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Budgeting, Planning & Forecasting Process Improvement Best Practices

Ten Questions That Add Focus to your Budgeting, Planning (BP&F) and Forecasting Processes & Programs

When evaluating the quality of budgeting, planning and forecasting, establishing clear visibility across the enterprise is key to driving results at growth-minded companies. Circumstances and time horizons dictate strategic agenda at each company subject to one vital caveat: facts that appear to be crystal clear today may look very different tomorrow. To maximize returns in dynamic markets, new and seasoned finance professionals apply state-of-the-art, flexible budgeting, planning and forecasting technology in tandem with best practices. Companies mulling what's needed to achieve best in class BP&F operations can start by asking ten questions about the scope and caliber of their current budgeting, planning and forecasting processes.

  1. Is your budgeting, planning and forecasting process siloed or holistic?
    A holistic picture of a company's health treats the whole body of financial information as one fabric. Mindful correlations across key business drivers integrate key information visible on income statements, balance sheets and cash flow statements. Stress on a single thread can alter the contour of current and future financial risk with significant implications for every business unit. As soon as companies begin to mature, growth depends on seeing how, why and where financial stress and growth opportunities emerge and predicting outcomes. A holistic approach to budgeting, planning and forecasting expresses end-to-end, organic views of financial risk at the core of every business in a complex environment.

  2. Do you rely on spreadsheets that require significant manual intervention to generate results? 
    In astonishingly short time, growing companies armed with excel or point solutions find themselves ill prepared to handle new complexities resulting from company growth and dynamic market conditions. Off-the-shelf spreadsheets can launch companies and effectively maintain books in a company's earliest stages. So long as general ledgers report income from a handful of sources and routine expenses, manual entries might keep up. When expanding supply chains, product development and funding sources still depend on manual processes, never mind greater potential for error. Manual solutions won't capture dynamic operational and financial complexities in a timely fashion. Delays hinder action when urgency is paramount. Sluggish forecasts miss competitive threats. Just when companies should prepare to challenge a rival, those that still depend on manual intervention cannot make pivotal decisions that require current information.

  3. Are you satisfied with the predictive value of your forecasting process? 
    No one sees the future with absolute clarity, least of all companies that build forecasts with rigid spreadsheets designed as rear view mirrors. Yet every nimble manager knows that expecting change is imperative. Flawed decisions use stale data or wait too long for fresh data as rivals sprint ahead. Too long can mean years, months or, in some cases, days or even hours. Anticipating cash flow that keeps the lights on frustrates companies whose spreadsheets lack the muscle for multiple 'what-if' scenarios. Robust forecasts balance qualitative models that rely on lots of human judgment with quantitative models that scour petabytes of data for embryonic trends.

  4. Is BP&F high on the list of management priorities? 
    Modern companies juggle dozens of urgent priorities, from research and development to investor relations. When the Economist Intelligence Unit asked 250 C-suite and board level executives to rank their top priorities, replies left no doubt. Planning, budgeting and forecasting was number two, after growing the business — and make no mistake, growth hinges on effective planning, budgeting and forecasting. Allowing PB&F to slip to fourth or fifth place sacrifices the ability to see the twists ahead in a company's dynamic competitive landscape, and this often governs success or failure.

  5. Is there clear accountability or "ownership" for accurate inputs into plans, budgets and forecasts? Budgeting, Planning & Forecasting Process Improvement Best Practices
    Accountability is like quality. Both are glaringly visible when absent. Without clearly defining which business units and individuals will own results, the outlook is cloudy at best and doomed at worst. Failure is an orphan; success confers credit on the un-involved. On the other hand, a diligent approach to budgeting, planning and forecasting bakes accountability into the process at the outset. An eye to potential outcomes elevates accountability to the level where ownership must reside if the outcome matters. And when wouldn't they?

  6. Do you contend with multiple versions of the truth? 
    Sound budgeting, planning and forecasting foster debate over strategy, not friction over competing notions of the truth. Unfortunately, multiple versions of the truth crop up too easily in many companies. A single set of facts can support more than one logical opinion. Truth rests on shared assumptions and expectations about a company's mission and goals. Where business objectives should converge, multiple views of “the truth” govern each business unit's urgent and sometimes clashing financial priorities. When units go in too many directions, overarching strategies lose traction. Variances proliferate at every stage of the reporting process, leading to friction instead of accord where growth is concerned, and strategic decisions become shots in the dark.

  7. Is there universal agreement on core data definitions, a common business language, key metrics and standard processes for establishing budgets? 
    Strategies can maximize performance only where solid foundations rest on core data definitions. More granular than mission and goals, a common business vocabulary supplies the framework that gives context to data. No terms are so basic they can be left to assumption, from sales, costs, revenue and net profits to a roster of performance metrics. Slight departures can compromise results if, for instance, commission targets leave a key metric open to more than one calculation. Shifting markets and business combinations impose a constant need to review and instill a common business language. Failure to police agreements on core definitions compounds the business risks that companies face every day.

  8. Is your BP&F process linked to your company's overarching vision and strategy? 
    Meaningful strategy and vision are rooted in robust budgeting, planning and forecasting. A strategic loop starts with a plan, shapes a budget, anticipates resources companies will have to deploy to compete effectively, all culminating in a strategy. As strategies evolve, the loop informs budgeting, planning and forecasting attuned to the next annual, quarterly, weekly cycle, as competition and market condition demand. Reliable budgeting, planning and forecasting bestow credibility on management's use of resources and affirms — or challenges — the governance framework that sets overarching priorities.

  9. Does your scenario analysis generate multiple what-if budget models? 
    The future is uncertain and as such robust planning, budgeting and forecasting tools enable companies to test alternative scenarios. Off-the-shelf general ledgers with limited forecasting capabilities restrict what-if scenarios which allow more informed strategic decisions. Companies need to test line items that can get them to a goal of, say, boosting revenues by 7 percent and margins by 30 percent — or any growth configuration.

  10. Are rolling forecasts feasible, credible and distinct from annual plan detail and duration? 
    Other than birthdays and retirement parties, surprises are not welcome — even when the news is good. The last thing a CFO wants to see is evidence that she or he was out of touch with a company's pulse. Rolling forecasts monitor the pulse without missing a crucial beat. Routine contact with business units supports and updates a holistic picture of risks and opportunities amid fluid market conditions. Routine planning discussions, open communication and forecast updates as needed capture real business cycles, instead of cycles that calendars dictate. True rolling forecasts separate reactive finance departments from pro-active finance departments, a distinction that gains significance as urgency and stakes increase.

Now that you have a solid foundation for making your technology decisions, feel free to explore our Budgeting, Planning, and Forecasting product listing, where you will find filtering capabilities and product reviews from financial professionals.