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3 Forecasting Challenges FP&A Must Face During Fast Growth

  • By Tom Russell
  • Published: 9/6/2016

Budgeting and forecasting is always a challenge—even in a stable environment. But it’s doubly difficult for organizations that are experiencing rapid growth, organically or through acquisition. These companies need to consider additional factors to effectively manage their growth. The challenge of fast-growth forecasting can apply to an entire company, a newly formed or acquired division, or a new product or market. Everything, including the lack of historical data, weak or undefined processes, inadequate talent, and inappropriate technology can affect the reliability of the forecast.

Challenge #1: People

The foundation of any organization is its people. Rapidly growing organizations face unique challenges that can make accurate forecasting difficult. Smaller companies can get away initially with weaker people in their financial planning and analysis (FP&A) teams, however, those weaknesses become exposed when organizations expand into more complex ways of doing business. Legacy employees may not be able to handle increased job complexity.

It is important to carefully assess your team and make sure they are up to the task to help lead the organization to the next level. If they are not ready, you’d need to evaluate coaching, retraining, shifting responsibilities, and ultimately replacing some employees. You shouldn’t assume that employees that were capable in the past can continue to be successful under the new business model. Professionals need to acquire new skills to produce the new forecast.

“It’s important to get the right balance when investing in new talent,” said Varvara Alva, treasurer of Gogo. “Be careful of hiring in advance of your needs, and utilize consultants when necessary. Only commit to full-time hires when the business plan is clearer.”

Jon Kanter is managing director of FP&A at Goodwin Procter, a top 50 global law firm that recently opened two new offices in Europe. At a law firm, as with most professional services organizations, “expansion often comes from hiring or acquiring new people,” Kanter said. “Cultural misalignment is likely to result in nonproductive people who are not billing hours. It’s therefore important to keep everyone connected between human resources, finance and business unit leaders so finance can come up with a realistic forecast. This is critical to any successful integration and execution of a growth strategy.”

Challenge #2: Process

The process in which forecasts are assembled and integrated must change and adapt to the needs of a growing organization. Outdated and inadequate systems and processes can challenge any organization, but can be especially problematic for those undergoing rapid growth. The financial consolidation, reporting and analysis required for a new organization may not be supported under the old way of doing business.

Gathering information across the organization and working with other departments is a key part of the forecasting process. “Agility and the ability to course correct are critical when growing rapidly,” said Michael Trzupek, group vice president finance at Providence-St. Joseph’s Health. “Often initial decisions are made incorrectly and need to be adjusted.” His organization is focused on transparency, getting buy-in on the forecasts, and understanding sensitivity and drivers of assumptions. Forecast analysis should be used as an opportunity to discuss the underlying drivers of the business rather than making it a black box. Failing fast is better than failing slow, as it gives the team the opportunity to learn from mistakes, generate insights and learn from that information.

Challenge #3: Technology

Reviewing new financial systems is also important; however, keep in mind these systems can take months or years to implement, so don’t wait until new technology arrives to make changes in your finance organization. Johnnie Goodner, CTP, vice president of finance at JP Energy Partners, saw his company go from a startup to a publicly traded company. “We had elaborate models and systems at previous employers, but nothing at our startup,” he said. “Our biggest accomplishment was getting something in place. It’s better to do something basic than nothing at all.”

Bill Sayer, manager of insurance solutions and strategic finance at Voya Financial, saw a previous employer acquired by surprise by a bank that wanted to sell insurance to their deposit base of millions of customers; the change would require a fivefold increase in business. “Our previous business development model didn’t apply anymore—the scale was too large for Excel models,” Sayer said. That meant new technology needed to be acquired.

For fast growing companies, systems and tools will likely need to change over time. Expanding to multiple product lines and having a multidimensional view of the data are needs your current technology might not be able to support.

Tom Russell, CPA is director of corporate FP&A at Welltower. He will speak on forecasting during rapid growth at the AFP Annual Conference in Orlando this October.

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