Do you have what it takes to crack on with your recession budgeting?

It’s old news that we live in uncertain times. If you’re unaware of this, then you’ve been living in a much nicer parallel universe than the rest of us and have successfully avoided every news platform for the last few years.  

But let's get real. The Economist acknowledged that a global recession in 2023 was inevitable in a world ‘reeling from shocks in geopolitics, energy and economics.’ And Forbes asserted with some confidence that the recession would begin in late 2023 to early 2024.

However, if you thought we’d passed the danger period, think again, as Forbes said in a recent article (October 2024): Sinking Consumer Confidence Raises Odds Of A 2025 Recession.

Oh, joy. Here we go; your business resilience is under fire once again.

What’s important, though, is how you will get through yet another downturn.

So, ask yourself:

Do we have the toolset needed to make the right decisions as we trudge through yet another period of negative economic growth?

Everything begins with the right strategy

Once upon a time, for many, the kneejerk response to an impending recession was to cut, cut, cut – without discrimination.

If budgets, people, pay, and more could be slashed, while permitting the business to operate still, they were. For many, it was a scorched earth approach. And it’s a business budget strategy still applied to this day; case in point (and somewhat tongue in cheek): X (Twitter).

Looking back to the infamous recession of 2008, the businesses that made the deepest cuts had the lowest probability of pulling ahead of their competitors when times improved. And the companies that emerged from the crisis in the strongest shape did so by relying less on layoff strategy and more on operational improvements.

But how did businesses make those right (and wrong) decisions?

With limited funds, where should you commit your dollars?

Capital allocation, or prioritising internal investments while still maintaining a healthy cash flow, means prioritisation. These strategic decisions are critical to the success of your business and are made by the CEO and CFO in conjunction with other leaders in the business.

When times are tough, generating and allocating funding requires hard, bias-free decisions.  Making cool-headed decisions at a time of traditional belt-tightening is not easy. There are many masters within the business to serve and many agendas.

And without the right data at hand, it’s difficult to overcome bias and accept that there are better ways to make decisions.

Businesses that have done this poorly in times of recession have battled this bias, typified by these sorts of approaches:   

1. We’ve always done it like this, so ‘she’ll be right’ this time around too.
   No. She won’t be right and relying on trusty old spreadsheets and macros is short-sighted and risky.
   
   
2. We have experts, and they know their stuff. And yes, they may.
   However, their opinion is based on their expertise and natural bias, not necessarily on correct or accurate 360-degree data.
   
   
3. We only need to evaluate a couple of criteria when making a capital decision.
   Wrong. That approach can skew the view of the outcome, resulting in overly optimistic but ultimately poor choices to be made and acted on.

As a result, and given every good intention, the decisions made for capital allocation at a critical time can be wrong or misguided if you don’t have the necessary tools.

So, if your decision-making for capital allocation isn’t up to speed, what other recession-facing decisions that you’re making are also placing you at risk? 

Are you in a good recession decision-making zone or war zone?

Let’s talk about the Excel zone - where most businesses and organisations start their decision-making. It’s fair to say that financial teams worldwide are wedded to Excel. It’s globally ubiquitous because it’s ‘relatively’ easy to master, and the DIY creation of macro-based workbooks is fast and relatively inexpensive. 

The big BUT, though, is that Excel is limited because:  

• The workbooks can become too complex (and unstable) to manage.   
• It caters to long budgeting cycles, with too much time on data collection and insufficient analysis.   
• Users inadvertently create errors in Excel – whether in formula setup, writing a static number or incorrectly linking spreadsheets. The ramifications of these errors impact everything you generate from them.
• It generates too many user errors in budgets, forecasts, and reports.
• It requires complex formulas, crosstabs, and VLookups - and when adding their input, other users almost always break something in the workbook in the process.

Using Excel for financial models for scenario analysis is time-consuming. It falls short in managing and incorporating financial and operational data and often relies too heavily on pre-set external drivers. 

So, despite the business world's prolonged love affair with Excel, the risks are too significant to make it the single source of truth for making critical decisions that determine business survival.  

Get into the right zone with automated planning

Weathering a recession with good decision-making starts with the following:

• Moving on from the limitations and errors of old productivity tools like Excel (although this doesn’t necessarily mean throwing them out altogether).  
• Eliminating ‘expert’ bias. 
• Pulling in a wide range of relevant criteria for accuracy for a more expansive view. 

To do this, you need an automated platform. We recommend Workday Adaptive Planning. But before you start panicking, you’ll be delighted to know that Workday Adaptive Planning has an optional Excel interface, which can be used for user familiarity.  

Today, choosing a modern planning analytics solution doesn’t need to be an ‘It’s Excel or <software X>’ conversation. It can just as easily be an “Excel and <software X>’…” discussion. (Just ensure you check that your preferred software has that option.)

An automated scenario planning solution enables your users to access an online tool with Excel integration so they can have input into forms and reports - without breaking anything.

What else makes an automated planning solution like Workday Adaptive Planning ‘better’ than Excel?

Automated planning solutions:

• Offer the agility to change assumptions, drivers, and scenarios quickly. 
• Are built dynamically to allow for a rolling and driver-based budgeting and planning process. 
• Support continuous, comprehensive, and collaborative planning processes (whether it’s budgeting, planning, forecasting, or scenario planning).  
• Allow users to compare two or more scenarios side by side seamlessly, so you don’t have to spend time building a third sheet in your workbook.  
• Enables you to rapidly change the parameters of each scenario and compare each one against the baseline case. You can go as in-depth as you need. Scenario planning tools are designed for collaboration with multiple users and are built to manage and maintain multiple copies of assumptions.  

What's next?

As (yet-another) recession looms, you’ve got your work cut out for you.

But with an automated planning and scenario planning solution, you can make better decisions based on accurate, relevant, and current data. You’ll be able to produce what-if model scenarios on demand so that you can be prepared for any and every outcome. This will help you weather the storm and emerge from it in better shape than the hack-and-slash advocates.