Many companies are waiting with their Investments of time (e.g. into new Processes) or of money (e.g. into new Technologies) a long time. They are doubting, because the processes are running at the moment. Let me show you, why you should maybe rather doubt about not to invest.
The Challenge of the Future Forecast
From Supervising Planes to Management Accounting
Imagine you are working in an airport tower in the 1990s. You have a huge complex of Computers in front of you and a radar showing the position of different planes in your flight area. Everything you see is the actual position. From the past, you may know the way the plane flew. You are mainly looking at the movements of your points. You are informing the pilots identified by flight codes about other planes and possible risks around. What you do not exactly know is the way the plane will take this time. You can only guess. This and especially the available systems limit the number of planes you can control in your control area.
In another situation, you are working as a Management Accountant in a manufacturing company (doing B2C business). You are doing advertising in newspapers and magazines, maybe in TV. The Sales numbers of your colleagues are on your desk. Now you have to anticipate future production numbers. The CEO wants to see the development of the results from the past including today until a one year into the future forecast. This means, you also have to consider currently running and future planed advertising campaigns.
Old Standards hanging in the Balance
What will be their success? How will you assume future production numbers? Measuring the advertising success generally includes many assumptions, especially at this time. Everything you can regret on are past-oriented campaign related assumptions. You have to assume the development of the demand as well as production numbers and therefore also future purchase prices to anticipate possible future results. A good market knowledge and market experience mixed with a sense and instinct for the future could support your success. If anything starts against the plan, you usually implement counter measures to come back to the old plan, e.g. cost saving measures to reach the Gross Profit planed. The periodical planning usually is very rigid. Might this be the best way?
The Incident: Change of Plan required
Imagine a squall hits a plane or the plane enters a storm and the pilot cannot control the plane as he could before. This could happen anyways. Not only some passengers are scared, the plane also enters a risky situation. In the worst case, this could be a huge challenge for each roll involved: the pilot, possibly other planes pilots around and the air traffic controllers. The involved have to develop and implement counter measures in a very short period. They have to change plans, but is everything included in this sudden change of plan?
How would you feel in these two situations? A high value in insecurity restrict your possibilities to be safe for future forecasts. Sure, the future will never be known, but time changes. Experience and (IT) evolution allow developing new techniques. Companies that do not invest time in developing their future might fail in some situations, compared to other more innovative ones. Algorithms can help anticipating some possible futures. More detailed information makes new ways possible. Progressing techniques make collecting and understanding of more (quantitative) information available. The old periodical planning, as planning from October to December what will happen the next calendar year can get a new coat of paint. Flying can be more secure.
Consequences: Go with the Time
Time for rolling the Forecast
For me this shows that the Management Accountant / Controller of a company in general should try to focus less on the periodical planning but also implement a continuous planning for always at least the coming four months. This means, to be always up to date, but also to have a more reliable forecast as well as fewer risks on planning at period changes. Companies should develop its own and adjust already existing solutions and approaches. Online Advertising and other marketing tools provide a lot more (quantitative and qualitative) information compared to former tools. This gives input to assume a production forecast for the next months and enables forecasting future needs of raw material and sourcing plans much better. A company can negotiate discounts earlier. Forecasting the near future is more reliable.
Go with the time or the time leaves without you
Times change and so should change the solutions you use. Tools should not slow down companies’ processes, especially compared to competitors. Companies should aim in being up to date. Abducting investments might be even more expensive than the cost savings could cost. The longer old systems run, the more difficult it is to change. The technical evolution allows using new Software and Advertising solutions. This supports to understand customer and supplier behavior and needs even better.
The annual number of planes and flights are growing constantly. New solutions allow better controlling the flights. Systems communicate. New solutions allow updating to the latest version easily. The new pilot makes flying more secure because technical solutions allow him, anticipating the flight even better. Several displays show weather conditions, flying objects around and much more. Flying is getting even safer if airlines keep the solutions up to date.
The changing role of a CFO
So does the future officer, the future CFO from my point of view. New solutions allow anticipating the near future. New techniques invite to plan more sustainable and backed. The future officer should understand the possibilities and know how to use them. He should be open for the future and not be scared to go new ways. He might have a team around making this available to him. Especially technical skills are today much more important for managers and pilots than in the past.
In the past, it was more a reacting on entering events like squalls or sudden change of demand. New solutions allow pilots and managers to anticipate the future. I see the new role of CFO more as a Chief Future Officer, using the techniques of rolling forecasts beside an annual planning frame. From my point of view, the fixed annual planning is important, as it has been in the past, but rolling forecasts are even more, especially for Startups. Changing times change techniques.
Why Investments into the Future are so important
I believe that the Investments into new Tools and Techniques are the basis for companies to be successful. Some companies see the potential of Investment and have the liquidity available, but they do not Invest. In another example some companies know about the challenges of their own Processes and they know, that a Process Update might increase the efficiency. They doe not invest time in enhancing theses old processes as they think, the Processes are working. Why should we change?
This might work as long as the competitors hesitate in updating their processes or in investing into new machines. What if your competitor does the Investment (of time and / or money) and decreases the time of production per good by 25% or the production expenses by 30%? The new machines and processes are working well. Now the competitor has a competitive advantage against you. You can wait with the Investment as long as you want to, but be prepared to regret.
Your environment does not sleep. Go with the Future or the Future will leave you behind. Where are you than?