QueBIT Blog: The Hidden Heroes of Planning, Forecasting and Analysis

These words are being written in the middle of the COVID-19 pandemic of 2020. Businesses, faced with unprecedented uncertainty, are asking questions such as:

• If revenue drops by 30%, how long before we can’t cover our operating costs?
• How does the falling price of oil impact our P&L?
• What investments can we make now to ensure we emerge from the slowdown in a position of competitive strength?
• What will it cost to improve supply chain resilience going forward?

Each is a forward-looking question and getting to a precise answer is impossible BUT going through the process of asking and then analyzing the range of possibilities can make all the difference. Planning ahead is a way to buy time to prepare and is especially critical today.

This kind of analysis is performed in every company across the world by financial analysts. They work in different parts of the business including FP&A (financial planning & analysis), S&OP (sales and operational planning), strategic planning and even treasury (who have a cash focus). Right now, they are working even longer hours than usual, re-doing forecasts and creating new plans on a near-continual basis, so that business executives will have the information they need to make the best possible decisions. Better decisions increase the chances of business survival and long-term success. Every business that survives and grows serves the community by employing people, and by making its products and services available.

Every business that makes it safely through the pandemic should remember to thank its financial analysts, who are working in overdrive to do this important work. Their efforts are often unrecognized. After all, when did you last hear of a financial analyst being celebrated in your company? The best salesperson wins Salesperson-of-the-Year awards, the best engineer is hailed as a genius and the successful CEO wins accolades for implementing a cool new business model. And yet, unless you have a disproportionate amount of good luck, the work of financial analysts will save your bacon.

So, here’s The Big Mystery: why is the contribution of financial analysts so invisible, and why is so little invested in giving financial analysts the modeling tools they need to do their jobs? In fact, it is shocking how poorly this need is understood.

Let me explain by describing the components of an analyst’s task.

• First you need good, trustworthy, up-to-date data, at the correct granularity and level of detail to serve your purpose. Data gives you an accurate starting point, and history gives you a baseline to compare against.
• Next, you need models. Different planning or forecasting problems will require different models, which may be built using different kinds of mathematical and programmatic tools. Often a combination of tools may be needed, for example statistical tools to forecast demand, overlaid with assumption-driven constructive models to project that demand on the financial statements, and finally optimization tools to incorporate capacity constraints.
• Then, you need good collaboration and integration. One analyst typically goes very deep into just one part of the business, so you need the collaboration of many analysts and the integration of all their data and models, to get the big picture. Not only that, some models require contributions from across the company, so that the inherent knowledge of front-line personnel is infused into the process.
• Finally, you need analytical reporting tools to communicate the results of the analyses and (equally importantly) explain the conclusions.

Most analysts today still rely heavily on spreadsheet software like Excel to do all these things. Some are acquiring data science skills and leveraging tools like R. Often these are time consuming ad-hoc exercises that involve extensive manual data preparation and model manipulation, even before getting to integration, collaboration and analytical reporting.

In other words: it’s impossible to do quickly and well at any kind of scale under normal circumstances, but the pandemic has increased the frequency and the number of scenarios that need to be considered. If it looks like your financial analysts are getting it done, believe me, they are doing it at great personal cost by giving up their nights, weekends and time with their families. And it’s frustrating for them – because the effort to pull everything together leaves little time for the most important part: quality analysis. It’s a heroic effort, by any measure.

Let’s get back to The Big Mystery: if this work is SO important that it can save jobs and keep groceries in the stores (for example), why don’t analysts always have the right tools?

I don’t know for certain, but I have 3 theories.

Theory One is the Shoot-Yourself-In-The-Foot theory: I believe that talented financial analysts enjoy a good challenge and derive satisfaction from solving difficult problems. They also tend to be a pretty hardy bunch, and not ones to complain. There is nothing wrong with that unless you feel so compelled to deliver, that you will sacrifice nights and weekends to work around deficiencies in your tool-set. Your boss may be appreciative, but does not feel any of your pain, and so she blithely expects you to do the same again and again. You think you will be recognized for your effort, but all they see is the end-result. And you shoot-yourself-in-the-foot by making it look easy, which in turn further devalues your effort.

Theory Two is the I-Don’t-Know-What-I-Don’t-Know theory: Spreadsheets, and Excel in particular, are a purpose-built programming language for financial analysts. It’s so easy to introduce variables and build chains of formulas off those variables to create a real-time interactive model reflecting complicated business logic, with total control and agility, that it’s hard to imagine getting the job done in any other way. Powerful tools do exist, but once you have shot-yourself-in-the-foot with Theory One, you don’t have any time to explore what’s available and even if you did, your boss might not see the need to invest because you always get it done so “effortlessly”!

Theory Three is the Where’s-The-Market theory. This is similar to the I-don’t-know-what-I-don’t-know theory but from the point of view of the technology companies who might create better tools for financial analysts to use, but don’t. Most professional programmers and software engineers are not also financial analysts. They look at how easy Excel is to use and mistakenly assume that a model built up of mere sums, products and ratios is “trivial”. That there is nothing “there”. They have no idea how complex business models can get because (often) they do not understand business, or its rhythms, or the importance of timing. We end up with an enormous opportunity gap between financial analysts who have no idea what is technically possible, and technology companies who have no idea that there is a gaping need to be filled.

The COVID-19 pandemic may help us solve The Big Mystery, because the business executives who are trying to stay in front of their best and worst case scenarios on a weekly (or daily) basis will discover that the financial analysts cannot get it done, no matter how many late nights and weekends they put in, and no matter how many extra bodies they throw at the problem. This will force a search for better planning software solutions, which will broaden the market and increase competitiveness. And perhaps some talented technologist will embrace the opportunity to invent innovative modeling tools for financial analysts and raise the bar. After all – the size of the market is pretty decent. It’s every growing company in the world.

Until then, let’s pause for a moment to appreciate our financial analysts whether they are operational planners, financial forecasters, treasury managers or serve some other part of the business. When they are empowered to do their jobs with the right tools and business process support and can deliver timely analysis to the decision makers who need it, they will be central to a successful economic recovery, one company at a time. These are hero’s worth celebrating, aren’t they?