not just
the last word
Time to get real, Mr CFO… T
he uncertainty around life pales in significance in the context of the uncertainty around numbers in the corporate world. The latter is not acceptable as suggested by the alarm bells that go off when forecasts are even somewhat awry. Is there sense in this expectation given the world we live in? Should CFOs (and investors) begin to look for something different? Proverbs all around us scream that the only constant is change. From weather patterns to human behaviour — everything is uncertain and increasingly unpredictable. Against this backdrop, CFOs demand predictability in revenues, costs, profit margins, EBITDA and client behaviour! If their performance depends on the precision of these forecasts/commitments — what is the chance that they will succeed? Negligible, is my view. Each of the indicators I mention above is linked, in some way, to one or another moving part. As an economist, I am acutely aware of the nonsense that ceteris paribus implies. In the real world, nothing stays the same. What then is the chance or the sanctity of predictions made by a group of business managers or entrepreneurs? The bigger question to my mind is should there be such a focus on numbers — quarterly? Often the need is to predict to the percentage point, between businesses, or between products and service 56
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lines. I recall our admiration for all the CFOs who were able to foretell quarter after quarter how their companies would perform. Is that what we should aspire for? Or are businesses about more than that? In 9.9 Media’s line of work, for example, it is about accurately estimating print revenues, online, research and events. How does one estimate when a large multinational client will change their mind and postpone their marketing plans by a quarter or two or indefinitely? As seasoned professionals, we try and build into our plans an approach that can de-risk such uncertainty. But frankly, Plan B is equally prone to the vagaries of human or corporate behaviour! In a world where entrepreneurship is providing the bulk of growth, even investors recognise that hardly any plans materialise as expected. But we still go through the charade each time — internally and externally. Modern
businesses are meant to be institutions; they are about management teams and their capabilities; how they do things as much as what they do…then shouldn’t it be about the direction and journey as opposed to the precise point of arrival? You must have guessed that this matter has been on my mind for a while. And therefore I am not going to end with saying here’s the problem. The world over, assessments have moved from marks to grades. India’s education system has finally acknowledged the ills of judging performance and potential on the basis of one number. Can the ecosystem around corporate evaluations and assessments move to grades or a range as opposed to pinpointed growth rates, costs, profits and EBITDA? Surely look at all of these, but in a context? Not the grading on credit worthiness as done by the credit rating agencies, but even within the ‘bankinginvesting-CFO’ world of those who determine ‘worthiness’ for resources? Of course it’s from left-field, but what do you think? PS: Don’t mean to single out the men, so Ms CFO as well! Anuradha Das Mathur, Publisher CFO India