Post-COVID Inflation from the CFO’s Perspective

by Alok Ajmera

Rising inflation brings more uncertainties for finance teams and their ability to plan strategically.

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The pandemic accelerated the imperative for businesses to reinvent their approach to financial planning, budgeting, and forecasting. Many organizations found themselves unsure from one week to the next about how financial conditions might shift, making past long-term forecasts obsolete and backward-looking historical data unsuited to an environment unlike anything we’ve experienced in modern times. This constant instability and uncertainty required quick and accurate responses to every change in circumstance. But even as the financial stresses of COVID-19 are subsiding, flexible and rapid response will remain an essential attribute of modern financial planning as business conditions continue to fluctuate, especially with post-COVID inflation on the rise.

Similar to the pandemic’s disruptive effect on organizations’ long-term planning and forecasting, rising inflation brings more uncertainties for finance teams and their ability to plan strategically. With prices skyrocketing and relationships shifting with suppliers, partners, and customers as they also fight through inflation’s effects, businesses need to fill the gaps in their planning and forecasting processes to remain stable in times of upheaval.

However, data shows too many CFOs still aren’t adequately prepared to tackle current and future unexpected changes in the marketplace. A recent survey from Prophix Software and FSN Research of over 500 international finance executives revealed significant gaps in finance teams’ financial planning and forecasting agility. Teams are struggling in nearly every category studied—ranging from speed and insight to forecasting accuracy—all hindering the ability of organizations to anticipate and react to sudden changes and unpredictability.

If finance teams want to make any adjustments to their business forecasts, the survey shows it can require significant time—for instance, 40% of survey respondents are unable to reforecast in under a week. As many as 6% of organizations say it can take as long as a month to make needed forecasting changes. Accuracy is suffering, too, as the majority of respondents are unable to forecast revenue and earnings within +/-5%. Even minor budgeting changes are time-consuming: it takes 36% of respondents more than half a day to make a minor change, such as adding a new cost line item. And over half of respondents can’t get a minor change reflected in all budgeting reports within the same half-day period. If CFOs continue to fall short in their ability to react to shifting business conditions with speed and accuracy, they and their teams will struggle to meet the demands of a rapidly shifting financial environment and miss opportunities to drive competitive advantage.

But while many finance teams are still lacking in these areas, the survey revealed those organizations that have made an investment in digital transformation can react more swiftly to market changes and better maintain their financial health. To understand how digital transformation impacts planning, budgeting, and forecasting, the survey compared the 5% of companies that invested wholly in new technology tools for financial planning and analytics with the 14% that made no changes to their processes. The results show a distinct difference in how both groups organize and interpret their data for insightful planning and forecasting. While finance teams that have not invested in automation, data management, and real-time analytics are bogged down with disconnected spreadsheets, manual processes, and poor data utilization, organizations with a focus on digital transformation are wielding real-time data insights for strategic decision-making.

Data mastery is the key to optimizing planning, budgeting, and forecasting. The survey revealed organizations that can take advantage of their data through digital transformation can reforecast earnings and revenue nearly 50% faster than before. By automating reporting and analysis processes, finance executives are freed from time-consuming and error-prone tasks of manually collecting data from various departments and teams across the organization. Instead, their time can be spent more valuably, drawing insights from the data to make strategic decisions, improve profitability, minimize risk, and drive results. This allows organizations to quickly respond to the continual ups and downs of inflation and other business impacts—as well as forecast farther into the future with greater accuracy. As indicated in the report, 31% of organizations that have digitally transformed their planning, budgeting, and forecasting processes can look out 12 months and beyond, compared with just 11% of those that lag in their digital transformation efforts.

The killer combination of speed, accuracy, and long-term insight helps put CFOs and their organizations in a position of strength, no matter what kind of upheaval is going on around them. Organizations will lose ground unless they improve their ability to react quickly to changes and plan for uncertainty. This makes the digital transformation of planning, budgeting, and forecasting processes a top priority: Digital transformation will be the golden ticket to financial agility, empowering businesses to make smarter decisions and protect their bottom line.

Alok Ajmera is the CEO at Prophix.