Only 20% of CFOs can forecast revenue, earnings beyond a year: survey

Dive Brief:

Only 20% of finance teams have the ability to forecast revenue and earnings beyond 12 months and only 4% set aside sufficient time for effective scenario planning, according to a global survey by Prophix Software.
Just 39% of companies can forecast earnings within a 5% margin of accuracy, according to the survey of 509 senior financial executives — many of them with middle-market companies — across 23 industries in Europe, the U.S., Asia/Pacific and other regions.
“If you look at the office of finance, there has been a very slow digital transformation,” Prophix CEO Alok Ajmera said, adding that most finance operations are “siloed, spreadsheet-driven."

Dive Insight:

Financial executives will likely spend more on IT in 2021 than ever before as they seek to gain an edge in business process improvements, including in forecasting and scenario planning.

CFOs will push up IT spending worldwide by 6.2% this year to a record $3.92 trillion, according to Gartner, as they accelerate their pre-pandemic plans for digital transformation by at least five years.

Given the disruption from the coronavirus, “this is the perfect time to actually start the transformation,” Ajmera told CFO Dive. “Everyone in the organization — board members, etcetera — understands the pain and understands the need.”

CFOs face the prospect of squandering much of their IT spending. At least 30% of the typical IT budget is wasted, Flexera said in a survey that identified digital transformation as the top item on technology budgets this year.

“There is a latent fear in the office of finance” about wasted IT spending, Ajmera said. “If you talk to any business leader they’ll have war stories around implementations that went exceptionally long or that never really got them to value.”

Companies surveyed by Prophix, a provider of corporate performance management software, showed some signs of forecasting agility, with two-thirds of finance teams saying they can reforecast their earnings in under a week. Still, only 39% of survey respondents can do so within a 5% margin of accuracy.

Many finance offices “have been really slow to adopt enterprise-grade technologies that might streamline and automate a lot of the work that they’re doing,” Ajmera said. Instead, companies tend to channel technology investment toward functions focused on operations, products or customers, which may offer a more obvious return on investment.

“CFOs sometimes shoot themselves in the foot by de-prioritizing investments that could be made in their span of control,” he said.

The Prophix survey highlights advantages of scenario planning. Seventy-seven percent of organizations that consider various scenarios can reforecast earnings within a week, whereas only 41% of firms that forgo scenario planning can update earnings in that period of time.

With the pandemic well into its second year, “people are realizing the importance of scenario planning, the importance of forecasting, the importance of planning in general,” Ajmera said. Yet many companies “haven’t put the basic infrastructure in place to enable them to” do so.