Is it time yet to reinvent Financial Forecasting?
Sastry Bhamidi (He/Him)
Trusted Finance Business Partner | Leadership | Transformation
Don’t think COVID-19 could have been simply imagined in a VUCA (Volatility, Uncertainty, Complexity & Ambiguity) world we live in. Though it was not totally unknown (at least a few indicated through their TED talks or movies over a period of time).
Will risk be perceived differently hence forth?
The Fortune 500 (also) made China as their major supplier for all essentials and many more in the last few decades. What can be the new strategy now? How to de-risk the current situation? Will it increase cost? Will we choose life over EBITDA? (Or is it even perceived like that anymore?)
Staying on financial forecasting, its clear that not everything can be predicted and sensitivity analysis may not stand sufficient since external factors are out of reach. A ±5-7% sensitivity need not come handy; COVID has clearly toppled this.
While this working from home might give an opportunity to evaluate strategies to get back to normalcy, what’s on top of your mind? How do you plan to handle this kind of “unknown-unknown” as compared to a “known-unknowns” so far, like inflation, unemployment, oil, etc.
Would love to hear from you.
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4 年Sastry, I'd say we have yet to determine the full and long-term impact of what's going on right now. It's also easy to point blame and hindsight when we're in the thick of the crisis. Yet, there will be a time down the road when we look back and learn more than we are right now. Forecasting will always be vital to financial planning, whether we get it right or wrong. In the cases of getting it wrong, it's not just about looking back at erroneous assumptions or course-correcting when we've gone on a tangent. It's also about quantifying the risk of the 'unknown-unknowns' and knowing what cost a 1% likely scenario brings with it. I think of the current crisis of a 1% unknown-unknown. Few companies would have made significant forecasting assumptions for this crisis being our reality. But all companies should have contingency plans to reduce exposure in the face of catastrophe. Many of our businesses operate in 'the future has greater opportunity than the present' mentality which leads to operational and financial leverage. This makes sense when the system works and isn't shocked. In the near-term companies, will de-leverage to de-risk. But in the future, once the calluses wear off from this experience, we'll be back to where we are today. The system will be healthy again. But then in the future, it'll be a different crisis and a different day.