How do you get hold on your forecasting with a potential shrinking demand and raising costs?
We were all surprised with the speed of how the market changed. Pre-COVID, we (almost) experienced a decade of continuous growth. But now, the market has suddenly shifted. However, it does not feel like the great recession of 2008 (yet). That is mostly because there is a storm of macroeconomics going on. A giant pressure on interest rates and a low labour availability pushes a need to accelerate automation.
But that’s a complex, long-term game and takes time to fully deploy. Burning short-term issues also need to be addressed due to supply chain disruptions, cost volatility and labour shortages that pressure margins. When you want to address these short-term issues, you need to have eyes on your demand and costs for the coming three to six months.
We are noticing that many organisations are struggling with their budget for 2023. For example, a leading German PE firm with dozens of industrial plants is having major difficulty managing their margins due to the spike in energy costs. This is where ‘zero-based budgeting’, or less contentious, ‘what-if scenario planning’ come in. The first is more rigorous and immediately addresses certain cost buckets. The latter is a useful approach to budgeting that prepares you for the unknown. So ask yourself questions like: ‘What if costs raise with 15% and what if revenue drops with 10%?’ One thing we know for sure is that the market will be pressured in the coming year.
To create some certainty in the coming period, it is essential to prepare your budget plan accordingly. In parallel, you should continue to capture operational efficiencies.
