This is the final in a series of three articles considering whether budgeting and planning is now an outdated discipline. Previous articles looked at whether you can plan, forecast and budget when once-in-a-lifetime events seem to take place every other week, and whether it is possible to budget fast enough today. In this article, Phillips argues that we need to get comfortable with the current level of change in the world.
It's comforting to think that we might eventually be returning to “normal”. That the past few years will fade into memory and become a series of anecdotes that make up our life story. But doesn't that mean that all the adapting, ducking and diving we've been doing to survive recently is all short-term and we'll go back to how things used to be? That in fact, we will return to a world where a 365-day financial cycle made sense?
Unfortunately not. In fact, you should consider the work you've done to enable your corporate performance management systems and processes to keep pace during the pandemic as a boot camp for what's coming down the line. Just as many trends, for instance, remote working, were already in the offing and have been accelerated by the pandemic, a chaotic and unpredictable world was already emerging, but has been hastened in recent years.
Three reasons why the pace of change is not going to slow down
1. Covid’s longtail
The impact of COVID-19 is going to linger due to global vaccine inequality, and the inconsistent opening and closing of borders, as happened in South Africa after our scientists alerted the world to the Omicron variant. Further, infection rates are likely to continue to fluctuate. Most recently, Hong Kong saw its first real spike in Covid infections at the beginning of 2022.
2. Stretched global supply chains
Global supply chains, already stretched by the pandemic, face a range of other challenges. Geopolitical events, for instance, Russia’s invasion of Ukraine, can have an array of knock-on effects. In this case, food and fuel supply and prices will be impacted around the world, which inevitably has a negative impact on the overall cost of living. This is at a time when it was hoped that the world’s economies would start to recover after the pandemic. Further, Russia is a major producer of minerals such as nickel and palladium, which are used to produce lithium batteries and catalytic converters respectively. (However, the rising price of these minerals could benefit South Africa and Zimbabwe which also produce them.)
The climate crisis and increase in big weather events are also playing havoc with global supply chains: in 2021 Hurricane Ida on the US east coast caused global cargo shipping delays.
Cybercrime too can threaten supply chains thanks to the increasing digitalisation of organisations, including operational infrastructure. Last year, the eastern US experienced fuel shortages after the country’s largest pipeline, Colonial Pipeline, was shut down due to a ransomware attack.
Something else that shouldn’t be a surprise to us is the increased rate of change driven by digitalisation. A Deloitte report, Digital Future Readiness, says this change will come in the shape of changing customer expectations, evolving products and services, and changing economics of production and distribution. As people get increasingly familiar with remote working and ecommerce, these expectations are going to accelerate, and companies are going to need to continuously adapt and innovate.
Of course, none of these factors exist in isolation. Instead, they form a cat’s cradle of interlocking dependencies and impacts all driving a rapid rate of change, and increased uncertainty. Which, returning to my original point, means that information will continue to have a short shelf-life in a post-pandemic world.
So the work done today to ensure that the management team has continuous access to immediate and up-to-date information is critical. This includes insights from the people at the coalface of the organisation as these are the people who are seeing the changes as they occur and are also getting a sense of what is coming down the line. Next, companies need the correct tools and processes to enable faster processing of this information and the ability to reflect these changes in their expectations or financial forecasts. The finance team needs the ability to test new assumptions and reforecast on the fly. This will ensure they are able to appraise the impact of the changes and guide the business on what to do next.
This should convince you that any efforts to support a faster, more responsive information flow into shortened and more frequent budget and forecast cycles during the health crisis will be more than just a short-term band-aid effort, but in fact, will be critical in the future business landscape.
As published in Business Brief - August/September 2022