Risk & Economy » FDs need to change their financial modelling to stay ahead

FDs need to change their financial modelling to stay ahead

As FDs consider the future of finance and how to remain competitive, serious conversations on evolving modelling processes must take place

Pras Chatterjee, Senior Director Product Marketing, Enterprise Performance Management at SAP, discusses how on-the-fly modelling can take finance to the next level


At the speed that the world is changing, it seems hard to keep up with the latest trends in technologies, the newest software updates, and the must-have apps that make your life easier.

For CFOs, this speed of change is making financial information outdated in a matter of minutes, not months. As financial models and forecasts are being modified, adjusted and improved, the need for on-the-fly modeling (OTF) has become more apparent. As companies begin to consider what this means for the future of finance, and how to operate on the most competitive levels, serious conversations must evolve regarding modelling processes.

At a high level, OTF allows companies to better analyze metrics between months, quarters, and year-over-year. OTF can be a cultural change for most in regard to traditional budgeting, as it’s driven by challenging the status quo and discarding ineffective budgeting procedures.

Businesses who prove to be the most successful are those that can monitor and analyze their budgeting forecasts in real-time to react to current business events. The world is changing and traditional processes cannot meet the needs of the past, present, and future. So why do CFOs need to adapt?

Traditional Budgeting Processes are Providing Less Value

It has become more apparent today that traditional budgeting processes are providing less value to the workplace. 29 % of top organizations have recognized inaccurate budgets and forecasting as key inhibitors in planning for current and future metrics. Traditional budgeting models do not provide experts with information quick enough to produce metrics that are requested in this day and age. Poor communication and the lack of real-time data can make performance reporting difficult. While OTF is not a fortune-teller, it does offer a more accurate look on current budget metrics, and how these can be met or improved upon.

Occasionally, when digital transformation leaders enforce or encourage new ideas, they’re sometimes met with resistance. Those siding with traditional are most often worried about OTF’s potential inaccuracies, or how implementing a whole new model will affect an employee’s day-to-day activities. A common misconception about OTF is that it adds a stronger workload to financial planning and analysis (FP&A) employees. However, once fully adopted, OTF creates less manual work, and allows for FP&A employees to focus their time on more high-value, high-return activities.

Business Models are Constantly Changing

The world is changing too quickly for companies to enjoy the luxury of not investing in the most cutting-edge technology, processes, people and tools. In fact, market volatility is the number one challenge that financial companies face in planning today. With business models and predicted forecasts constantly changing, it’s important for companies to ask themselves who in the business is best suited to influence the company’s future and monitor market volatility. The answer lies within finance, specifically dynamic planning. Today, financial leaders are 24 percent more likely than their employees to recognize that change needs to be made in budgeting methods in order to ensure success in the future.

Changing business conditions provide executives with the opportunity to access new information that will ultimately lead to smarter, better and faster decisions for the company. With OTF, organizations are able to access accurate snap shots of their company’s performance at any moment in time. If a company commits to OTF, it can become more than a modeling tool. Adopting OTF also has the potential to impact a whole company’s culture, as others in the organization will begin to see the effectiveness of the tool.

There is a Better Way to Predict the Past, Present and Future

OTF allows companies to think and predict information into the future, without losing sight of what was accomplished in the past and present. Smart technologies offered through OTF allow for dynamic planning to take shape, through connected dashboards, real-time reporting, and visualization tools. OTF lets executives monitor the road ahead for changes in business, but does not change targets or metrics along the way. Leaders who are dynamic planners are 46 percent more likely to request predictive analytics. Being able to predict future budget scenarios allows for leaders to share informed decisions and improve confidence amongst their peers.

Overall, the importance of adopting OTF modeling is crucial for the finance function. With CFOs leading the charge from the top down, employees throughout the company can embrace change and become digital leaders, too. With OTF modeling, employees can analyze real-time data, predict future budgeting results, and work to alter strategy in the moment when it counts the most. Plans, personnel, and value can change very quickly, and it’s critical to monitor your company’s expenses as frequently as possible. Adopters of OTF will add a cutting edge to companies that are looking to stay ahead of the curve.

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