Agile planning and forecasting under uncertainty
Uncertainty about the future is ever-present. Recent developments, like COVID-19 pandemic, have added even more difficulty to the already challenging task of planning ahead. No-one can know with certainty how the businesses, societies and environment will develop. We at August nevertheless believe that companies benefit from using smart tools to navigate in the uncertain world. Our work in various industries has shown us how the most successful companies A) are constantly on the pulse of their key business drivers’ development and B) adjust their outlook and required activities in an agile manner.
Therefore, we want to bring you a summary of eight ‘theses’ for agile planning and forecasting under uncertainty:
1. Embrace the uncertainty
There are many kinds of uncertainties. Some are harder to predict (e.g. natural disasters, pandemic) whereas others can be foreseen more clearly (e.g. industry transformations, company-specific activities). First and foremost, these should all be acknowledged and after that made visible in the plans and forecasts.
2. Use drivers in forecasting
Specifying well-defined business performance drivers (e.g. market demand, own sales volumes, prices, production volumes) and forecasting them (in contrast to P&L lines) ensures planning’s focus is put on real-life phenomena instead of accounting jargon. Also, agile forecasting requires comprehending the linkages between the drivers and how change in one driver affects the performance of others.
3. Apply advanced analytics
Advanced analytics can support in managing the future uncertainty by quantifying it, for example through determining probability distributions for the performance drivers. This means moving away from looking only at a single-point estimate, which gives little help in understanding the uncertainty.
4. Renew system landscape
Uncertainty management requires a well-thought system landscape where all data needs are specified, roles and functionalities of systems are crystallized, and pros and cons of different planning & forecasting tools are evaluated.
5. Expand Finance’s role
Finance organization does not need to be solely a “process owner” when it comes to running the planning & forecasting practices. Finance can have more value-adding role in supporting and sparring businesses and other functions to manage better the future uncertainty, for example through Finance’s own statistical forecasting models.
6. Promote an open culture
Organizational culture should support an open and honest discussion regarding the future and potential uncertainties – no hiding of bad news. Leadership should show example.
7. Empower the organization
Individual functions, businesses and people should be as much as possible on the driver’s seat when setting future targets and updating the forward-looking view. In the end, target setting is a balance between top-down ambitions and bottom-up improvement opportunities from people in the front-line.
8. Implement in steps
Start building the capability to manage uncertainty step-by-step. First prove that the ideas above, e.g. application of advanced analytics and open dialogue, improve the quality of planning and forecasting. After that you can further embed the required processes and mindsets.
I encourage you not to become overwhelmed in the face of uncertainties. Uncertainty about the future is just something that needs to be accepted. You can nevertheless manage the uncertainty if you harness the power of advanced analytics, empower the organization, and build an open culture where questions and bad news are not repressed. Brave the future!
Juha Martikainen, Director +358 40 756 4686 email@example.com