As financial institutions faced an unprecedented crisis in 2020 at the hands of the COVID-19 pandemic, an essential ingredient in maintaining solvency and profitability was organizational agility. Nearly a decade’s worth of innovation and technical upheaval occurred within a year, forcing companies to deviate from plans set at the beginning of the year and adapt quickly. As a result, many look at the advent of COVID-19 as proof-positive that planning can only take you so far. In reality, one of the main lessons from the pandemic is that planning and agility go hand in hand.
Admittedly, it seems a bit counter-intuitive when first considered — making changes on the fly seems in polar opposition to setting a planned path forward. Yet the relationship between planning capabilities and quickly enacting change in the face of uncertainty is closer than many would imagine.
A dire situation
Most organizations start out every year with a plan for how things should go. After all, it’s critically important for companies to set goals to reach for and measure against, and it’s strategically sound to set a destination with an understanding of the steps that must be taken along the way. Still, as the saying goes, “the best-laid plans…” COVID-19 has been a major case study in the inherent challenge of unforeseeable economic curve balls.
My organization recently conducted a survey of finance professionals on the effects of COVID-19 on their budgets as well as their outlook for the coming year. We found that more than half of finance professionals at banks, credit unions, and other financial institutions said they would miss their 2020 profitability goals due to COVID-19. Looking ahead, 51 percent of respondents expect profitability to decline or remain flat this year.
So with an unforeseeable pandemic forcing organizations around the world to throw aside their meticulously crafted plans, it can seem a strange claim that the act of planning ahead will ensure financial institutions’ ability to remain agile in uncertain times like these. The crux of the claim resides in understanding what good financial planning really means.
Don’t just plan, plan efficiently
While annual plans and even five-year plans have their merits, operating on shorter planning cycles has become imperative to organizational success. When crisis hits, organizations that are agile and able to adjust budgets quickly and accurately find the best path to peak performance. It’s certainly of concern, though, that only 43 percent of surveyed finance professionals indicated they had adequate technology for profitability analysis and reporting in order to plan for COVID-19 impacts. Furthermore, 70 percent of organizations have a budgeting cycle of three months or longer, citing resource constraints, lack of personnel skills, outdated budgeting processes, and insufficient tools as major contributors to delays.
In 2020, financial professionals faced a nightmare scenario where budgets and plans needed radical, immediate adjustments while teams lacked the tools, processes, and resources to make them.
From this data, we can clearly gather that despite its immense importance to organizations, financial planning technology has fallen into a blind spot which limited finance professionals’ abilities to make quick changes and strategic plans. In other words: their lack of planning capabilities hindered their agility.
Inefficiencies hinder agile financial planning
When we look at the current state of financial planning within organizations, it’s easy to determine why inefficiency persists. The largest percentages of organizations reported using spreadsheets for crucial tasks such as budgeting, forecasting, reporting, and scenario analysis. This means when facing a crisis like COVID-19, and the pressure to completely alter existing understandings of cash-flow and profitability, a large number of organizations had to manually assess and update countless spreadsheets before charting a reliable course forward. This is the opposite of agility.
Further, despite the crash course in dealing with uncertainty that the pandemic delivered, only 38 percent of finance professionals plan to use scenario analysis in their plans for 2021.
Identifying a problem is always the first step in solving it, and there is a lot of ground to cover when it comes to modernizing organizational attitudes and approaches towards financial planning.
What does efficient planning look like?
So what does efficient planning look like? First, it means bringing budgeting into the 21st century. Manual processes are no longer sufficient. Automated tools that can quickly compile and parse data exponentially increase financial planning speed and agility. Second, financial plans need to incorporate scenario analysis technologies so that contingencies can be rapidly created and implemented as needed.
Tactically, these relatively simple steps can go a long way in helping organizations achieve true agility, as it will enable them to quickly adapt finances to meet whatever current realities they face. COVID-19 accelerated years’ worth of digital transformation virtually overnight, and even as our society begins to move on from its effects, the need for agility will still remain.
Achieving true agility will require financial leaders to understand the importance of planning in relation to adaptability, and take decisive actions towards fixing inefficiencies so that planning can have the positive effect that it should on organizational agility.