future. What if the market continues to decline? Will a layoff protect the remaining staff and allow the company to still meet some, if not all, of its goals? What if there is a sudden recovery? The ability to create financial scenarios gives your company the power to fully grasp a situation and proactively make choices that can lead to the best outcomes.Reactive decisions come from a lack of information and an inability or unwillingness to look directly at what uncertain conditions can mean for a business. On the other hand, being realistic about changes outside of your control and proactively addressing those challenges allows for agile and flexible business strategies. Having financial models, rapid and timely reporting, and multiple scenario forecasts that can be leveraged to direct smart, data-driven decision making puts your company in the driver’s seat.

Book a demo to see how Centage empowers the finance office to adopt a proactive approach to FP&A.

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