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Business Budgeting Challenge: Why Is It So Complex?

May 10, 2017
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There's no doubt business budgeting has become more complex than it used to be. At the same time, there have been massive strides in technology and innovation. Both advancements should make budgeting easier. So, where's the disconnect?As we enter a new horizon in business budgeting and forecasting, many organizations find themselves at a crossroads.They must choose between continuing on their current path and making the necessary changes along the way. Or, as more businesses are choosing, taking a completely new approach to their processes. Deciding to go 'all in' on change is one thing, but actually implementing it is another. Unfortunately, it's in this implementation process where businesses get stuck. In this post, I want to share some of the main factors why budgeting has become so complex. And also address some strategies to overcome it.

Business Budgeting & Forecasting Complexities

Budgeting is complex and will likely remain so for the foreseeable future. There are some factors that drive this complexity more than others.One of the biggest factors facing budgeting and forecasting is the increasing number of external stakeholders. Part of this is often attributed to more complexities around customer transactions, as well as deals and loans. For many organizations, transactions aren't typically as cut and dry as they used to be. These increasingly complex transactions require more time for data and analysis. Without it, the budgeting department can struggle to make accurate forecasts. Of course, we can't ignore time, either. The finance and budgeting departments are often up against the clock when it comes to providing information. And as you likely know, compiling data and completing an annual budget and forecast is an incredibly time-consuming event.Now add to that the need for management to make strategic decisions quickly. Not only do these stakeholders want higher-level information to make decisions, they often want KPIs and drivers distilled from large amounts of data. Add to that ineffective budgeting and forecasting technology, and even more delays can arise. The time issue can also be exacerbated by a lack of coordination between departments. Many organizations are struggling to find a system where all the key decision makers are aligned.Each of these factors puts increasing pressure on the CFO and budget managers to provide more accurate budgets and forecasts while sifting through more data in less time.

Budgeting and Financial Forecasting Strategies to Overcome

Now the key question becomes what can organizations do to mitigate these issues? There are a few considerations to keep in mind.First, work on taking stock of your budgeting process while you are budgeting. Often, when the books are closed, managers move on to other tasks. Instead of doing that right away, consider the processes and operational procedures that go into the budget. Set aside time to identify opportunities for improvement that can be implemented before the next cycle. More effective communication is also key (when isn’t communication important?). More departments are becoming involved in the business budgeting and financial forecasting process, each with their own data and inputs. As the cycle progresses, a good strategy is to have ongoing discussions about needs, targets and timeframes so everyone is on the same page moving forward. Finally, one last strategy to consider is implementing a review process for KPIs and drivers. As time goes by and new data becomes available, the factors that are important to the organization will likely change. You don't want to set your budgeting and forecasting up for failure from the start by using outdated or unreliable data.Of course, virtually every organization has improvements that can be made to its budgeting and forecasting process. Hopefully, your organization can install a few of these factors to improve the process and make better decisions.

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