What, no crystal balls? Public Trust moves to dynamic forecasting

Crystal balls would have been useful this year, as the world grappled with the constant ebb and flow of unpredictability. Financial planning can be challenging in the best of times, but planning in a crisis takes it to another level.

During the COVID-19 pandemic, Public Trust, New Zealand's largest provider of wills and estate administration services, realised the importance of dynamic forecasting and scenario planning and implemented Workday Adaptive Planning to help it navigate the unpredictable times.

Public Trust had spent several months preparing the FY21 Business Plan when COVID-19 hit and New Zealand went into lockdown. The plans then needed to be quickly updated for the new environment. Its executive team asked the finance team to prepare scenario analysis showing the impact of COVID-19 on revenue, profit, cash flow and liquidity. Its current systems didn't allow for the dynamic forecasting and scenario planning needed, and it turned to Workday Adaptive Planning. 

It's likely all pre-COVID-19 business plans were outdated once the pandemic's full impact became evident. Greg Garland, Planning and Performance Manager at Public Trust, says its response was probably very similar to everyone else.

"We developed and analysed scenarios, talked a lot and tried to prepare plans based on what we thought might happen, but it was still based on 'we don't know what we don't know," says Garland.

"Even at this stage we found our traditional bottom-up approach to annual planning was not up to the job and we had to shift to dynamic planning.

Garland indicates its new dynamic approach taught the team some critical lessons, including:

• Identify key drivers of business performance
• Model the impact each driver has on profit, cash flow and the balance sheet, and build scenarios
• Assess the sensitivity of each driver to variation
• Monitor key driver indicators weekly (sometimes daily) and update assumptions as required

"For example, for our investment business, we had to model the impact of each percentage point movement in financial markets on revenue and profit," he says.

The dynamic approach to performance and risk meant the executive and board could respond to the latest conditions and still focus on long-term strategic objectives. Public Trust found this essential as the situation changed swiftly and constantly, and the traditional linear approach to forecasting, planning, and acting became unfit for purpose.

Garland believes that if you are planning in a crisis, you are already too late.

"Putting yourself in pole position so you can manage in challenging situations is a far better approach and from a governance perspective it's paramount," he said.

"Planning needs to be done early and constantly, which is where scenarios are important. However, to do this in the best possible way it needs the right technology. This is where we had to look beyond Excel," he added.

Public Trust said when they knew they needed to upgrade from Excel, they wanted cloud-based products that were scalable, collaborative, easy to maintain, cost-effective, and most importantly, support business continuity.

They also wanted a solution that was adaptable, simple, and fast to implement, and had advanced functionality for dynamic planning, reporting, and business intelligence.
A good implementation partner was one who understood its business and had a collaborative methodology.

"With this thinking, we identified Workday Adaptive Planning software and Deloitte as our business transformation partner," says Garland.

"This gave us a powerful planning and reporting tool, and the right implementation, to be able to bring significant benefits to business insights, finance and wider management, whatever might be thrown at us."

Having robust financial forecasting is an important anchor in uncertain times, but it needs to have certain characteristics to ensure it's right for the job:

• Simplicity - meaning it can be adapted
• Work with what you know - defined information or relationships you can rely on
• Agility - weekly and possibly daily reviews of different aspects of performance 
• Compare - plot performance to find trends and compare financials with management data
• Take action - be pragmatic and act on the information you find and then review and try something different if it doesn't succeed.

"It's been a juggle to navigate through unpredictable waters while ensuring we remain focused on our long-term strategic objectives," adds Garland.

"By being dynamic, planning scenarios constantly, and assessing risk we are now in a better position to respond.

"While the future remains unpredictable and we don't have crystal balls, dynamic planning gives us the ability to be prepared and to ensure we are in a strong position to continue to deliver on our long-term strategic objectives.