Category: Office of the CFO

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Key Planning Trends for 2023 In the Face of Economic Uncertainty

“The will to win means nothing without the will to prepare”

Boston Marathon champion Juma Ikangaa

2023 is undoubtedly a challenging year to forecast from an economic perspective as the tempest of inflation, stock market volatility, foreign exchange challenges, hiring freezes, supply chain delays, and geopolitical conflicts are creating pressure for companies of all sizes and industries. As companies seek to make sense of a complex world and forecast performance, it is important to take full advantage of planning and forecasting capabilities to provide guidance. Of course, it is important to provide visibility and report to business stakeholders. But beyond the basics, what should you be thinking about as we prepare for a bumpy ride? Here are five key recommendations Amalgam Insights is providing for the business community.

  1. Build a planning process that can be changed on a monthly basis. Even if your organization does not need to plan on a continuous basis, there will be at least one or two unexpected planning events that happen this year that will require widespread reconsiderations of the “annual plan.” The “annual planning cycle” concept is dead at companies after the past three years of working through COVID, supply chain issues, and workforce shortages. This means that planning often has to be updated with new and unexpected data to support a wide variety of scenarios. Locking the plan to a specific structure, schedule, or level of data consolidation is increasingly challenging for companies seeking better guidance throughout the year. If you are not building out a variety of scenarios and tweaking changes throughout the year based on business issues and changes, your business is working at a disadvantage to more nimble and agile organizations.

2. Identify planning anomalies quickly. As businesses review their plans, they will find that they are off-plan more quickly than they have historically been. One example of this is in cloud computing, a spend area that is expected to grow 18-22% in 2023, far above general IT spend or the expected rate of inflation in 2023. Other commodities such as complex manufactured goods and food stocks may fall into this category as well based on production delays, logistical shortages, & new novel diseases interrupt supply chains. The ability to quickly identify spend anomalies that exceed budgetary expectations allows companies to affect spend, procurement, and technologies strategies that may further optimize these environments. By identifying these anomalies quickly, finance can work with procurement both to figure out opportunities to reduce spend and to find alternative providers that can either reduce cost or ensure business continuity to meet consumer demand.

3. Interest rates and the cost of money may incentivize longer sourcing contracts to lock in costs. This lesson comes from the sports world, where baseball players are getting long contracts this year. Why? Because the cost of money is increasing and baseball teams can’t play games without players, leading teams to seek the opportunity to lock in costs. Of course, to do this, companies must budget for the potential upfront costs associated with taking on new contracts. This is a story of Haves and Have-nots where the haves now possess an opportunity to lock in costs for the next few years and take advantage of the value of money over the next couple of years while the Have Nots struggling to visualize their spend may be locked in short-term contracts that will cost more over time. However, this ability to make decisions based on the current cost of money is dependent on the ability to forecast the potential ramifications of locking in cost, especially when those costs represent the variable cost of goods to meet the demand for consumer purchases and services.

4. Cross-departmental business planning requires a data strategy that allows organizations to bring in multiple data sources. Finance must start learning about the value of a data pipeline and potentially a data lake for bringing data into a planning environment, processing and formatting the data properly, and maintaining a consistent store of data that includes all relevant information for modern business planning use cases. In the past, it may have been enough for finance to know that there was a database to support financial and payment information and then an OLAP cube to provide high-performance analytics for business planning. But in today’s planning world where finance is increasingly asked to be a strategic hub based on its view of the entire business, planning data now potentially includes everything from weather trends to government-provided data to online sentiment and even social media. These new data sources and formats require finance to both store and interact with data in ways that exceed the challenges of simply having massive row-based tables of business data.

5. Look for arbitrage opportunities across currencies, geographies, and even internal departments. The valuation of mission-critical skills and resources can be valued very differently across different areas. 2023 is an environment where corporate equity and stock values are lower, the US dollar is strong against the majority of global currencies, and skills and commodities can be hard to find. These are both challenges and opportunities, as they allow FP&A professionals to dig into forecasted costs and see if there are opportunities to go abroad or to look internally for skills, goods, and resources that may be less expensive than the typical markets businesses participate in. Finance can work with sourcing, human resources, information technology, and other departments to proactively identify specific areas where the business may have an opportunity to improve.

As we plan for 2023, it is time to prepare sagaciously so that we are ready to execute when challenges and opportunities emerge. By planning now for a wide variety of potential situations, businesses can make better decisions in critical moments that can define careers and the future of the entire organization.

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The Role of Finance in Enhancing the Value of Workforce Planning

“If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”

Red Adair

In 2023, workforce planning is significantly more challenging and requires a combination of headcount, skills, finance, sourcing, and automation management. We are facing a remarkable confluence of labor trends that force workforce management to be more closely tied to financial management. Workforce volatility is at a peak as the Great Resignation has led to a mass exodus that has been augmented in recent months by layoffs from companies that overstaffed in the now-halcyon days of the favorable market that has defined our economic environment over the past decade. At the same time, the demand for specialized talent continues as the need to market, sell, deliver, produce, and digitize is still there for companies that are still healthy. And all this is happening at a time of global inflation and currency exchange challenges leading to cost constraints and explorations of geographic arbitrage and automation to introduce and scale up skills. This financial uncertainty leads to the increasing need for finance to support the details of workforce planning to build better businesses.

But this combination of volatility and demand has led to a more uneven distribution of talent that must be reconciled. From a practical perspective, this means that it is more important to make a business case for each hire that accurately estimates the value of a new employee’s skills and capabilities with the expected revenue per employee ratio that the company seeks to achieve. New employees must bring a combination of organizational fit and rapidly deployable skills to their companies to create value in a timely fashion. Considering that the cost of finding, onboarding, and ramping up a new employee can range from $15,000 to $50,000 based on Amalgam Insights’ estimates, companies face the challenge of ensuring that new employees are put in a position to succeed. From a planning perspective, this means having hardware, software licenses, data access, training, and relevant employee relationships all defined on Day Zero or Day One rather than a penny-wise, pound-foolish approach of attempting to provide just-in-time access as employees demand it.

Workforce planning may also include investing in training or learning and development resources proactively as skills needs are forecasted, as the cost of training can be lower than the cost of hiring a new employee or finding a new consultant. From a financial perspective, it is important to conduct a cost analysis of skills acquisition based on the future-facing needs of the organization. Even in a cost-conscious environment, it takes money to make money. However, workforce investments must be focused on employees who will both create value quickly and have the mindset to provide long-term value through their problem-solving, self-improvement, and collaborative approaches. And in considering the cost of skills, companies need to consider both the need for hard skills such as process automation and machine learning as well as the need to teach and train soft skills such as effective project coordination and corporate communications skills. By accounting for skills that may only be needed on a short-term basis compared to those that represent long-term commitments for an organization, companies can prioritize workforce planning from a more quantitative and business growth-oriented perspective.

As companies consider the full cost of employee skills, companies also have to consider the fully loaded cost of an employee, including the resources and benefits associated with bringing an employee on board. The accounting for supporting employee productivity has become more complex in the face of COVID and the subsequent reimagining of the overhead associated with employees. At the peak of COVID, an estimated 40% of employees worked from home. Based on this trend, it was not difficult for organizations to start scrutinizing the real estate and other long-term assets and leases that have traditionally been seen as depreciable aspects of employee cost providing tax benefits over time. The increasing willingness to move headquarters and other large offices to more tax or cost-of-living-friendly locations as well as the tradeoffs between depreciation, asset sales, and leases are increasingly relevant to structuring workforce planning. Companies must readjust the cost assumptions of their workforce to reflect the new reality of their organization.

This set of assumptions does not simply mean that companies can assume that an employee will be fully remote or fully on-site, as this discussion is driven by a nuanced set of considerations. Remote workers have struggled to onboard and reach full productivity and younger workers have sought mentorship and leadership that has traditionally been provided on-site. On the other hand, experienced specialists point to greater productivity and efficiency when they work in remote environments where they run into fewer ad-hoc distractions and interruptions and can work more flexibly. [1] 

From a planning perspective, this may mean setting up scheduled hybrid assumptions for workforce overhead that include office space and physical resources on a monthly or quarterly basis depending on the roles involved. Real estate and other long-term assets/leases that have traditionally been seen as depreciable aspects of employee cost providing tax benefits over time, but with large office vacancies and the increasing willingness to move headquarters and other large offices, the tradeoffs between depreciation, asset sales, and leases are now increasingly relevant to structuring workforce planning. Amalgam Insights expects that 2023 will be a year where companies are still struggling to find the correct balance of office space and may find themselves overcompensating in ways that affect long-term productivity.

The cost of bringing a workforce to full productivity at scale is seen through a variety of data, including the United States economic census, which shows that small companies under 500 employees make approximately $220,000 per employee while large enterprises with over 5,000 employees make over $375,000 per employee. (SOURCE: United States 2017 County Business Patterns and Economic Census) This difference of over $150,000 speaks to the potential difference in productivity between employees who are fully supported at an enterprise level and their small business counterparts who presumably have less support, brand power, and capabilities to enhance their efforts.

But this increase is ultimately only possible by aligning workforce planning efforts with the financial planning and forecasting efforts that align talent and skills with business strategy and outcomes. Ultimately, workforce planning and business planning must be intertwined to be successful across business demand, skills, onboarding, and overhead.