As COO, you want to ensure your operations run smoothly, but financials are a concern. You must make every business decision by considering how each investment will contribute to ROI and by working within the budget. Similarly, you must ensure your organization’s CFO allows a budget that supports operational growth.

Collaboration is essential in forecasting how to proceed with profits and outcomes, but it’s not always easy. However, with the right approach, you can reach your goals while staying within budget.

The Importance of Aligning Ops and Finance in Forecasting

Today’s businesses operate in a volatile environment. To come out ahead, you must constantly foresee trends and challenges and be prepared to act.

While many companies understand the importance of forecasting, individual departments are not always aligned on the ‘how’. They work in silos and often have different definitions of what’s working and how to measure them.

This often occurs in financial and operating teams, as operations are focused on product success while financial teams keep their eye on the bottom line. However, unifying systems can improve customer service, protect margins, and establish the company as a leader in its industry.

Common Challenges Encountered When Aligning Ops and Finance

Operational and finance teams often encounter common challenges when attempting to align. These include:

• Different Focuses: With so many factors to consider, including volume, revenue, timelines, and units shipped, it can be difficult to focus on the same metrics.
• Siloed Tools and Data: Operations and financial teams may be using siloed systems that don’t align. For example, ops teams may use planning systems and spreadsheets, while finance uses ERP and FP&A models.
• Various Goals: Operations may focus on service levels, on-time delivery, seasonality, supplier constraints, and promotions, while finance is concerned with on budget, linear trends, and ROI.

Designing a Unified System

The question is: how can you create a unified system that allows you to forecast with ease? Here are some recommended strategies:

• Create a Shared Language: Start by creating a language with shared definitions. For example, finance and ops may look at demand differently, considering committed demand, which refers to what has already been agreed to, and upside demand, which may go beyond the committed amount. There should also be alignment on key drivers like capacity, labor hours, margin, and inventory.
• Build a Single Reporting Process: Teams must work together to ensure all metrics are reported in a single monthly or quarterly report that can be reviewed across departments.
• Adopt a Focused Forecasting Approach: Alignment can be achieved when teams understand the drivers of key factors, such as demand and costs. That way, the underlying factors can be considered and adjusted as needed.
• Implementing Timelines: Teams should also collaborate on timelines, ensuring budgets reflect real-time changes and that financial forecasts are updated accordingly.

Integrating Alignment into Everyday Activities

At first, alignment may require a conscious effort, but over time, it should become second nature. It can be seamlessly integrated with the following approach:

• Joint Processes: This can be achieved with a strategy that requires both ops and finance to sign off on proposals that affect supply, demand, and related expenses in a recurring forum
• Scenario Planning: While COOs should lead these tasks, considering capacity, risk, and service trade-offs, they should be quantified by finance in terms of budget and ROI. Situations should be outlined, including contingency fallback and what-if scenarios.
• Joint KPIs: Teams should agree on KPIs, including forecast accuracy, inventory goals, schedule adherence, and profitability. They should share accountability for outcomes.

Creating a 90 Day Roadmap

Here’s what a practical 90-Day roadmap may look like, helping COOs and CFOs align.

• First 30 Days: Consider current forecasting processes, tools, and review processes. Identify the biggest disconnect between ops and finance in these strategies.
• Next 30 Days: Align on definitions for 5-7 driver metrics, ensuring all teams understand the underlying factors that contribute to them. Create an ops-finance forecast for one region or product line to test collaborative efforts.
• Final 30 Days: In the final stages, teams should formalize a rolling forecast and scenario-planning process that considers operational and financial aspects. Joint KPIs should be established, with an agreement on how results will contribute to decision-making. A meeting schedule should also be put in place to review both operational and financial concerns.

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