Exploring Financial Implications to achieve Long-Term Goals
Forecasting is Vital in Today’s Competitive Environment
The ability of Finance organizations to provide senior management with timely and relevant feedback on the implications of business decisions via forecasting is critical in today’s rapidly changing competitive environment. In addition to the required short term outlooks, successful businesses must be prepared to “look around the corner” and have contingency plans in place if competition intensifies or new entrants disrupt the status quo. At DIRECTV, the Finance team actively engages the senior management team in scenario planning that looks out 3 to 5 years.
The key here is not to pretend that anybody can accurately forecast events in a highly competitive industry like the Pay TV business over this kind of time period, but to have Finance help frame the issues and provide a dynamic forecasting model that allows management to understand the tradeoffs that may be required to achieve your long term goals. For example, assumptions on pricing are a material input in any long range forecast. In our dynamic forecasting model, we can show the impact of lower price and the resulting actions that would be needed to maintain the desired profit and cash flow growth. That feedback allows management to make decisions today to put ourselves in a position to deal with this contingency versus waiting for it to happen and then reacting.
Expand Beyond The Traditional Financial Analyses to Drive Better Business Results
In any large organization like DIRECTV, information is king in making intelligent business decisions. Depending on the decision being made, the information can include competitive data, technology requirements, human resource needs, or capacity constraints and also an evaluation of the financial implications of the decision. In today’s Finance organizations, you can’t provide comprehensive financial input into the decision-making process without also being able to understand the non-financial implications. For example, the fact that a proposed project may provide an excellent return on investment isn’t relevant if the technology requirements would require two years to implement and by then the competition would have moved on to the next generation solution.
The Finance team must expand beyond the traditional financial analyses and become business managers as well. They must be prepared to drive to ground non-financial issues, to identify and assess business risks and add their judgment as appropriate. At DIRECTV, Finance professionals directly support all of our functional groups. The key Finance executive for each group acts as a functional CFO, attending business meetings, providing analytical support and participating in debates related to business recommendations before those recommendations ever come to the CEO or CFO for a decision. This structure allows the Finance team to be an integral part of the decision-making process in addition to providing an objective view of the financial implications.