Change is an ever-present companion in the business world. Different parts of the organization have learned to deal with these challenges in different ways. Sales teams meet frequently and keep a close eye on a prospect’s position in the funnel. IT teams have switched to Agile – a process that lets them incorporate changes to requirements on the fly.
For the finance team, the mechanism for effectively managing change throughout the budget year is with reforecasting. Reforecasting is a critical component of keeping your company’s plans in line with its financial position and the organization on track to meet its goals.
What is Reforecasting?
There is no question of the value that budgeting and forecasting provides to an organization. With these two items acting as a roadmap, companies set themselves up for stability or can execute against plans for growth without risking their financial security.
Reforecasting is also intended to keep an organization on track. However, instead of being a roadmap, reforecasting adjusts your path based on changes to assumptions and unforeseen complications that were not accounted for when the budget was initially created.
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
Reforecasting isn’t always necessary. If your budget is humming along, your numbers 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. In today’s business climate, however, it’s rare for there not to be a shift somewhere throughout the year that needs to be addressed.
If you are regularly looking at your budget versus your actuals and you notice a significant deviation in revenue or spend, it may be time to review your initial forecasts.
Another signal that a reforecast exercise 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 Effectively Use Reforecasting Data
Simply reviewing your numbers based on change isn’t enough. Reforecasting your budget frequently calls for action.
Having taken the time to incorporate any new information into your budget will give you the critical data you need to make quick decisions with your board of directors. You may discover that your approved budget needs revisions and 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. For instance, 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 naïve 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 Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.
