Change is a constant in the world of business operations planning. Different parts of an organization deal with the steady pace of change in different ways. Sales teams meet frequently and keep a close eye on a prospect’s position in the funnel. Many IT teams use Agile, a process that lets them incorporate changes to technical requirements on the fly.For the finance team, reforecasting (sometimes called budget reforecasting or financial reforecasting) is the best mechanism for effectively managing changes in strategic planning throughout the budget year.Reforecasting is a critical component of keeping your company’s plans in line with its financial position, and enabling your organization to accurately track its goals.
What is budget reforecasting?
There is no question of the value that budgeting and forecasting provides an organization. With these two FP&A processes informing the roadmap, companies set themselves up for stability and can execute against plans for growth without risking their financial security.Like budgeting and forecasting, reforecasting is intended to keep an organization on track. Reforecasting adjusts your path based on changes to assumptions and unforeseen complications that were not accounted for when the budget was initially created. Think of it like an informed detour from the budget roadmap.Companies can review their budget against actuals as the year progresses and make alterations and decisions that take into account new information or shifts in the business environment. Because reforecasting involves a holistic view of the budget instead of changes to individual line items, it provides a big-picture view of what may need to change.
When to reforecast your budget
Reforecasting isn’t always necessary. If your budget is humming along, your actuals align closely with your original forecasts, and there have been no unexpected situations to address, there is no need to go through a reforecasting exercise. It’s rare for there not to be a shift somewhere throughout the year that needs to be addressed, however.If you're regularly looking at budget versus actuals reporting and you notice a significant deviation in revenue or spend, it may be time to review your initial forecasts.Another signal that a reforecast is in order is when you become aware of a major change to a key budget driver. For example, if a pivotal driver for an innovation project is acquiring a partner capable of fulfilling an important step in the manufacturing process and you aren’t able to find that partner, that can derail your goals for the year. Or say you’re planning on an influx of funds from investors and you fall short of your goals — that is a key budget driver that needs to be addressed with a fresh look at your projections and plans.
How to use reforecasting data effectively
Simply reviewing your numbers based on change isn’t enough. Reforecasting your budget frequently calls for action.Taking the time to incorporate any new information into your budget gives you the critical data you need to make quick decisions with your board of directors. You may discover that your approved budget needs revisions. Reforecasting gives you the ability to address potentially challenging subjects such as salaries, hiring, and staffing plans.Having this data for decision-making is important whether the news is good or bad. If you find yourself with a revenue surplus you hadn’t anticipated, a reforecasted budget can help you and your board decide the best ways to leverage those funds. Should you put them to work for the organization immediately and apply the surplus strategically based on company goals? Or should you add the funds to cash reserves? Reforecasting in light of your annual goals can guide you in that decision.Regardless of division, all areas of a company need to address changes in the corporate and competitive environment frequently. The budget is no exception. Expecting your assumptions to last through an entire year is at best wishful thinking, and at worst detrimental to your business. Incorporating reforecasting into your regular budget process as needed will keep you on track and help you roll with the punches.Centage's formula-free approach to FP&A software means you can reforecast with a few clicks — no time wasted finding and fixing manual data entry errors. We empower our users to run quarterly forecasts that help leadership assess where they are, and when pivots are required. Book a demo.