Blog

Unforeseen crises, such as economic depressions, natural disasters, and black swan events (such as the present COVID-19 pandemic), have immense repercussions. Crises are capable of immobilizing institutions and economies. These circumstances are not common for the great majority of businesses. There are safety dangers everywhere. People's movement is restricted, business activities are slowed, and cash flow decreases.

In this age of unpredictability, customers' requirements fluctuate rapidly, prompting innovative business practices. For instance:

• Reducing costs and developing systems and tools to accommodate large numbers of employees commencing remote work as a consequence of movement control during pandemics and similar catastrophes become priority concerns.
• Financial Forecasting, scenario prediction, conclusion drawing, and reporting have become challenging, varied, and unpredictable.
• Many companies must revise their whole Business Models.
• Cost-reduction initiatives are regular.
• There are massive layoffs and even business closures.
• Certain firms are mandated to provide online goods purchasing and fulfillment services.
• Others must enhance their offering of the virtual Customer Experience
• In such uncertain circumstances, online collaboration tools like as Teams, Zoom, Google Meet, and Microsoft Office 365 become the norm.

In such uncertain times, the majority of businesses become cash-strapped, and many are compelled to use drastic Cost Cutting measures. To emerge from the recession stronger than before, businesses must comply with the following conditions:

• Planning Coherence via Scenario Analysis.
• Forecasting projected financial flow.
• Developing a holistic, long-term view of the organization.
• Making prudent investments.
• Developing special abilities.

Financial planners often give estimates based on historical trends, past performance, and market fluctuations. In times of unpredictability, management should emphasize Cost Management and use effective Forecasting methodologies.

Three fundamental steps are required for a thorough Forecasting Strategy that can successfully manage stakeholders' expectations:

1. Select a flexible forecasting tool suite with the right level of scope and detail.
2. Share, corroborate, and evaluate your assumptions.
3. Outline the impact of decisions

Each step of the technique involves three questions:

• Does our collection of forecasting tools address the presented issues?
• Do our fundamental assumptions take into account new realities and opportunities?
• What occurs when we pull the available levers?

Let's delve deeper into the first two phases of this Forecasting approach.

Step 1. Select a flexible forecasting tool suite with the right level of scope and detail.

Utilizing a flexible forecasting tool to generate forecasts that account for both positive (upside) and unfavorable (downside) outcomes is the first step in the process.

• Estimating the impact of fixed and variable expenditures, in addition to any imminent sales and operational planning issues coming from the uncertain situation.
• Visualizing budgeting options, including discretionary, required, and contractual expenditures.
• Communicating a coherent story at the required frequency, such as weekly or monthly financial projections.

Step 2. Share, corroborate, and evaluate your assumptions. 

The subsequent step is to develop plausible theories. Planners are required to identify, analyze, and assess current and dynamic forecasting assumptions and drivers.

• Examine the consequences of the crisis on comparable businesses throughout the world, as well as their reactions.
• Compare the base case's assumptions to the most current financial statements, allocations, and expenditure reports.

Interested in learning more about the steps of the approach to Financial Forecasting?  You can download an editable PowerPoint presentation on Forecasting Uncertainty here on the Flevy documents marketplace.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library.  FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives.

For even more best practices available on Flevy, have a look at our top 100 lists:

• Top 100 in Strategy & Transformation
• Top 100 in Organization & Change
• Top 100 Consulting Frameworks
• Top 100 in Digital Transformation
• Top 100 in Operational Excellence