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FP&A Needs a Beacon to See Through Volatility

  • By Bryan Lapidus, FP&A
  • Published: 4/25/2018

iStock-680530472To manage short-term volatility, FP&A practitioners often have a principled response: follow the core attributes of your company. At FinNext in San Francisco, a panel of experts discussed how market changes can up-end their operations, and how they navigate their teams through the ensuing volatility.

One commonality among the responses is that, while volatility can disrupt plans and create panic, the most effective ways to respond is to have a set of guiding principles to organize your thoughts and reactions. Without this, teams can be adrift among the sea of potential responses, chasing different ends and losing focus. What follows are three examples of volatility panelists faced, and their approaches to them.

EXAMPLE 1: CONSUMER VOLATILITY (KNOW WHAT YOU DELIVER)

Craig Anderson is the Senior Manager, Financial Planning & Analysis at TuneIn, a venture-backed app that makes the content of live sporting events, live news, and thousands of podcasts and radio stations available on connected devices. “It is like Netflix for live audio content,” he said.

In recent years, TuneIn has had to respond to changing consumer preferences in hardware platforms where they listen to their audio content, and therefore to TuneIn. At one time it was all about the computer access, then it was a shift to mobile platforms, and now the team is addressing the growth in home smart speakers and platforms (such as Alexa, Google Home and Cortana). During a conversation about TuneIn’s long-range planning, the CEO commented to Craig, “Our value to our listeners is the content we are delivering to them. In that way, we are a content company. We will meet the customer on any platform they wish.” The key for TuneIn is to focus on the content they deliver, not necessarily where it is delivered.

EXAMPLE 2: PRODUCTION DEVELOPMENT VOLATILITY (KNOW YOUR OPERATING PRINCIPLES)

Saumya Mohan, a Silicon Valley veteran, discussed how a similar company focus can help frame the reaction to volatility. “Having a clear beacon [say, customer satisfaction] helps to prioritize need for change,” she said. “The business environment may change, but maintaining that singular focus will help to see through the volatility, and also help different teams find something they can agree upon.”

This mission focus can put the entire organization on the same page. For example, if there are discussions about potential changes to design and product features, and the associated cost and delays, the group can go back to their first principles and ask, “Does this make the customer experience better?” They should have the central principal as their touchstone to sort through challenges.

EXAMPLE 3: MARKET VOLATILITY (LONG-TERM FOCUS)

An oil rig can take years to build and have a useful life of decades. What happens when a company with an investment horizon of decades manages daily volatility in the market place—in this case, oil prices?

Michael High, Head of Business Planning & Appraisal, Deepwater Division, Royal Dutch Shell, has several perspectives on this reflecting two factors of his businesses.

First, the long-term investment side tries to look through the turbulence into the future. Investments are made with optionality, such as delaying the decision cut off point, shortening the build time once the decision has been made, and building opportunities for modular, incremental expansions at later periods all reflect ways to managing investment cash flow.

Second, High noted that having a dividend forces discipline on corporate risk taking. The company has paid and its dividend consistently for six decades; the weight of maintaining this streak enforces capital conservatism and people weigh their actions relative to the potential impact on dividend payments.

For additional insights on FP&A and volatility, read the AFP Guide to Planning in the Age of Volatility.

For additional insights on FP&A, subscribe to the AFP monthly newsletter, FP&A in Focus.

Reach Bryan Lapidus at blapidus@afponline.org.

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