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Transforming the budgeting and forecasting process


In many companies, finance performs its traditional transactional role, but often, it is not nearly as strategic as it could be. The finance function can play a more strategic role by taking better advantage of new and existing technology and by streamlining operational processes. As organizations with calendar year-ends begin the close process, they should ensure that they are leveraging an effective budgeting and forecasting process that will help drive organizational performance and enhance enterprise value.  

A leading-edge budgeting and forecasting process can help your company become more efficient, with pertinent, meaningful information provided to key stakeholders in a timely manner. However, to truly transform your planning processes, you must understand the levers that impact your business and manage to them. Six key budgeting and planning focus areas to evaluate within your organization include:

  • Frequency of budgeting and forecasting processes: Increasing the frequency of forecasting cycles drives greater alignment between organizational strategy and operations. Organizations must achieve a balance between the level of effort required to perform budgeting and forecasting activities and the value derived from them. The optimal frequency of a planning cycle is typically determined based on a variety of factors, including market and industry volatility, resource availability, budgeting and forecasting scope, and technology. Rolling forecasts change the traditional annual mindset to a continual outlook that increases agility.
  • Level of detail: You must create an efficient system that provides access to the right information in a timely manner. By linking planning information to operational responsibility, there is an increase in accuracy since key stakeholders are appropriately aligned with the metrics to which they are managing. A few key metrics can help predict shifts in the company's overall financial trajectory and improve the overall effectiveness of a planning process. 
  • Driver-based budgeting: Aligning budgeting with operational drivers enables organizations to align operational performance effectively with planning processes. This strategy allows companies to manage the organization effectively and properly align performance. Common metrics should be incorporated, eliminating the need for end users to forecast items for which they are not responsible.
  • Participation and collaboration: To gain a greater understanding of the planning and budgeting processes, resources from across your organization must be involved—not just finance focused stakeholders. Organizations that produce the best projections of business activities are those who assign responsibility to individuals who are responsible for those key business drivers. This type of collaborative process offers greater accountability, better operational alignment and better overall execution of corporate strategy.  
  • Leveraging technology: Excel spreadsheets are no longer effective for the challenges of today's complex businesses. Several cloud and on-premise technology solutions can increase the finance organization's efficiency and capabilities. Many solutions can meet specific business requirements and also automate the budgeting and planning process. These solutions deliver a unified budgeting, forecasting, consolidation and reporting package and increase intelligence and analytics as well as agility and scalability.
  • Process management: Organizations that deploy a well-articulated planning process that identifies key stakeholders and associated processes and leverages effective technology solutions, tend to be those organizations where the planning process adds value to the organization. By adopting best practices and adhering to the plan, organizations can decrease the overall budgeting timeline to less than a month and improve the overall effectiveness of the process.

Your organization should implement a step-by-step approach to create an effective and efficient budgeting process. The three steps include:

  1. Assessment and planning: Understand the current state, define key requirements and scope for the future planning process, and determine resources for each step in the overall planning process. Determine the most effective process to align operational performance with the overall planning process. 
  2. Implementation and management of the overall process: Focus on the integration of organizational structure, systems and processes to ensure a streamlined planning process. This phase ensures the correct process owners and stakeholders are involved and that buy-in is secured to ensure successful adoption and deployment of the planning process.
  3. Measurement, support and optimization: Provide assistance post-rollout of the new planning process, refine policies and procedures, and further streamline the process to fit the needs of your organization and continuously improve the process to align with the changing needs of the business.   

From a technology perspective, your organization should consider implementing a corporate performance management (CPM) system to assist with budgeting and forecasting initiatives. CPM is an umbrella term to describe software applications that automate budgeting, planning, consolidations, and management and financial reporting that enable your company to define, analyze and execute strategic goals. An effective CPM platform helps better manage and measure your business by converting actionable, fact-based information into informed decision-making.

With advances in technology and process design, the budgeting and forecasting process can become a stronger partner to your business. Proper optimization helps you better understand your organization, delivering the right information when you need it, and helping to make critical decisions and define your organization's strategy.