Traditional Vs agile finance function today

Agile finance will dominate the thought processes of CFOs and their teams; traditional finance should take a backseat

Dr Palakh Jain and Dr Nilanjan Chattopadhyay | August 9, 2023

#Finance   #business   #technology  

Last three years have sparked off waves of innovation and entrepreneurship. One area is digitisation in every domain. According to some estimates, 85,000-plus start-ups embarked on their journey last year itself. This new normal leading to accelerated pace of change. The pace of change is tremendous and in face of such massive changes it is imperative to have an agile finance function for smooth running of business. One of the first questions in this domain is: What is agile finance vs traditional finance? This article aims to address the same along with some similar issues.

In today’s environment when digitisation is increasing, the traditional function of finance needs to be modified in new circumstances since the time to respond has become shorter. While traditional is more structured, the purpose of being agile is to be more adaptive and more aligned to the firm's objective. Both have their merits and can be suitable for different organisations. In today’s context, a structured way of finance is good but to keep pace with the changes in the environment, the finance team needs to be agile and has to act more like an entrepreneur. The CFO does not have the liberty to solely focus on managing or maintaining finance.

Further, agile function is derived from traditional finance as well as technology practices. It is more controlled and easier to follow for more effectiveness. Agile function makes the process more resilient and adaptable. It furnishes real-time data to the right decision maker, thereby solving the dilemma to quickly provide products for forward looking opportunities.  

One of the challenges for a CFO, unlike in the past, is that data proliferation is massive. It is like picking a signal from noise. This needs a lot of investment in technology, tools and processes to make sure that data is delivered. This is to ensure that the CFO can be a partner for the senior management team. It is not just data reporting which may not be of much relevance. The velocity of data is very huge and the same calls for looking at nuanced data.

Traditional finance is more tactical and agile is more strategic by nature. If speedy execution can be added to it, it is better. You cannot lose out on one of them and focus individually but both must be together. Agile management feeds into the vital financial planning and visioning of organisation. Job is now to provide help and support to all lines of business to build resilient companies. The aim is to maximise profits but providing insights into rising costs is crucial or for building financial scenarios. Designing those is the capability to be agile. The CFO and his team have the flexibility to switch roles between two systems based on the needs.

It is also a matter of time. The real change is faster than what we can manage – fundamentally financial management is important. Money is getting expensive and with every changing market conditions – price, supply change calls for adaptation. Some experts believe here that the key principle that should be embraced is that of ‘continuous improvement’.

The real job starts after the budgeting. It involves what various divisions forecast! Though traditional forecast is based on past data, rolling forecast helps as it is the best framework to help you account dynamically. The static annual budget, in today’ age, becomes obsolete if market changes. In this case the entire budget goes for a toss. Some companies do a weekly rolling forecast using industry standard models and output is a dashboard which helps forecast better. This involves less of guessing but more of accurate information. The underlying concept is continuous forecast than one time data collection and prediction.  

Continuous accounting is updating daily and not over large period. This is exactly what agile finance does. A company named Brilio grew very fast internationally because of adoption of agile function. Net Suite, India could scale new heights due to accurate forecast which came down to a shorter forecast period than five months earlier.

We believe going forward it is agile finance which will dominate the thought processes of CFOs and their teams. The traditional finance should take a backseat.

Dr Palakh Jain is Associate Professor, Bennett University and Senior Fellow, Pahle India Foundation. Dr Nilanjan Chattopadhyay is Professor, Bennett University.



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