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“A stitch in time saves nine” - the new skill required for DFA

New skill required for DFA

28-08-2015
Submitted by global_admin on Fri, 08/28/2015 - 12:04
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No, it is not sewing!

But this time-old English proverb is a valuable piece of advice that can be applied in many scenarios. While at first glance the meaning is not obvious, this phrase points out that taking action at the first sign of a problem will save more time and energy than waiting until the problem becomes bigger and more difficult to manage. Think of it- it takes less time to mend a small tear in a piece of clothing than a large one.

This concept can be applied in a very real way to the crucial role that Demand Forecasting Analysts (and indeed, any financial analysts) play in impacting company performance. 

Electronics giant Toshiba is currently under the spotlight for overstating its operating profit by a staggering 151.8 billion yen over a period of 7 years. Although details are yet to come out in the open, by sheer scale this dwarfs the Livedoor scandal, a fraud case which amounted to 540 million yen. The CEO (Horiemon) and CFO (Ryoji Miyauchi) were both sentenced to jail. Whatever the outcome, it will most certainly take Toshiba more than 9 stitches to regain the market’s trust. 

Such cases truly underline the importance of the financial analyst’s responsibilities. 

The finance team are like brakes in a carThe finance team are like brakes in a car - when they are working properly, everyone takes it for granted; but when they malfunction, it can lead to disaster. 

Most hiring processes check accounting knowledge, and an increasing number of hiring managers look for advanced communication skills such as presentation and negotiation. However, is this enough to identify the true financial analyst? 

One of the most important tasks a demand & forecasting analyst has is to honestly and directly keep sales, marketing, and senior managers in the loop about company performance and sales targets. It is crucial that the business be self-aware of how they are performing in relation to their targets, and to understand why they are performing in this way.

And most difficult of all, they must not be overpowered by senior management to allow any accounting irregularities - which might be what happened in Toshiba’s case. And most difficult of all, they must not be overpowered by senior management

Needless to say, this isn’t always easy. At times frustration and even blame can be put on finance teams, and in extreme cases pressure is put on them to produce numbers that make the business look more in-line with initial forecasts.

For many reasons – ethical, moral, professional, etc – it is essential for financial analysts to engage in honest financial reporting. But for the health stability of the company, honest reporting is absolutely crucial. 

When product demand is beginning to decline, it is clear that the company needs to reconfigure its marketing and sales strategy. A strong S&OP process is created to accommodate this. This way, when the S&OP meeting happens, the team is able to quickly and effectively take steps to amend the issue, be it revising the marketing budget, changing the number of sales staff, adjusting inventory, etc. 

Correctly using the S&OP process creates flexibility and the opportunity to stop small problems and inconsistencies in their tracks. The issue can be resolved before it has the chance to morph into a major problem, echoing the  “stitch in time saves nine” rhetoric above.

In this sense, the finance professionals in the room are the true “controllers” of the sales process. They are the moral conscience of any company, and it is certainly important to have a strong backbone in order to stand up to the backlash their analysis might receive. However, this crucial task is rewarded by a healthier company, stronger teams and a better, more efficient process. 

Accounting knowledge, analytical ability, presentation and negotiation skills, and now a strong moral fiber. The list just gets longer and longer, but I, for one, hope to support those honest analysts who are true to their cause. 

“An honest analysis in time saves profits” - are you ready to step up to save the day?

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