Budgeting, planning, and forecasting are critical steps in the enterprise performance management (EPM) process.
They provide a vital link between corporate goals and objectives, and operational execution by specifying how the organization’s valuable resources will be allocated. Without budgeting, planning, and forecasting, the organization has no way to communicate when people will be hired, where they will be deployed, or how much money can be spent – and when – across departments, programs, and initiatives.
Budgeting, planning, and forecasting are especially challenging in 2017 due to several uncontrollable forces. Examples include new revenue recognition guidelines, Brexit, policy changes being driven by the Trump administration, global competition, volatility in oil and other commodity prices, and exploding volumes of data to harness.
Although these processes are vital, many organizations continue to struggle through the annual budgeting cycle with manual processes supported by spreadsheets and emails, or with legacy applications that no longer meet the business needs.
A recent webinar sponsored by Host Analytics focused on the best practices organizations can adopt to streamline budgeting, planning, and forecasting. Here are some of the highlights from the webinar.
Why Budgeting, Planning, and Forecasting Matter
Think of corporate financial planning as a roadmap of sorts. Your business has goals – to expand into new markets, to grow revenue and profits, and to maximize value for stakeholders. Budgeting, planning, and forecasting are the means to ensure companies can achieve those aims.
Corporate financial planning lays out a strategy that will dictate the company’s direction for the coming years. Annual budgets allocate the resources (i.e., people, capital, assets) to enable the firm to function in the coming fiscal year. And forecasts provide periodic updates to budget assumptions, should they need to be revised as the year unfolds.
When you have a clear roadmap, you’ll reach your destination faster and in better condition than if you wander aimlessly. The same holds true for corporate budgeting, planning, and forecasting.
Unfortunately, many organizations don’t have a clear strategic plan, struggle to create an annual budget, and then are unable to reallocate resources as business conditions change.
Signs You Need a New Budgeting, Planning, and Forecasting Solution
How can you tell if your corporate financial planning process isn’t working for your firm? There are a few warning flags:
- Finance is drowning in spreadsheets – creating and consolidating budgets via Excel and email is becoming cumbersome. If it takes 15 minutes for the Excel file to open, that’s a big red flag that it’s time to change.
- Long, painful budgeting process – if it takes from September until February to finalize the annual budget, it might be time to rethink the process.
- Finance is spending too much time on data collection and compiling, not enough on analytics, the 80/20 rule.
- Managing the business based on static budgets that are obsolete soon after creation limits business agility.
- Challenges providing timely, accurate reporting to management.
- Finance and operations plans and forecasts are not aligned.
Spreadsheets and Email: The Wrong Tools for the Job
Spreadsheets are great – they’re easy to use, and they’ve got lots of great features. And everyone uses email – it’s simple to transmit data to many people at once. That being said, reliance on these tools can become problematic when it comes to budgeting, planning, and forecasting.
Excel and similar software applications were never designed to handle corporate processes that require collaboration. Spreadsheet budgeting templates are sent out to managers. Data is entered. Rows are added. Calculations are changed, then sent back to Finance for consolidation and correction – and Finance ends up spending most of their time fixing errors and dealing with version control. Another issue with the spreadsheet approach to budgeting is data fragmentation. Critical budgeting details and assumptions are left behind as data is collected and rolled up at the corporate level.
Corporate budgeting, planning, and forecasting overcomes those challenges and delivers enormous value, when it’s done correctly. But the spreadsheet and email approach that worked when the business had 10 people and a few cost centers breaks down as the organization grows and evolves in complexity.
This is driving many organizations to move from spreadsheets and legacy applications to modern, cloud-based enterprise performance management (EPM) software for budgeting, planning, and forecasting.
Budgeting, Planning, and Forecasting in the Cloud
What does a cloud-based budgeting, planning, and forecasting process look like? The first difference you’ll notice is that data integration is automated. You can easily seed the budgeting process with the prior year’s actual financial results, existing staff and compensation information, and other critical budgeting information from your existing systems.
Second, Finance is no longer sending Excel-based budgeting templates to managers via email and then manually collecting and consolidating the details. Budget templates are built into the cloud-based application and are accessed by managers via a web browser. When they update their budget information and hit “enter,” the data is immediately stored in a centralized database for immediate calculation and rollup.
This approach makes life easier for managers, and Finance, and helps drive broader participation and ownership of the process. The Finance department no longer owns the corporate financial planning process – everyone in the company has become empowered to shape budgets, plans, and forecasts to steer the company in the right direction. And because cloud-based EPM software is optimized for anytime, anywhere access – managers don’t have to be on-premises to carry out these tasks. They can participate at work, on the road, or at home if needed.
What Features Should You Look For?
You’ve realized that cloud-based EPM software is the right choice for your company. But how do you select the right one? Here are some key capabilities to look for:
- Ease of Use – intuitive for Finance and line of business managers to learn and use
- Power and Flexibility – supports a variety of planning approaches, from top-down to bottom-up, driver-based planning, and rolling forecasts
- Control and Security – includes a standard chart of accounts, hierarchies, workflow, user controls, and audit trails
- Pre-Built Applications – provides out-of-the-box support for common requirements such as workforce, capital, initiatives, and operating expense planning
- Intelligent Use of Excel – leverages Excel as a front-end or provides an Excel-like user experience to leverage existing skill sets
- Self-Service Reporting – allows Finance and line managers to create and run their own reports without IT support
Best Practices for Corporate Financial Planning
According to Host Analytics partner RSM, there are five best practices for improving the budgeting, planning, and forecasting process that can be supported by modern, cloud-based EPM applications:
- Reduce the number of cycles per process
- Simplify as much as possible
- Continuously evaluate past performance
- Drive accountability through accessibility
- Refine frequency and level of detail
You can learn more about these best practices and the key capabilities of cloud-based EPM software that support them in a recent blog article titled “5 Best Practices for a Less Painful Budgeting Process.”
Budgeting, planning, and forecasting don’t have to be as painful and stressful as they are for many organizations. Leveraging the right tools and applying best practices make the process far simpler and create greater value for an organization. To learn more, watch the webinar: “Insights on Streamlining the Budgeting & Planning Process.”