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This survey provides a snapshot of some of the new challenges today’s unprecedented economic uncertainty has created for fi nance functions around the globe. With little or no revenue growth expected in the near term, fi nance executives from all regions in our survey say they are focusing more on preserving the bottom line. Cost, performance, and profi tability are top-of-mind—not just to survive the current downturn, but also to ensure that companies will retain the ability to ramp up quickly and reinvigorate their businesses as the economy inevitably improves.
Driving Pro tability in Turbulent Times with Agile Planning and ForecastingA report prepared by CFO Research Services in collaboration with SAP and DeloitteUntitled DocumentDriving Pro tability in Turbulent Times with Agile Planning and ForecastingA report prepared by CFO Research Services in collaboration with SAP and DeloitteUntitled Document ECCL cfo publishing corp. may ECCL 1ContentsExecutive summary 2Managing the bottom line 4T e forecasting gap 6Getting the right numbers 6T e value of integration and 8automation Working closely with 9business managementConclusion 9Sponsors perspectives 11" SAP " Deloitte Untitled Document2 may ECCL ECCL cfo publishing corp.About this reportWe gathered a total of 231 responses from senior nance executives from a broad cross-section of company segments, as follows:Annual revenue 100 million 500 million 40% 500 million 1 billion 18% 1 billion 5 billion 19% 5 billion 10 billion 5% 10 billion+ 18%TitleChief nancial of cer 33%Director of nance 16%Controller 15%VP of nance 11%EVP or SVP of nance 3%Treasurer 4%CEO, president, or managing director 4%Other 14%IndustryConsumer products/Retail/Wholesale 20%Discrete manufacturing 20%Financial services 15%Business/Professional/Information services 9%Energy/Utilities/Telecommunications 8%Health care/Life sciences 8%Process industries 6%Entertainment/Travel/Leisure 4%Other 11%RegionEurope 36%Asia 32%United States 31%Note: Percentages may not total 100%, due to rounding.Executive summaryIn the best of times, forecasting often is an exercise in uncertainty. A forecast is only as good as the assump-tions on which it is built; as business cycles ow forward, those assumptions are continually tested against internal and external realities and either vali-dated or adjusted. And, more often than not, events play out close to expected changes and within a rela-tively narrow range of variability, and the business plans, budgets, and resource allocations relying on the forecasts are adapted accordingly.At the time this survey was conducted, however, the global economy was plunging into recession at a pace unseen in many decades. Th e orderly progression of business cycles was disrupted, and both the range of variability of input assumptions and the speed at which they changed often pushed forecasts up to the breaking point. Input prices, labor costs, market demand, energy prices, partner viability, sourcing strategies, capital costs, capital expenditures these are among the fundamental givens upon which companies have built their forecasts and plans, but which began changing at rates that had forecasters scrambling to keep up. In March 2009, CFO Research Services (a unit of CFO Publishing Corp.) conducted an electronic survey among senior nance executives worldwide, including companies in the United States, Europe, and Asia. Our goal was to better understand the impact that economic uncertainty is having on the nance func-tion and its role in developing accurate forecasts and actionable plans. We looked at the changing priorities for nance, new demands being placed on the nance team s time and abilities, and challenges to forecasting and planning activities being created by the unprec-edented uncertainties in economic outlooks. Our research revealed four major results:In an economic environment that o ers limited visibility into revenue growth, nance functions are focusing on activities that help their companies manage the bottom line. Finance executives expect little or no revenue growth in the near term, and nearly 8 out of 10 respondents say that their companies will focus more on increasing bottom-line pro ts than on top-line revenue in the next 12 months. In response to the increasingly harsh external environment, nance is turning its attention inward, spending more of its time on cost reduction, performance management, and pro tability analysis. Untitled Document ECCL cfo publishing corp. may ECCL 3Finance executives reveal a troubling gap between the importance of forecasting for managing through the economic downturn and their con dence in the quality and accuracy of those forecasts. T e volatile economic environment heightens the importance of forecasting for providing the information and analysis managers need to manage pro tability and performance, but only about half of the nance executives taking this survey characterize their companies forecasts as high quality. At a time when the need for forecasting accu-racy, insight, and agility is greater than ever, half of the nance executives in this survey believe their compa-nies are falling short. To improve the quality of their forecasts, many of these nance executives cite the need for more integration in their information systems and better analytical and modeling tools.Respondents say nance should spend more time analyzing pro tability and performance, as well as more time focusing business units on nancial impacts and metrics.Finance executives in the survey say they should focus on analyzing and using the data, rather than simply producing it. T e majority of nance executives in the survey say that spending more time on providing analysis of forecast results and making recommenda-tions to the business as opposed to simply producing more forecasts would help their companies meet performance targets. Most of the respondents say nance should spend more time analyzing pro tability and performance, as well as more time focusing busi-ness units on nancial impacts and metrics.Finance executives in the survey also recognize that improving the quality of forecasts is not just a nance issue it touches all aspects of the business. Respondents cite a number of technology-based actions that companies can take to improve their ability to produce high-quality forecasts: eliminate multiple information interfaces, integrate disparate systems, and employ driver-based scenario modeling. But nance executives in the survey also recognize that improving the quality of forecasts is not an issue just for nance or for IT it touches all aspects of the busi-ness. Many of the respondents indicate that working with business unit managers to help them under-stand the nancial impact of operating decisions and to improve the accuracy of inputs is one of the most important improvements they could make. Untitled Document4 may ECCL ECCL cfo publishing corp.Managing the bottom lineIn an economic environment in which revenue growth is challenging and di cult to predict, our survey con rms that companies are devoting more time and resources to maintaining pro tability. Finance execu-tives in our survey expect little or no revenue growth in the near term, and nearly 80% of all respondents (79%) say that their companies will focus more on increasing bottom-line pro ts than on top-line reve-nues in the next 12 months. In response to the increasingly harsh external environ-ment, nance is turning its attention inward, focusing on the elements of pro tability the company can control more directly: reducing costs and managing performance. Survey results show that nance execu-tives expect to spend their time on the activities that will have the most impact on the bottom line. Finance executives expect to spend their time on the activities that will have the most impact on the bottom line. Nearly all respondents (94%) report that their nance teams are spending more time on cost control and expense reduction now than they did two years ago, and a majority (65%) say that they are spending much more time on these e orts. (See Figure 1.) Negoti-ating supplier agreements (72%) is also taking up more of nance s time than it did two years ago, as part of the e ort to hold the line on costs and negotiate more favorable terms. Clearly, nance teams are working hard to bring costs in line with the anticipated slow-down in revenue.Untitled Document ECCL cfo publishing corp. may ECCL 5Tightening up performance also has taken on higher priority, especially as demand slows and workforces are reduced. Cutting production indiscriminately asdemand dries up poses the risk of leaving compa-nies unable to recover as the economy turns around sometime in the future. Many nance executives see ne-tuning performance as an important part of their mandate to help sustain a viable working operation in these di cult times. In the survey, 83% of nance executives say their teams are spending more time on performance monitoring, while 71% are increasing the time nance spends working to improve busi-ness processes. Keeping the company running and running well ensures that businesses will be posi-tioned to ramp up quickly once economic recovery starts to gain traction.1 Much of this activity translates into keeping a closer eye on the bottom line, and indeed, almost 9 out of 10 respondents (87%) say their nance teams are spending more time on pro tability analysis. (See Figure 1.) Th e ability to develop a reliable, forward-looking view of performance is important for managing pro tability in the present while preserving future opportunities. In an open-text response, a regional commercial manager for a large professional services company based in Asia notes that focus is much needed on forward-looking [forecasts] i.e., forecasting against the target. Current systems are addressing only the history, not focusing on preventing the losses or [anticipating them]. With the economy so uncertain, the di culty of developing this forward-looking view of performance is magni- ed, and nance nds itself devoting more time and resources to this critical task. T e nance executives in this survey indicate that coping with the greater uncertainty in the economic outlook is placing the largest demands on their time. Large majorities of respondents report that the current economic uncertainty has increased the amount of time nance spends on forecasting (83%) and on scenario planning and analysis (78%) that is, on modeling potential outcomes based on uctuations in di erent sets of drivers. (See Figure 2.) Economic uncertainty is having less of an impact on the types of activities used to translate forecasts into actions resource and capacity planning, and detailed line-item budgeting. 1 In a separate CFO Research survey conducted at the same time as this survey, most respondents indicated that they expect global economic recovery to gain strength in the rst or second quarter of 2010, with a minority expecting recovery in the fourth quarter of 2009. (Controlling Cost in a Crisis: Sustaining Core Spending Through the Downturn, CFO Research Services, May 2009.)Untitled Document6 may ECCL ECCL cfo publishing corp.T e forecasting gapT e importance of forecasting in supporting compa-nies management of pro tability and performance is heightened in this environment. Eighty- ve percent of respondents in this survey agree with the statement that their forecasts are important to their e orts to improve pro tability, and 72% say that business unit managers rely on their companies forecasts to help them meet performance targets. (See Figure 3.)However, the survey also reveals a troubling gap between the importance of forecasting for managing through the economic downturn and nance execu-tives con dence in the quality and accuracy of the forecasts their companies are able to produce. As seen in Figure 3, only half of the respondents (52%) rate their companies forecasts as high quality (i.e., timely, relevant, and accurate). At a time when the need for forecasting accuracy and agility is greater than ever, half of the nance executives in this survey believe their companies are falling short. Only half of the respondents rate their companies forecasts as high quality timely, relevant, andaccurate. Many of the respondents who fail to rate their companies forecasts as high quality cite the lack of integration in systems and data as a major obstacle to improving those forecasts. Th e chief risk o cer in a European nancial services rm re ects these concerns when he writes, Consolidation of di erent sources of data and results would greatly improve our forecasting practices. Several respondents note that upgrading and integrating the di erent systems they currently employ would help them migrate away from an over-reliance on spreadsheets and be better able to introduce driver-based analysis and scenario modeling. A vice president of nance at an energy company in Asia sums up these needs when he writes that his company would gain the greatest improve-ment from an integrated and consistent forecast methodology linking current run rates, new opportu-nities, and risks into a rolling system all integrated as part of an ERP system. Getting the right numbersFinance executives who responded to the survey point to the need to analyze and understand key drivers of performance instead of simply producing reams of data. It is more important to have the right numbers than to have all the numbers, say these nance execu-tives. Understanding the business and the factors that have the greatest impact on pro tability is crucial for managing e ectively through the economic downturn. A director of nance from the leisure industry stresses that people need to think critically about what are the true levers that impact pro tability [and how they impact pro tability]. A CFO in the energy industry writes that his company s greatest challenge to devel-oping and carrying out actionable, e ective plans is relying on a too detailed forecast instead of just focusing on drivers. He implies that focusing just on the numbers, without focusing on what the numbers mean, is actually counterproductive. Finance execu-tives in the survey understand that companies need to be able to work smarter, not just harder. Untitled Document ECCL cfo publishing corp. may ECCL 7A VP of nance at an energy company writes that his company would gain the greatest improvement from an integrated and consistent forecast methodology linking current run rates, new opportunities, and risks into a rolling system all inte-grated as part of an ERP system. When asked how they believe they should be spending their time to help their companies meet performance targets, nance executives in the survey call into ques-tion the value of spending more time simply producing reports, as opposed to producing targeted, useful anal-yses. More than 70% of respondents say spending more time on analyzing pro tability and performance would help their companies meet performance targets. (See Figure 4.) Th e need to understand the numbers better is not restricted solely to nance; more than 70% of respondents also say that nance should be spending more time focusing business units on nancial impacts and metrics.In contrast, while a large majority of respondents (83%) say that their nance teams are spending more time forecasting revenues and nancial results (Figure 2, page 5), only 42% believe that increasing the amount of time spent developing new forecasts actually will help their companies improve performance (Figure 4). In fact, 22% of respondents think they should spend less time developing new forecasts. Clearly, the nance executives in the survey believe that simply spending more time producing more forecasts delivers little value, if it is at the expense of providing insights into what the numbers mean for performance. Almost 60% of nance executives in the survey say that spending more time on providing analysis of forecast results as opposed to simply producing more fore-casts would help their companies meet performance targets. When asked what would be most important for helping companies meet pro tability targets, a CFO Untitled Document8 may ECCL ECCL cfo publishing corp.from the transportation industry simply writes, I think we could spend more time analyzing data rather than collating the data. Finance executives in the survey also recognize the importance of remaining agile in a volatile and constantly changing economic environment. However, three-quarters (74%) of respondents estimate that their companies reforecast quarterly or even less frequently, and many respondents believe that this may be inadequate for dealing with the current market volatility. Th e director of nance from a company in the consumer products industry writes that it is important to compress the cycle time to reduce vari-ability between the start of revenue forecasting to the nalization of the plan, due to changes in external factors such as volume or commodities [prices]. A number of other respondents advocate shortening the timelines for reforecasting as well. Th e CFO of a nancial services rm in Asia sets the bar high for his company: Th e forecasting should be real-time and thoroughly dynamic in nature and should be accurate and frequently churned out to gauge the demands and reactions of the consumer. T e value of integration and automationIn open-text responses, a large number of nance executives in the survey identify the need for better information systems and better processes in order to provide this kind of dynamic and agile forecasting capability. Respondents from companies that have more automated forecasting and planning processes are also more likely to say that their forecasts are of high quality. We segmented respondents into those who say their forecasting and planning processes are highly automated (14%); those who characterize their processes as partially automated, requiring some degree of manual manipulation (50%); and those who report that their processes are primarily manual (36%). A director of nance in the consumer products industry stresses the importance of compress[ing] the [forecasting] cycle time to reduce variability. T ree-quarters (75%) of the relatively small number of respondents who characterize their companies as highly automated also say that their forecasts are high quality, compared with 57% of respondents from partially automated companies. Respondents from companies whose forecasting and planning processes are primarily manual express the least satisfaction by far with their forecasts: only 36% of these executives say that their companies have high-quality forecasts.In open-text answers, respondents list a number of technology-based actions that companies can take to improve the quality of their forecasts, such as eliminating multiple information interfaces, inte-grating disparate systems, and providing driver-based scenario modeling. Th ey cite the need for integrated forecasting and scenario-planning processes and applications that obviate the need for spreadsheet manipulation, as one director of nance from the manufacturing industry writes. Several respondents comment on the usefulness of having an integrated data-warehouse capability that would allow them to work with a single set of data conforming to standard formats and de nitions. (One CFO in the health care industry in Europe, who characterizes his company as highly automated, still laments the fact that he must deal with 10+ separate reporting databases.) [We need to] think critically about what are the true levers that impact pro tability, notes a director of nance from the leisure industry.Other respondents look to ERP or business intel-ligence software to provide more structured and automated models for planning and forecasting. Several respondents note that they are in the process of implementing these systems, which they expect will improve their planning and forecasting abilities. In particular, a number of respondents say they are looking for a driver-based scenario-modeling capa-bility, which would help both nance and business unit management to think critically about what are the true levers that impact pro tability, as a director of nance from the leisure industry notes.By making these kinds of technology changes, compa-nies can reduce the time nance teams spend on collecting, consolidating, and conforming data inputs and increase the time they spend on analyzing the data. A nance manager from a U.S. consumer prod-ucts company notes that he is not looking for data Untitled Document ECCL cfo publishing corp. may ECCL 9just for data s sake; rather, he needs consistent data resources and presentation to facilitate analysis versus data creation. Automation initiatives are cited by a large number of nance executives in our survey as the most important improvement their companies could make in their planning and forecasting prac-tices to help meet pro tability targets.Working closely with business managementFinance executives in the survey also recognize that improving the quality of forecasts is not just a nance issue it touches all aspects of the business. Survey results show the importance that nance places on providing targeted, relevant data and analysis to busi-ness managers; slightly more than 70% of respondents say that they should spend more time focusing business units on nancial impacts and metrics. Th is nding is supported further by responses to an open-text ques-tion asking about the most important improvements a company could make in its planning and forecasting practices to help meet pro tability targets. Many of the respondents indicate that working with business unit managers to help them understand the nan-cial impact of operating decisions and to improve the accuracy of inputs is one of the most important improvements they could make.A business director for a manu-facturing company in Asia writes, Th e forecast is only useful informa-tion when utilized in an integrative approach by the operations for deci-sion-making processes. Working with business unit managers so that they understand the nancial implications of operating decisions can have bene ts on both the front and the back ends of forecasting and planning processes. Improving coordination between business units, and between business units and nance, can improve the accuracy of data inputs and reduce the time expended in collecting, consolidating, and scrubbing the data. Encouraging involvement in and even owner-ship of the forecasting process among business unit managers also leads to more accurate inputs, reducing the need to continually correct forecasts made on the basis of faulty assumptions. Finally, when business unit managers are more invested in the forecasting process, they develop a deeper understanding of the nancial impacts of their operating decisions and can use the results more e ectively in making course corrections to the business.A business director for a manufacturing company inAsia makes this point succinctly: Th e forecast is only useful information when utilized in an integra-tive approach by the operations for decision-making processes. Otherwise, it is just a set of data to satisfy corporate reporting [requirements]. Another respon-dent states the need for business unit managers to become more involved in forecasting even more starkly: Increase training of key management to generate vital market insights. Otherwise, [we are] groping in the dark. ConclusionT is survey provides a snapshot of some of the new challenges today s unprecedented economic uncer-tainty has created for nance functions around the globe. With little or no revenue growth expected in the near term, nance executives from all regions in our survey say they are focusing more on preserving the bottom line. Cost, performance, and pro tability are top-of-mind not just to survive the current down-turn, but also to ensure that companies will retain the ability to ramp up quickly and reinvigorate their busi-nesses as the economy inevitably improves.In their e orts to preserve pro tability, nance execu-tives tell us their teams are spending more time than ever on preparing forecasts, developing scenarios, and analyzing the results. Th ey place more importance on their ability to provide insightful analysis to execu-tive and business unit management than on simply producing more data. Nearly all respondents agree on the importance of forecasting to their e orts to improve pro tability; however, fewer of them only about half agree that their companies forecasts are timely, relevant, and accurate. Many of the nance executives in this survey say that their forecasting and planning practices can be improved through the use of technology by reducing or eliminating manual collection and analysis, build-ing integrated data warehouses, and adopting simu-lation or other scenario-modeling software. Th e right technology can increase the e ciency of forecasting Untitled Document10 may ECCL ECCL cfo publishing corp.and planning processes, allowing nance to spend less time simply running the numbers and more time providing value-added analysis. Simply having the data is not enough, they say just as important is increasing the time spent working with business units to provide insight into the true drivers of performance and strengthen business unit management s understanding of the nancial implica-tions of their actions. Without this e ort, and without building a common understanding of the direction of the business with other managers, nance executives feel they are left groping in the dark. Finance executives largely agree on the importance of forecasting to their e orts to improve pro tability but simply having the data is not enough.Untitled Document ECCL cfo publishing corp. may ECCL 11Responses to this CFO Research Services survey clearly indicate the current economic climate is driving the nance function to spend more time on planning and forecasting, cost control, and almost every other aspect of performance management. Th is research also reveals a troubling gap between the increased need for high-quality forecasts to manage through dynamic economic conditions and the lack of con dence in the accuracy of these forecasts. A large number of respon-dents see better information systems and processes as key to improving planning and forecasting practices. Many of the respondents from the research who say their companies rely on highly automated processes also characterize their forecasts as high quality. T is suggests they have overcome the shortcomings inherent in working with inadequate tools and dispa-rate data sources. Relying on applications that are more e cient and e ective than the still widely used practice of manipulating spreadsheets, these organi-zations have a head start on their peers and may be able to weather current economic uncertainties better than most. Furthermore, once economic conditions improve, they may be more agile in taking advantage of the upturn. SAP BusinessObjects solutions can help organizations consistently manage performance, enabling them to become more agile and competitive by providing alignment, visibility, and greater con dence. Th e SAP BusinessObjects portfolio includes leading solutions for enterprise performance management, governance risk and compliance, and business intelligence. Th ese solutions can help overcome the challenges that have been highlighted in this research by enabling organi-zations to focus on value-added analysis rather than spending time on collecting data to produce plans and forecasts. Finance professionals can model di erent scenarios and test assumptions on capacity, products, customers, channels, and business opportunities. SAP BusinessObjects solutions can help organizations quickly gain insight into the real drivers of pro tability and successfully manage through today s dynamic environment.For more information on SAP BusinessObjects solutions, please visit our website at:http://www.sap.com/solutions/sapbusines-sobjects/large/enterprise-performance-management/index.epxIt s tough being nance these days. You re facing complicated decisions on many fronts, and knowing exactly how to proceed at any given time is harder than it looks. Should you grow the top line to deliver more business value, or hunker down to protect pro ts? Build up cash to weather a tough economy, or capitalize on instability to gain market share? In fact, we view nance as a voice of reason. And that voice needs to be even louder during an uncertain economic climate. When business is booming and everyone is getting swept up in irrational exuberance, it is nance s responsibility to keep them grounded. T at means maintaining cost discipline, preserving pro tability, and ensuring that every investment has a strong business case. On the other hand, in cautious times when other people are heading for the bunkers, nance needs to keep things moving ahead, making sure that critical activities and investments continue to receive the funding and support they require.And this survey highlights nance s greatest chal-lenge: in an era of constant uncertainty, a CEO needs to have con dence that the organization s forecasting process delivers quality information upon which the right business decisions can be made. We view quality as a combination of timeliness, relevance, accuracy, transparency, and predictability all factors with which nance can assist decision makers. So this is where nance needs to take a leadership role: develop a forecasting process that focuses on analytical support, not information production and manipulation alone; collaborate actively with the business and don t make forecasting a nance-only process; forecast business drivers, not simply business results; stay nimble, especially during uncertain times; ensure the right technology is in place to support the process; and continually push the business as the ulti-mate voice of reason.Samuel SilversPrincipal, Deloitte Consulting LLPGlobal Finance Transformation Practice LeaderTel: +1 215 982 6596ssilvers@deloitte.comStephan RaemaekersPrincipal, Deloitte Consulting cvbaGlobal SAP Alliance Partner Tel: +32 2 749 59 21sraemaekers@deloitte.comUntitled DocumentDriving Pro tability in Turbulent Times with Agile Planning and Forecasting is published by CFO Publishing Corp., 253 Summer Street, Boston, MA 02210. Please direct inquiries to Jane Coulter at 617-345-9700, ext. 211, or janecoulter@cfo.com.SAP and Deloitte jointly funded the research and publi-cation of our ndings. At CFO Research Services, David Owens directed the research and wrote the report. CFO Research Services is the sponsored research group within CFO Publishing Corp., which produces CFO magazine. CFO Publishing is part of Th e Economist Group.May 2009Copyright 2009 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission.
