Why it is critical for businesses to know why numbers change

17 Oct 2022


If the pandemic detonated a period of volatility for businesses, many still feel the aftershocks. However, we’re now in a phase where organisations are playing catch up – or at least trying to. Because the disruptions have been coming, thick and fast. 

Just when leaders thought supply-chain flows had been normalised, war erupted in Ukraine and triggered an energy crisis, inflation, and impacted demand. All of this uncertainty potentially adds to existential problems for companies that are not regularly checking their numbers. Or, more pertinently, failing to look deeper and analyse why the numbers are changing. 

Indeed, the most progressive businesses have realised that the traditional annual or biannual check on numbers and even in-year thinking are no longer fit for purpose. But those who have evolved to use rolling assessments and embraced integrated business planning to help better navigate choppy waters remain the minority.

Standalone predictions made six months ago based on the usual metrics are likely to be laughably wrong today. To survive and thrive today and make realistic future plans, businesses must consider more data points, and continuous evaluation is critical.

It’s far too easy for people to become lost in the financial outcomes and projections instead of exploring the thinking and assumptions behind the numbers. At Oliver Wight, we often use the phrase “numbers don’t just change”, and it’s true.

Numbers might change on a spreadsheet, but it is vital now that leaders have a better awareness of why. Likewise, assumptions have a pivotal role to play on the future horizon of a business’s planning activities. Therefore, thinking has to be refreshed and reviewed every month, or even more frequently, to identify any fluctuations as quickly as possible. 

Knowledge is power

Armed with that latest knowledge and a more developed understanding of why change has impacted the numbers positively or negatively, an organisation can take action to re-optimise operations in pursuit of financial and business goals with confidence.

I find it shocking that so many companies still perform these checks on only an annual or biannual basis as part of their budgeting and planning processes. That frequency of revisiting the thinking is insufficient to buy them enough time and react in the best manner in today’s world. With this outdated approach, only short-term firefighting is possible. It is pointless if an undetected issue – which could have been avoided had they been scanning the horizon – suddenly hits.

Businesses have to catch up. For decades, organisations have used static, one-off assessments to measure future success. That model needs to be discarded. Instead, rolling assumptions are now required to understand key changes on the radar and see if corrective action should be taken. 

And those assumptions must be challenged, too. By running scenarios and investing in better and more comprehensive analysis, important decisions can be taken against likely changes well ahead of time. The iceberg can be avoided if the captain has greater visibility. As historian Edward Gibbons wrote: “The wind and the waves are always on the side of the ablest navigator.”

Further, the traditional in-year-and-shrinking mentality arguably also needs an update. Comparing this financial year with the last is perhaps not helpful. While hitting the numbers this year is important in terms of targets, what is more crucial is having a great plan in place for the following year along with any actions required to deliver the business plan and hence budget.

Greater visibility and agility needed

There are, unfortunately, numerous examples of businesses – and even whole industries – that have got this wrong recently. Airlines and airports, for instance, showed woeful forethought to prepare adequately when coronavirus restrictions were dropped earlier this year. As a result, the overseas travel experience was lamentable around the Easter holidays, when many people were holidaying abroad for the first time in three years. It was not much better in the summer. 

I reckon the industry is probably still another six months from recovering properly, which suggests the decision-making timeline for the events that caused so many problems should have been the year before. Or they should have at least been scenarios and plans that assumed that if the impact of the virus lessened, travellers would be desperate to fly. 

Finally, in the current climate, with consumer confidence taking a hit, demand forecasts and supply-chain troubles will, to a degree, self-correct. The concern might be that although the backlog will reduce, the demand could have disappeared by the time an order can be fulfilled so again it’s critical to understand the thinking behind the numbers.

Again, the only way to run a successful, agile business in 2022 is by using integrated business planning. It is a contemporary approach that engages people who truly understand the thinking behind the numbers using a process with a cadence that provides significantly greater visibility of the horizon and beyond.

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