As a CFO, a VP Finance or an FP&A leader, you’re likely no stranger to surprises, both good and bad. And while the occasional good surprise can be enjoyable, negative surprises often have dire consequences. Thus, we finance professionals prefer to avoid surprises.
And yet our ability to avoid surprises is complicated by the ongoing and rapid evolution of the Office of the CFO. Finance leaders are taking on more responsibilities outside the traditional, core financial scope of their role, including corporate strategy and decision-making, data curation, technology selection and implementation and leadership over non-traditional CFO departments such as Legal, IT and even Human Resources. I recently spoke about this trend at Planful’s Perform23 session, The Evolution of the CFO. This expanded scope increases distraction risk and puts more pressure on finance leaders to work smarter and more efficiently in their financial projection efforts.
A critical element of working smarter and more efficiently is technology. Planful sponsored a survey of 1,000 finance executives in the U.S. We found that more FP&A leaders are turning to financial performance management technology to avoid frustrating surprises in the workplace and keep their organization on track to reach their goals. Similarly, Gartner published the results of a recent CEO/CFO survey and found that technology is the second most important strategic priority today, with artificial intelligence (AI) named as what will most significantly impact their business in the next three years.
So despite the increasing distractions and expanded responsibilities, finance leaders can leverage technology and best practices to avoid one of the worst outcomes for our role — surprise outcomes. Let’s take a deeper look at three tactics finance leaders can deploy to avoid unpleasant surprises.
1. Be hyper-realistic with your top-line
True mastery of forecasting your top-line is one of the more difficult tasks owned by Finance and our teams simply cannot rely on trending and high level top-side adjustments to do it. Instead, finance leaders must lean into this work with rigor, identifying, quantifying and analyzing all the key drivers of revenue performance from the top of the funnel to the actual bookings, running multiple scenarios and validating our outputs with triangulation.
At Planful, we advocate for starting with driver-based planning. This approach will allow your team to base projections on upstream drivers for a bottoms up build that results in realistic outputs. You can then adjust the drivers for considerations such as macro conditions, sales hiring, increased brand awareness, etc. And driver based planning allows you to monitor leading indicators throughout the financial period to avoid surprises.
Once you have your driver-based top-line vetted and ready, it's time to get hyper realistic — even the best projections are likely to miss at times. The last few years have only confirmed the fact that Finance simply cannot predict black swan events or the actions of the Fed. Thus, even with a high quality, driver-based top-line forecast, it is critical to run scenarios. By running many possible outcomes, you will both validate your top-line forecast and prepare for multiple possible market outcomes.
Next, you can’t ignore the benefits of AI (Gartner says boards and CEOs expect broad AI adoption while workers may quit if they don’t have the latest generative AI tools). For FP&A, AI can highlight overly enthusiastic or out-of-line projections. It would take weeks to manually double-check each number across dozens or hundreds of incoming budget spreadsheets, but not doing so risks an unwelcome surprise. AI can look at your historical data, understand your business, and provide reasonable and seasonality-adjusted guardrails to guide budget managers and act as your second pair of eyes.
The companies that I see using driver-based and scenario planning the most successfully validate that Finance top-line using a triangulation model that relies on forecasts from multiple, independent sources.
An example of triangulation may include:
- Sales manager forecasts, this is the sales-centric view of the year. This is often based on quota at work, reps in the organization, hiring plans and manager sentiment.
- Finance forecasts, as discussed, are best built with drivers and adjusted for market knowledge. Running multiple scenarios helps Finance validate these projections.
- AI forecasts, which leverage machine learning as a gut check. Often owned by Finance but calculated by the algorithms.
Comparing your three forecasting methods, and investigating the differences, will allow you to make the final adjustments to build high confidence in your top-line projections.
2. Become a trusted advisor across the business
Shifting to the cost side of avoiding surprises, we can all agree that no one wants to hear that their budget is being cut. Help yourself — and your fellow business leaders — avoid this surprise by meeting with them earlier, and more often, to review plans and budgets.
In Planful’s survey, we found that only 38% of finance leaders are being tapped outside of their department to share their knowledge. That’s a whole lot of expertise being underutilized.
It’s important to remember that not everyone who owns a budget is a planning expert, and many department heads may be taking a shot in the dark when building their budget. As a finance professional, you’re the best person to advise them on financial objectives.
Doing so has a three-fold benefit:
- You become a strategic advisor across your company.
- Your fellow department leaders can craft a more accurate budget.
- The financial IQ across your entire company will go up.
To fully achieve these benefits, you need to plan at the appropriate level of detail. Offer to meet with department heads well before planning season kicks off. Use the time to talk about their business objectives, last year's budget and lessons learned, and their needs for the upcoming year. Take a partnership approach — you both want to underwrite a successful year for their team. Share your expertise where it is helpful.
When you meet, resist the temptation to make high-level assumptions of their needs. Instead, get granular and bring them into the financial performance management process. Help them plan starting at the vendor and individual headcount level.
Challenge your colleagues to put every detail into their budget before planning closes. Let them know it’s easier to whittle a budget down than to add more in later. But don’t be a spectator. Financial performance management is a team sport and Finance is a key player, but not the only player.
3. Unite your teams with collaborative planning
We’ve talked at length about the benefits of cross-functional collaboration and the team-sport aspect of financial performance management. That’s because alignment is a critical piece of the puzzle to help finance teams plan more effectively and avoid surprises down the line. If you haven’t already, now is the time to invest in a tool that can facilitate collaboration and streamline your team’s workflow. You already know that email, spreadsheets and chat quickly create a tangle of mismatched versions and lost context, so strive to modernize how FP&A works alongside the business.
Implementing new technologies, including AI and generative AI, can support your team and optimize their day-to-day responsibilities without disrupting their existing workflows — plus, it can help you avoid the surprise of being left behind your competitors.
AI is a useful tool that comes built-in with many financial performance management solutions these days. It works to support finance teams by spotting anomalies in massive datasets, helping guide projections and serving as a gut check while you run dozens of different scenarios.
Planful’s survey found that 92% of finance executives agree that AI technologies are of growing importance in FP&A. Don’t get caught on the back foot while others are embracing these new tools and leveraging them to get ahead.
Tools that foster collaboration and provide real-time insights, like financial performance management platforms, are becoming more common to help teams avoid surprises at the end of a cycle. Investing in tech is a priority for most leaders, with 70% reporting their budget for this software has increased in the last 1-2 years.
Technology is the foundation, however. To get hyper realistic with your top-line, you need the data, projections from across the business and confidence in those projections to make informed decisions. To understand the details behind those numbers, you need tighter collaboration with the business and to be a dependable teammate fighting for the same goals.
Creating the best foundation for financial performance management is a massive area of opportunity for CFOs and a sure way to stop surprises before they stop you. The surveys from Planful, Gartner and others show that most CFOs are pushing to gain an edge by being even more data-driven and collaborative than they’ve ever been. What’s your game plan to get there?
