Data is a competitive advantage, but most of it is flawed
As the pandemic eases and the economy recovers, CFOs are beginning to increase spending, but a survey shows that 70% of executives lack confidence in the data underpinning financial forecasts. Blackline CEO Marc Huffman writes that data accuracy has become key to corporate decision-making, recommending that companies prioritize investment in forecasting processes and real-time data to navigate uncertainty.
The following is a contributed article by Marc Huffman, CEO of Blackline. The views expressed are solely those of the author.
As the pandemic eases and the economy begins to improve, many chief financial officers (CFOs) have shifted into spending mode. According to Kiplinger data earlier this year, equipment spending has grown 8% over the past 12 months, 8.7% above pre-pandemic levels.
Where the money goes depends largely on financial forecasts, which derive their insights primarily from internal financial data. But what if that data is wrong?
To find out, we commissioned a survey covering more than 1,300 executives and finance and accounting professionals across seven global markets. The surveyresultswere released in February and are unsettling. At a time when executives face more pressure than ever to provide an accurate picture of corporate performance, 70% lack confidence in the data used for financial forecasting.
In other words, CFOs confident in economic stability are loosening spending restrictions, but this capital allocation may be based on forecasts that few within the organization find convincing.
An optimistic move
Admittedly, as business opportunities emerge throughout the year, investing capital to seize them can yield many benefits. The U.S. Congressional Budget Officeprojectsthat the economic expansion that began in mid-2020 will continue and strengthen through 2025. This means CFOs who bet correctly could reap a windfall. In a Februarypollof 119 public company board members, 82% predicted profit growth over the next 12 months, and 90% predicted revenue growth.
Board and CFO confidence is understandable, but inflationary headwinds, corporate tax hikes, and stricter regulation could all become drag factors in the coming year. Low consumer confidence is another factor. Additionally, the Delta variant or other events could throw cold water on the recovery at any time.
Remember, the pandemic has demonstrated the difficulty of predicting cash cycles when businesses shut down. Weighed down by unpaid business-to-business receivables, cash flow is, at best, unpredictable, reminding financial leaders that real-time accurate data is critical to cash optimization.
Taken together, companies need to maintain rigor in forecasting, or they risk relying on financial data that could lead them astray. Investing capital in market expansion plans based on inaccurate financial information is a hasty strategy. A more prudent strategy might be to first invest funds in developing world-class forecasting processes.
Scenario planning and stress testing
This makes planning and testing critical, especially for finance and accounting organizations that are moving to weekly or even daily forecasts. AsAccounting Todayreported in February, in a Deloitte survey, 8.2% of executives forecast biweekly and 11.5% forecast daily. If the data supporting forecasts is outdated, inaccessible, slow to obtain, or simply wrong, it undermines the integrity of the forecast and the business decisions that follow.
Our surveyconfirms this alarming possibility. More than a quarter of executives (28%) said their finance and accounting departments cannot provide data quickly enough to respond to unpredictable market changes. Another more than a quarter (27%) said they have no visibility into financial scenario planning or stress testing, indicating their business decisions are based on an incomplete understanding of the organization's health.
The good news is that there is growing recognition that rapid access to real-time accurate financial data is a strategic imperative. More than a third of executives (34%) are considering implementing or expanding automation solutions to improve data reliability and accuracy, while 42% arepaying more attention toscenario planning and stress testing.
These companies recognize that robust forecasting and comprehensive financial information are essential to making informed business decisions. This comes at just the right time, as the economy is warming up and companies are positioning for growth.