50% financial teams fail on short-term forecasts, or err majorly: TCS study

Only 54% say their teams possess sufficient risk assessment capabilities. These execs estimate that on average, 43% of their financial planning and forecasting rely on intuition, not analytics

The pandemic has made businesses aware of the role that technology can play, but the lockdowns and complete change in the way businesses are done has made many financial teams struggling to grapple with reality. According to a study conducted by Tata Consultancy Services (TCS) Global Financial Leadership Study: The Next Era in FP&A, many of these executives admit they rely on their instincts rather than data, and their financial forecasting falls short—and it’s especially true during the ongoing pandemic.

The study reveals 50 per cent of respondents say they consistently fail to deliver short-term forecasts or make significant errors. What’s more, only 54 per cent say their teams possess sufficient risk assessment capabilities. These executives estimate that, on average, 43 per cent of their financial planning and forecasting relies on intuition instead of analytics.

However, a small group of finance executives are leading the way. TCS’ study dubs them financial ‘Trendsetters’. Making up only 6 per cent of the total respondents, they have more mature digital capabilities, operate in a more agile manner, and demonstrate greater use of AI and machine learning. Trendsetters also invest more in transformational financial planning and analysis capabilities to future-proof their respective organizations before the next big disruption.

The clincher: Trendsetters are clear leaders in agility, effectiveness, and investments while others (Followers) are simply trying to keep up.

Krishnan Ramanujam, Business Group Head, Business & Technology Services, TCS, said, “Today more than ever, financial leaders wear many hats—from crisis manager to growth officer. If they can supercharge and make the most out of their digital investments and insights, they will help their organizations become more agile, scalable, and proactive—and ultimately take on whatever challenges and opportunities that come their way.”

TCS’ 2021 Global Financial Leadership Study surveyed 750 senior finance leaders belonging to companies with annual revenues of $5 billion or more, from a variety of industries including energy and resources, healthcare, travel and tourism, technology, insurance, financial services, and manufacturing. Respondents hailed from nine nations: the United States, United Kingdom, Germany, Canada, Netherlands, Switzerland, Australia, India, and Japan.

• 9 out of 10 Trendsetters (91%) say they can reallocate resources quickly when business demands shift. Fewer than half (48%) of Followers can say the same.

• 78% of Trendsetters believe they can develop budgets effectively, compared to only 43% of Followers.

• 83% of Trendsetters say they are planning to increase investments in AI and ML capabilities throughout the next year, compared to 55% of Followers.

• Despite the divide, current finance planning and forecasting shortcomings are driving organizations across the board to boost technology investments:

• 69% of all respondents said they plan to increase investments in cloud-based systems over the next 12 months; 63% say they already increased investments in cloud-based systems throughout the past year.

• 67% plan to increase investments in data and analytics over the next year; 61% said they already did so within the last 12 months.