Scenario Analysis & Rolling Forecasts for Rapid-Response Finance

If the COVID-19 crisis teaches us anything, it proves that the annual operating plan (AOP) is a relic of the past.  Want proof?  According to the Association of Financial Professionals (AFP),[1] 85% of FP&A teams are now expecting to miss their revenue and earnings targets.  Why does that matter? 

Well, AOPs comprise tens and sometimes hundreds of business drivers designed to help guide decision-making.  And now they’re all wrong.  This is nothing new for Finance leaders, of course.  Even without a viral pandemic, AOPs are often wrong within seconds of the final submission.  What does that tell us?  Here’s my take: AOPs do little to help guide decision-making in a fast-paced environment. They’re basically just tools to anchor performance targets.        

That’s why Finance teams are adopting a combination of scenario analysis and rolling forecasts during these unprecedented times.  Unlike the AOP, rolling forecasts and scenario analysis help Finance leaders actually manage financial goals AND help guide decision-making.

They are, after all, designed for rapid-response finance—keeping Finance teams leading at speed and staying agile. Let’s dive into how.

Re-posted with permission from Source