As we find ourselves working in more agile ways, it becomes necessary to re-examine our finance function as part of the overall need to change the way we work.
Traditional financial forecasting, planning and reporting no longer fulfils the needs of the modern workplace. We now need to find ways to proactively manage our financial responsibilities.
Applying software and programming methodologies to finance
If you’re involved in digital transformation, or work in agile/software-led teams, you’re likely to already be familiar with Software as a Service (SaaS). This is when you access software online via a subscription, rather than have the software installed on your computer. Similarly, Platform as a Service (PaaS) allows you to manage and run applications from a remote (cloud-based) service rather than directly from a PC or laptop.
When you consider how these sorts of principles can be applied to finance, it’s really pretty simple. In programming, ‘function’ relates to a unit of code that has a specific role within a larger code structure – often directly related to specific inputs and outputs.
To apply Finance as a Function (FaaF), you simply take a proactive approach, using tools and analysis to make adjustments in real time based on data and insights.
What a reactive strategy looks like
Traditionally, finance is handled reactively. This means you act in response to a situation, rather than setting yourselves up to create or control it. It’s financial necessity that generally drives a reactive approach, resulting in limited opportunities for genuine planning.
A reactive financial strategy waits for payments, issues, bills or even crisis situations to occur before you respond to them. This can be very stressful and time consuming, and also means that cumulative budgeting and planning can often be misleading and inaccurate.
How a proactive strategy is different
A proactive financial strategy is iterative at its core. This means you use data and insight to make constant adjustments. You also carry out deep-dive analysis to gain a full and complete understanding of your whole financial landscape, rather than a temperature check at key points in the financial year.
A proactive strategy allows you to eliminate problems before they happen, anticipate changes, and even plan for the unexpected. It also allows you to achieve far more accurate reporting and horizon planning.
This approach allows you to start taking advantage of concepts like zero-based budgeting. So, rather than looking back at last year’s expenditure and making a ‘finger in the air’ judgement on how that will be reflected in the next year’s budget, you essentially start from scratch instead.
You consider what you know about the coming year (rather than the previous) and build a fresh and realistic budget from a clean slate. Of course, you will still use your deep dive analysis, data and insight to influence this budget, but it’s much less formally connected to the previous year.
How to make the change
It’s recommended to introduce a change from reactive to proactive at the beginning of the financial year. In advance of the switch, you need to make sure that everyone involved in any part of your financial landscape is fully prepared for the change.
Well in advance of switching, you should have a full and complete understanding of the current processes and map out what will need to change for you to ‘go pro’. This should include a full list of people, their roles, and the changes they will be expected to implement. Allow as much time as possible for this transition.
Look for tools that can help you to make the transition easier, that can help your proactive strategy embed smoothly and enjoy longevity. This might include automating processes, employing new technologies or embracing new ways of working. Again, this can take time to bed in, so make sure you consider this realistically in your planning.
Fundamentally changing the way you work isn’t easy. But, with a proactive strategy for your finance function you’ll be able to reap the benefits of better financial planning, less surprises and a more iterative way of working that better reflects the way your organisation works as a whole.