CFOs traditionally rely on scenario planning to chart a path forward, anticipating cash flow and revenue based on potential changes in the business environment.
However, the unpredictable future has upended sales figures, budgets and investment timelines, "rendering forward-looking guidance futile," The Wall Street Journal reported.
Recently, CFOs have had to discard their previous plans in favor of a more realistic outlook and admit they don't know what’s next, often relying on earlier historical economic collapses, like 2008, as a blueprint.
In past crises, such as economic recessions, executives only had to scenario plan against one or two sectors, like energy or credit markets. But this time around, executives may find every part of their business is strained.
The unpredictability about when the pandemic will recede, and what will follow, has made previous scenarios seem comparably straight forward.
"A hurricane you can see the other side of, so it's easier to plan when you’re going to come back up the other side and how you’re going to execute," Christopher Kastner, CFO of Virginia-based shipbuilder Huntington Ingalls Industries, told the Journal.
Within the last two months, most CFOs have taken back, or heavily revised, their early predictions for the coming quarters. Recent Gartner research found 62% of S&P 500 companies withdrew or revised earnings guidance because of the pandemic.
Bill Koefoed, CFO of Michigan-based software company OneStream Software, wasn't caught off guard. He was head of investor relations at Microsoft in 2008, and says his former company had always given guidance and maintained an open line of communication with Wall Street, even when their sales were down.
"Some CFOs aren't being super transparent externally right now," he said. At OneStream, however, Koefoed is open about their difficulties and forward-looking plans.
"Great companies think about the drivers of their business, and then allow for some variances, in hopes of getting some forecasting abilities," Koefoed said. "At OneStream, we can study daily trends and be super transparent. Real-time data and a driver-based model gives you greater forecasting abilities."
Each company has different drivers, Koefoed said, and his company primarily looks at marketing and sales teams' efforts. His KPIs are the number of demos they currently have, and how many unique visitors its website attracts each day.
Koefoed said OneStream began the year with a "pretty aggressive sales plan," which largely fell through by March. "So, we went back and evaluated our drivers, and saw our sales cycle taking longer than expected. We haven't lost any deals, but we had to go back and check our assumptions. Like instead of a three-month selling cycle, now, maybe, it’ll be six months."
Koefoed recommends CFOs try to be as transparent with both investors and employees as they can, and to game theory all the different scenarios that could take place.
"It’s obviously hard to predict the future," Koefoed said. "But the more you’re trying to work with other people, the more helpful it’ll be."