Financial forecasting takes a confidence hit

Published on the 10/02/2021 | Written by Heather Wright


Mind the gap in finance_BlackLine

Excel and Covid combine to undermine trust…

Making plans for your business based on financial forecasts from your company data may be riskier business than you’d think, with a new report highlighting a staggering lack of confidence by F&A and business leaders in their data.

Just 29 percent of Australian companies surveyed were confident in the accuracy of their organisation’s financial data. Globally, less than half (43 percent) of respondents said they had complete trust in the accuracy of the data.

Only 56 percent of C-suite respondents are still confident in their data.

The survey, by independent research house Censuswide, but sponsored by accounting automation software vendor BlackLine, shows a big drop in our levels of confidence since 2018 too. Back then, 71 percent of C-suite respondents claimed to completely trust the accuracy of their financial data. Those closer to the financial data were much less optimistic, with only 38 percent of F&A professionals saying the same. Roll on two years and that confidence has been heavily dented, with only 56 percent of C-suite respondents still confident in their data, which is hardly surprising when just 30 percent of the F&A team share the same confidence.

The findings suggest that while businesses now recognise the critical role financial data has to play in informing business strategy and continuity, poor visibility and a lack of access to real-time data is hindering companies’ ability to respond to volatile market changes.

Ensuring data is provided in real time to generate accurate and timely insights is a required success criterion for many companies, with financial data often at the heart of strategic business decisions which need to be made fast, often to solve challenges that have no precedent.

Finance & Accounting in a Post-Covid World: Navigating the Changing Landscape shows 33 percent of global respondents are feeling increased pressure on F&A to provide an accurate picture of company performance, with financial forecasting and stress testing moving up the corporate agenda for 43 percent of respondents.

In Australia, 45 percent said their organisation has become more focused on financial scenario planning and stress testing, identifying areas of vulnerability and weakness to enable plans to address any potential issues.

So why the lack of trust? The main reason, cited by 49 percent – and now’s a good time to mention that the Australian companies surveyed all had revenue of $20 million-plus – was a continued reliance on spreadsheets and outdated processes that mean F&A teams are in the dark until month-end.

The survey also shows the pandemic has created a renewed urgency around digital transformation and investment in technology with 41 percent saying there is now more urgency to redesign core business processes.

DX and sustainability in a Covid world
That renewed urgency around digital transformation comes as a Capgemini survey of the high-end of business (companies with at least US$1 billion in revenue) shows a revving up of DX in 2020, after recording no clear advancement in the 2018 survey.

It’s no surprise that the pandemic has been a major catalyst for digital advancement, but Capgemini puts some figures behind the anecdotes, showing 60 percent of organisations today have digital capabilities and 62 percent have the leadership capabilities to successfully implement DX, an increase from 36 percent on both fronts just two years ago.

“The continued rapid pace of technology innovation and business model disruption over the past two years – with Covid-19 forcing many companies to reinvent themselves – has possibly driven this advancement,” says Claudia Crummenerl, Capgemini Invent managing director, people and organisation.

But while organisations are progressing on a wide range of measures across areas including customer experience, operations, business and technology, there’s one area Digital Mastery 2020: How organisations have progressed in their digital transformations over the past two years calls out as lacking focus from organisations: Sustainability.

A June 2020 Capgemini Research Institute Report, Consumer Products and Retail: How Sustainability is Fundamentally Changing Consumer Preferences flagged that green is the new black for consumer products and retail, with consumers, governments, public-interest groups, investors, competitors and employees increasingly focused on sustainable, environmentally friendly, socially responsible and economically inclusive offerings.

That report showed 79 percent of consumers were changing their purchase preference based on the social or environmental impact of their purchases, and that 78 percent believe companies have a larger role to play in society beyond their self-interests.

It’s a theme Capgemini has carried through to Digital Mastery 2020, with consulting company adding capabilities related to sustainability and a company’s purpose to its digital mastery framework, which covers digital and leadership capabilities.

“Both of these areas are increasingly important for organisations’ digital transformation journeys as companies are now judged on the positive contributions they make to society and there is mounting evidence that digitisation can play a crucial role in developing sustainable solutions,” the report notes.

And it’s not just customer and employee demand, with Capgemini noting increased expectations from governments, more pressure to show progress against sustainability-based metrics such as ESG in order to access capital markets and increased reporting on sustainability.

Digital technologies, too, are reinforcing sustainability. “Increasingly, scaling digital technologies and the resulting digital transformation are also viewed from the sustainability lens on their extent of contribution to sustainability-backed objectives such as saving resources or reducing waste.

“For instance, vendors state that cloud services use fewer servers, consume lesser power, and reduce carbon emissions – which in turn scales digital agility and also contributes to sustainability.

“Sustainability can also serve as testing grounds for new digital technologies. Therefore, it not only fulfills a company purpose to do good for society but can accelerate the shift to applying new digital technologies such as AI.”

But while Capgemini may be pushing sustainability – indeed it has included ‘embedding sustainability and purpose as a core part of the business’ as one of four key recommendations (alongside reinventing the employee experience; becoming a data-powered enterprise and reimagining the customer experience; and scaling new business and consumer engagement models) – businesses are yet to be completely convinced. The research found only 45 percent of respondents were accelerating sustainability investments, projects and commitment and 49 percent say they’re investing in emerging technologies, such as AI and blockchain, to tackle sustainabilty and climate change challenges. In comparison, 82 percent of ‘digital masters’ focus on social and economic purpose.

As to how to do that, Capgemini offers four key steps:

Include sustainability as part of the culture
Establish a roadmap to sustainability across the value chain, including aligning KPIs with established frameworks such as the UN’s sustainability development goals; establishing a governance framework and measuring progress.

Strengthen accountability from top management, establishing direct oversight and accountability from top management to drive scaling up of the initiatives.

View technologies from the twin aspects of digital transformation and sustainability. “While technologies like AI offers immense opportunities for transformation, it is important for organisations to view technologies from the twin aspects of both digital transformation and impact on sustainability. For instance, Iceland witnessed a high increase in energy usage from data centers on account of bitcoin mining.”

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