Brexit + Trump + the Australian election = Volatility


Planning for the Volatile Times Ahead

Recently we’ve had Brexit, we’ve had “The Donald” secure the US Republican nomination and we’ve had an Australian election that is hung almost a week after the poll. Financial markets are in turmoil. Europe, particularly the UK doesn’t appear to know which way is up. In short, the world is a more volatile place.

Take a moment to imagine you magically picked up your organisation and placed it in London. That your customers are mixed local and from the Continent. How confident would you be that your major French customer would still buy from you in 12 months? Or that your locally based American supplier won’t pack up and move to Frankfurt? Or that Sterling won’t be worth either 20% more or 20% less in six months?

Dory’s Wisdom

I took my 8 year olds to see Finding Dory the other day. There is a line in it where Dory says “The best things happen by chance.” Here she is relating how things don’t usually turn out as planned and a lot of the time we don’t plan or expect the best things in life; they just “happen by chance” (especially when you can’t remember what you said 20 seconds ago, but that’s a different story!). With even more volatility around, the chance of your plans actually playing out as expected are getting lower.

Volatility in Corporate Planning

Of course what we are talking about from a corporate planning perspective is planning for volatility. How do we build forecasts that allow us to test different scenarios and then plan for those outcomes so that when they occur we at least have something in our pocket to activate?

The best way to manage volatility is to build in to your forecast “what-if” or scenario analysis. In essence having multiple versions of a plan where you can “pull the levers” to evaluate different outcomes. Mmmm, I hear you say: “that’s not so easy, we plan bottom up and enter our budgets by GL account”. The key to making what if analysis work is to use driver based plans.

We recently completed a labour budget model for a large Australian public company where we did the labour planning for over a billion dollars of staff related costs. We used drivers based on transaction volume and efficiency of the staff to calculate hours and then applied rates to those hours to calculate the full suite of labour costs.

They can pull the levers on overall efficiency and rates to test different scenarios. The next step will be to update their sales planning to work in a similar manner – which obviously will feed the labour plan.

Where to Start?

They key, for you, is that you don’t need to do this with a big bang. Develop an overall plan for how your corporate planning system should work, chunk it down and build it in stages, knowing that eventually you will link the pieces together so it all interacts and can model different scenarios easily.

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John Vaughan

John Vaughan is a highly experienced Accountant and Consultant. He has experience in the pharmaceutical, FMCG, distribution, professional services, manufacturing and financial service industries. With over 25 years of commercial experience and 20 years working with the Cognos products, he...

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