For many FP&A organizations, the global health crisis was like a bank of fog rapidly and unexpectedly engulfing a ship at sea. Suddenly your tried and true navigational skills and processes and the way you have always assessed risks and opportunities has been taken away from you. You must rely on new ways to pilot the ship to a safe port.
The world has changed so much and so quickly that it has vastly impacted our ability to forecast in the current environment. I was shocked to learn during this time that one of my most cutting-edge clients, one who has been successful in incorporating Artificial Intelligence (AI) into their forecasting processes, had disconnected their AI capabilities. The reason was simple: the model and forecast were no longer providing useful insight and foresight to the organization.
This is just another example of a quote that I often reference by the famous British statistician George Box, “All models/forecasts are wrong, some are useful.”
Because AI learns from historical patterns and behaviors, the models the AI was leveraging were no longer useful in our current environment. The trends and behaviors we were able to model based on the past twenty years of data and information provided no insight into what may happen over the next one, two, or six months. In other words, the data and algorithms that were fueling the AI-enhanced models to produce actionable insights became useless.
The ability to provide useful forecasts to the C-suite and other business partners relies on being able to adjust how we acquire data and information that empowers FP&A teams to create knowledge that translates into those elusive faster, better, smarter business decisions. Here are some of the adjustments we need to make.
Ushering in a new era
Luckily, we have technologies available to us today that can dramatically reduce the time needed to refresh our forecasts and models. It’s no longer a matter of “Can we do it?” It’s now a matter of “Are we willing to invest in our technology, our people and our processes?” It may be necessary in order to produce the insights and foresights needed not just to survive but to position our organizations to thrive as we enter the “New New Normal”.
I view the current world we are operating in as similar to military conflict. Think about World War II. When the war started, biplanes were being used and by the end of the war we were flying fighter jets. The war pushed the development of that technology forward, and when it ended, it became the genesis of commercial jet travel. Although biplanes still remained in use, we pretty much stopped building new ones, and no one advocated a return to using them.
A similar thing has happened with analytics for FP&A during COVID. The requirements of the day have forced us to push past previous limitations, create new models and processes, and put new technology to work. Maybe we don’t need the ultimate fighter jet, but we can take the knowledge and experience that we acquired and continue to invest in developing a more modern paradigm.
This article previously appeared on the author's LinkedIn page.