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The Art of Forecasting: Recorded Webinar

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CarlsonGuide-cover-Implementing-Adaptive-InsightsEthan Carlson, CEO and Founder of Carlson Management Consulting, recently joined a panel of finance leaders to discuss the Art of Forecasting.  This virtual event, hosted and moderated by Adaptive Insights, examined how experienced finance professionals develop world class forecasting processes within their organizations and client base.  Discussion topics included forecasting challenges, building flexibility with rolling forecasts and scenarios, modeling for growth and more.

To view the recorded webinar and gain new insights into forecasting, please click here.

Considering Adaptive Insights? Download your free copy of the Carlson Guide to Implementing Adaptive Insights.

 

ASK ETHAN: Embracing the Shift to Real-Time Scenario Planning

CFO-Thought-Leader-Horz-599-131Is your organization assessing uncertainty using scenario planning? Join us as Ethan Carlson, CEO of Carlson Management Consulting, once more tackles our questions to supply you with answers and a new mindset designed to help empower your finance organization to look ahead.

 

Listen and subscribe to the Podcast on iTunes.

The following is an edited abstract from CFO Thought Leader’s “Ask Ethan” podcast featuring Ethan Carlson, CEO, Carlson Management Consulting, and Jack Sweeney, co-host of CFO Thought Leader.

CFOTL We’re often told that scenario planning is not about providing an accurate picture of the future, but about making decisions regarding the future. What exactly is being said here?

Ethan I think that the whole process around planning and budgeting and forecasting is a relatively inexact science. It’s kind of the art of finance. It’s not that adding in scenario planning is going to make your projections any more accurate. For me it’s an opportunity to think about what the possible outcomes are and work through what your firm’s reactions to those will be. I think about it as a sports team practicing before a game. You want to prepare for the things that might be thrown your way.

We all know that the future holds things that we can’t predict. If you can work through a series of scenarios involving your financials and how they might be impacted by various events and how you would react to those and you work as a management team, you’re going to react better on the spot when something unforeseen occurs.

CFOTL It seems to us that scenario planning could become an interesting assignment for a strategy-minded finance person — since it really requires finance to collaborate with different parts of the business to identify possible scenarios.

Ethan Well, I think that the point you raise is an excellent one in that it really is an opportunity for finance leaders who want to be involved in the business and understand what makes it really go and where the major risks are. It does present an opportunity. I don’t think I can say that we see this widely. I’ve always viewed finance and business interaction and the collaboration as a two-way street. This type of scenario planning represents that.

CFOTL Do you find that certain CFOs still do not view scenario planning as being a particularly practical use of time? That some view it as a burden that companies have to get past?

Ethan Sure, this could certainly become a huge time sinkhole and one that I could see plenty of financial leaders not seeing as valuable. If you have a model that you’ve constructed for your budget and for your forecast that has driver-based elements to it, I think that you can be very efficient, and quite honestly I think that if you’re not doing, at least, some level of scenario planning, your planning process is incomplete. You’ll want to make sure that you don’t run a hundred scenarios for all the possible things that can occur. If you’re not doing the three or four most likely variants of your budget or your forecast at any given time, it’s really, I think, incomplete.

I can think back to when I was running a forecast for a company and we would always have a best upside scenario and a downside scenario, and we understood what our levers were and that scenario planning is not always reacting to a negative, but it’s also reacting to the positive. If you all of a sudden have an influx of new business or new opportunity, how are you going to react to that as well? At a bare minimum, I would say that if you’re not doing those base three reviews, you’re incomplete in your process.

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ASK ETHAN: Sharpen Your Market Focus with Long-Term Planning

 

CFO-Thought-Leader-Horz-599-131What does long term planning mean to your finance team? Join us as Ethan Carlson, CEO of Carlson Management Consulting, once more tackles our questions to supply you with answers and a new mindset designed to help empower your finance organization to look ahead.

 

Listen and subscribe to the Podcast on iTunes.

Transcript Highlights:

The following is an edited abstract from CFO Thought Leader’s “Ask Ethan” podcast featuring Ethan Carlson, CEO, Carlson Management Consulting, and Jack Sweeney, cohost of CFO Thought Leader.

CFOTL While frontline teams these days need to be responding quickly to changing events and opportunities, how does this impact the mind-set of organizations when it comes to long-term planning?

Ethan Well, from my perspective, having a long-range forecast or a long-range plan — something of greater than 3 years, say 3, 5, 7 years — is really a key component of the overall planning and forecasting process. It’s crucial to ensuring that the strategic alignment with your budget is maintained for a number of reasons. We see that having this in place allows organizations to have a thought process that’s focused not just on the immediate year’s results. In doing so, it allows the participants in the budgeting process or the planning process to take a step back and look at what the market looks like, what the macro trends are that they’re dealing with, and really be a little more thoughtful and strategic in the projections that they put in for what they want to accomplish.

It also allows people to — well, I don’t want to say take more risks — but to put ideas out there and to separate themselves a little bit from the process. Personally, I find that one of the big challenges in the annual budgeting process is that there’s a lot of gaming the system or sandbagging where a business owner won’t put forward their best projection because they know that hitting it is how they get paid their bonuses. So dealing or doing away with this is a great thing in that, often, these longer-range plans are not seen to have this same correlation, so people can often be much more transparent and can put stretch goals in place, which is really how organizations will evolve and improve.

I can think of one business leader I worked with for a number of years with whom we had to go through a 5-year projection as part of the beginning part of our budget process. Whenever we were doing our annual plan, he had more tricks up his sleeve — such as taking ways to hide backlog and things of that nature — so that he would always hit his annual budget and get his bonus. But when it came to the strategic plan, he was very thoughtful and did the market research and all that, so it was a very different process. So I think that this allows people to be more strategic but also to be more transparent on what’s possible in their business.

CFOTL Can you give us a sense of how organizations are modifying their approaches when it comes to long-term planning?

Ethan I think that the biggest thing that’s changing is the frequency and pace with which organizations are looking at longer-term projections. When I worked at GE a number of years back, we always had a long-range projection, but it was an annual exercise. I think that today this is happening much more frequently.

The pace of business that we’re dealing with, even in the last few years, has changed radically to where over the course of a week, or days even, a company’s outlook can change dramatically. Strategic events in the world or in their market can change and the long-term plan needs to be constantly reevaluated. What we’ve seen as much as anything is that the frequency of the model and the use of it is increasing. As a result, organizations are looking for ways to make this long-range projection easier and more accessible and more real-time.

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Rolling Forecasts: A Wish List Item Becomes a “Must Have”

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Is your rolling forecast delivering all of what it promised? Join us as Ethan Carlson, CEO of Carlson Management Consulting, once more tackles our questions to supply you with answers and a new mindset designed to help empower your finance organization to look ahead.

 

Listen and subscribe to the Podcast on iTunes.

Transcript Highlights:

Rolling Forecasts: A Wish List Item Becomes a “Must Have”

The following is an edited abstract from CFO Thought Leader’s “Ask Ethan” podcast featuring Ethan Carlson, CEO, Carlson Management Consulting, and Jack Sweeney, cohost of CFO Thought Leader.

CFOTL So often, companies just don’t know where they stand today when it comes to forecasting. They’re asking themselves, “Are we falling behind? Have our competitors already figured out how to make forecasting a competitive advantage?” And yet I suspect that some companies would tell us that it’s not even a primary concern yet.

Ethan Carlson Well, I think it has to be. I think that we talked a bit last week about the pace of business decision-making and how fast things are happening now. I think that if you’re not doing a rolling forecast or changing the way you think about your projections and using this to your advantage, you’re really missing an opportunity to capture key information and make better decisions. If you go back historically and look at how organizations have thought about forecasting or budgeting, you’ll find that it was an annual exercise or done maybe every 6 months. The reality is that those are very arbitrary time frames. There are recent studies concerning forecasts and budgeting, and they’ve revealed that organizations using annual budgets find that they’re obsolete within the first two quarters.

And what happens at this point if you’re comparing yourself against information that’s not relevant? I can think of one example when I was back in a formal organization of mine. We locked in our budget in mid-December. We kind of closed for a week at Christmas and came back on January 2. Meanwhile, there’d been a major shift on one of our significant deals and our budget was completely obsolete. We had to redo the whole thing. It was a painful 2-week period for me and my team and really the whole management team. We had to kind of go through, reassess where we could, see how we needed to adjust, but we had to do it just the same. I think that we probably set a record there with a within-days-obsolete budget, but I think that a lot of organizations have experienced this, and if you’re not adjusting, your entire profit for your variance analysis is rendered relatively meaningless.

CFOTL So what are some of the primary reasons an organization may have to resist adopting a rolling forecast?

Ethan Carlson I think that the number one reason companies resist this today is the time that they think it’s going to take and the time it would take if they just took their current process and started doing it every month and extending the projections out an additional month so that they were always doing 12 months of projections. When we survey companies and ask how long they spend doing their annual projections, the numbers are quite staggering. A large number of companies spend 3 to 6 months putting these projections together. You obviously can’t do this every month. But if you come up with a more efficient, driver-based process that focuses on the key elements that impact the financial results and create a more streamlined process, you’re able to do this rolling forecasting more efficiently

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Carlson Explains Adaptive Insights Easy to read Dashboard

Manufacturing KPIs

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Jotham-Lane, Director

A question that invariably arises when I’m implementing manufacturing budgeting and planning software with clients is – which metrics should we be tracking? I could list any number of perfectly valid metrics, but at that point, I steer the discussion to priorities and strategy. In my experience, key performance indicators (KPIs) are an excellent means for ensuring that budgets align with strategy. Specifically, what are the factors necessary for them to improve competitiveness over both the shorter and longer term? Where should they be focusing their time, effort and investment? For example, a company may wish to prioritize cost efficiency, safety, compliance, quality, or delivery.

The discussion about KPIs can get overwhelming as it can often be varied based on the industry as a whole or the company in particular. There are several financial as well as non-financial metrics that can and should be closely managed. For the purposes of this post, let’s focus on some of the financial KPIs that can be applied broadly across manufacturing. Not surprisingly, they involve measurements around units. Here is my shortlist of must-have KPIs:

Cost volume profit analysis: Also known as CVP, this analysis goes beyond break-even analysis, which is essential in its own right. CVP is particularly valuable for ascertaining short-term goals in profitability as production is planned or projected to scale. It does have limitations as it assumes there won’t be changes to fixed and variable cost. It also assumes that all units will be sold, which as we all know doesn’t always happen. However, it does provide guidance for aligning production with profit targets.

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