Page 95 - Finanancial Management_2022

While a budget establishes events.
Powered by artificial intelligence,
expectations, a forecast estimates next-best-action models use data about a
customer to recommend actions or offers
reasonable future prospects. that might meet customer needs.

Put familiar tools to work
Flexibility is also enhanced when
organisations make the best use of
existing approaches, even ones that have
been adopted on the fly during the past
two years. “If you’ve put in the time and
revealed the limitations of the traditional FCMA, CGMA, director of finance. As a energy to develop new and more efficient
budgeting approach. During the first few result, a greater focus on forecasting reporting tools, don’t put them aside
months of the pandemic, illness and worked well during the pandemic. when things return to normal,” Dowd
other related factors at MAS Holdings led “The last year or two were devastating advised. During the pandemic, his
to an unprecedented level of worker for hospitality,” he said, adding that the organisation has worked to achieve a
absences, which threatened to hinder disruptions that discouraged or better balance between fixed and variable
operations, according to Abeysinghe. prohibited travel had a greater effect on costs to determine whether the benefits of
Fortunately, the company has been the industry than 9/11 or the 2008 global an expense still provide value during a
upgrading its digital capabilities in the financial crisis. As a result, while the downturn. The organisation will continue
last few decades, which allowed it to organisation might have reviewed its to monitor this balance and use the new
shorten its budgeting cycle so that it could forecasting cycle each month in the past, KPIs that it has determined are best for
more easily check and adjust assumptions it began to revise forecasts weekly when the business.
depending on new developments, he said. COVID-19 broke out, in order to update its For example, his hotel might get a
“Data analytics and digital transformation model based on new developments. lower price for window cleaning by
can play a huge role,” he said. Data Joachim offered an illustration of how signing a long-term contract, but that
analytics tools made it possible to forecasting can work in practice. He noted service might seem unnecessary when
monitor dynamic variables from that many factors influence the sale of a idle staff members could perform some of
throughout the company and feed them car, including the cost of petrol, a the work during a downturn. If it does not
into a comprehensive, consolidated downturn or upturn in the economy, and commit to the contract, the hotel could
rolling budget. His organisation relies on the direction of consumer prices or of perform the service as needed, based on
SAP and Power BI. unemployment or exchange rates. All of cash flow, thus ensuring the business’s
Digital information and data analytics these considerations are variable, but ongoing survival, even if it does mean
can also be used to gather external using their own algorithms and data higher costs in the short term, Dowd said.
intelligence on the main variables that analytics, organisations can fine-tune In considering this choice, factors might
affect an organisation’s costs and their understanding of how any pertinent include any termination penalties or
demand, including data on changes in element might affect sales and then revise necessary notices for cancellation, in
market size and volume, customer forecasts accordingly. New assumptions addition to the cash flow forecast. “If
circumstances, and global and domestic can then be applied at all levels. For there is a high risk that cash resources
financial and monetary policy, he said. example, an updated car sales forecast will be a challenge, the business will need
And companies can minimise disruptions may translate to a change in sales the ability to reduce the cash outflows,” he
to customers by informing them of expectations for individual salespeople at said.
potential delays or other problems well in a dealership or in production plans at a In addition, with a stable brand and
advance, based on their own updated manufacturer. relatively stable market, Dowd’s
budgeting data. The many advantages of a Joachim also pointed to online organisation can generally rely on a
more reliable budget also include retailers that use high-end algorithms to steady cash flow because hotel bills are
increasing the likelihood that teams can immediately offer customers products generally settled immediately. However,
actually follow it. “If targets are too far off, related to something they have just “when income suddenly stops for six or
people are not motivated to achieve the bought. The algorithms can also alert the seven months, but commitments and
budget,” Abeysinghe noted. “Revised retailer to potential future needs. For outflow continue, it makes you wake up
targets make a big difference.” example, if someone buys a recipe book, and start looking at cash flow,” Dowd said.
the immediate auto suggestions might be He emphasised the resulting importance
Finesse your forecasting cooking ingredients that have a very high of continuing cash flow analysis so that
While a budget establishes expectations, a likelihood of a buying decision in the next organisations can respond quickly when
forecast estimates reasonable future few days. This would set off an entire their cash levels are below expectations.
prospects. At the St. Regis Dubai, The chain of purchasing decisions that could The hotel was able to extend payment
Palm, which is managed by Marriott be forecast. Using this kind of predictive terms with some vendors and third
International Inc., the corporate budget is analytics, the spontaneous book purchase parties, making it possible to maintain a
set in stone, according to Steven Dowd, can provide insights into subsequent positive cash status.

18 I FM MAGAZINE I June 2022