Finance transformation: Leveraging financial planning and analysis
When evaluating the finance function, one of the most effective ways finance can impact the organization is with timely, flexible and accurate budgeting and forecasting. Today, it is difficult to meet those goals as many companies manage their budget information in Excel, and spend most of their time looking backwards instead of forward. To be more proactive and successful, that perspective must change to implement an ongoing planning and measurement culture in alignment with operations and business leaders.
Studies show that 75 percent of finance effort is wasted re-keying and manually rolling up data, while 64 percent of annual plans are out of date by the time they are put into effect. In addition, 90 percent of spreadsheets contain data and formula errors.1
Amid these challenges, three of four finance leaders have seen their strategic influence increase in recent years as leading finance organizations become more strategic and less transactional.2 With that increased responsibility, immediate and recurring ROI is available for financial planning and analysis departments that can focus on value-added activities instead of inputting and accumulating data. Middle-market companies may not have dedicated financial planning and analysis departments or even personnel, but all can benefit from a strategy to increase data quality and timeliness.
The following four steps can help you enhance your finance function to make it a more value-added activity with stronger forecasting capabilities:
1. Properly define roles and skills
As you start your budget process, do you know the right people to involve? In some companies, the CFO manages the budget for the entire organization, pushing down the numbers for the new year. Often, budgets and forecasts are best when completed by those closest to the business activities at the department and division levels within the organization. To increase accountability across the organization, those department and division managers should have responsibility over both the design and management of the budget. Accounting and financial planning and analysis team members should augment business resources to review and analyze the inputs for reasonableness, confirming alignment with the overall strategy of the organization.
2. Implement the right tools
Many middle-market companies utilize Excel, as it is readily available, user friendly and flexible, but a significant amount of time is spent comparing data to the budget or forecast. Increasing automation can significantly speed the process and increase visibility. Budgeting and reporting tools can expand your abilities to involve others in the budgeting process, apply standards or rules, and allow for more validation.
Commonly, in Excel, templates are distributed to various areas within the business, and without fail, information is moved or new lines or cells are added. The data then becomes difficult to work with and consolidate, and it takes so long to produce clean numbers that the information is no longer valuable. Alternatively, if a fixed 3 percent increase needs to be applied to certain expense categories, this is simple to accomplish with a tool, but may be difficult in a spreadsheet.
By using an automated tool, you can speed up the budget process and improve data, allowing forecasting to become a more feasible process, and elevating the budget from a placeholder for information to a resource for critical decision making. Excel is not going away, as we accountants would be lost, but like all tools, it is most effective when used for its intended purpose.
3. Determine the right frequency for budgeting and forecasting
Companies often struggle with budgeting because it is seen as a painful, once-a-year effort that does not generate a great deal of value. However, budgeting at the right level of detail and establishing it as a more metric- and driver-based process significantly increases its value.
In most cases, organizations set a budget at the beginning of the year from a performance measurement and compensation perspective, but the forecasting process should be ongoing and reviewed on a monthly, quarterly or semi-annual basis, depending on the rate of change within your business or your industry.
There are a number of budgeting and forecasting approaches available. Evaluate which makes the most sense for your business:
- Rolling forecasts: Involves re-forecasts on a monthly or quarterly basis that require less time than an annual forecast and allows the organization to proactively plan and react to changes in market conditions
- Zero-based budgeting: Requires each cost center or department to build its budget from scratch, based on key operating volumes and drivers which in turn promotes accountability
- Driver-based planning: Models your projected performance using key drivers that largely determine your results and depicts the levers to be pushed and pulled in times of changing market conditions
- Integrated planning: Brings strategy, finance and operations to the table all at once for collaborative planning that aligns enterprise-wide actions for better execution on strategic objectives
- Bottom-up and middle-out approach: Allows budget owners to own their numbers which, in turn, promotes better accountability and results.
- Resource planning: Lets you spend that next dollar on the most valuable products and services based on data-driven, objective decision-making via profitability analytics
4. Simplify the model
Financial planning and analysis plans can often become too detailed. Many companies budget every ledger account and every cost center, when that is typically not necessary. Ask yourself, will budgeting each box of paper and pens change how you manage the business? For critical, high-dollar or riskier items, detail matters, but less important items can typically be evaluated at a higher level. As with business in general, cost and benefit matters. If we spend five hours budgeting pens, did we really help the business?
Another common example is personnel costs. Many companies budget bonus calculations by individual; this is often a time-consuming process, which can be calculated as a pool. The model is going to vary for each company, so determine the appropriate level of detail based on how you need to use the information.
Evaluate your budgeting and forecasting processes to determine what is best for your unique business. Keep in mind that making improvements often requires walking away from the “way we’ve always done it.”
For more information on increasing the efficiency and effectiveness of your finance function, read our recent article, Modernizing the finance function through finance transformation.
1 Finance Transformation, Adaptive Insights, accessed July 12, 2016,
2 Finance Transformation.