Like clockwork, the business budgeting and forecasting process comes along each year. And without fail, many CFOs and budget managers struggle through it. Many organizations are so overwhelmed by data collection, they have little time for analysis or planning, which is reflected in the output and accuracy of their budgets and forecasts.
This leaves CFOs frustrated. Far too often a poor approach to budgeting and forecasting leads to inaccurate numbers down the line which can then lead to increased risk and a less agile business.
Studies highlight this general frustration as well. A recent report from Grant Thorton found only 37 percent of chief financial officers and finance leaders say their organization’s approach to annual budgeting is valuable.
That leaves quite a bit of room for improvement.
And yet the same mistakes are seen over and over again. While your business budgeting and planning process may be far from perfect, mitigating even a few of the biggest red flags can lead to dramatic improvement in the overall process.
In this post, I want to share with you some of the most common mistakes I’ve seen in the budgeting process. Plus, a suggestion on how to combat these mistakes.
The ‘Red Flags’ in Budgeting and Forecasting
Over the last few years the role of the CFO has been moving from number cruncher to strategic decision maker. With that new responsibility comes opportunity.
CFOs and budget managers can be the bridge between the old way of doing things and one that is more streamlined, collaborative, and most importantly, accurate. To do that, CFOs and budget managers must face the common roadblocks to accurate budgeting.
Many organizations take a budgeting and financial forecasting approach that relies heavily on historical data. While that might have worked well in the past, now we are in the midst of a data explosion. When real-time numbers can be delivered within the minute, using data that is months old already sets the budget and forecasts up for inaccuracies.
Actuals, budgets and forecasts should be compared and evaluated on a consistent basis. This allows for a more accurate budgeting process and can highlight potential risks as well as opportunities that lie ahead.
It’s important that CFOs realize they need to take a more unified approach to financial numbers and overall strategy today. More and more, KPIs include non-financial indicators as well as data important across departments. Yet many CFOs and budget managers don’t feel as though budgeting and strategy are in full alignment.
Data management is another area where CFOs will want to look for potential roadblocks. Time-consuming processes such as manual data entry can often overwhelm finance departments from doing actual analysis. This is where having a data management strategy becomes important. It allows for effective collection, analysis and presentation.
Developing a Budgeting and Forecasting Solution That Works
Undoubtedly your organization has encountered at least some of the above issues in your budgeting and forecasting process. These are often the biggest culprits in derailing the process. There’s no need for businesses to continue on a path that can lead to inaccurate numbers and increased risk.
Instead, take a 30,000-foot view of the overall business budgeting and forecasting process. Look for key bottlenecks. And ask some key questions:
- Where can your current budgeting operation be optimized?
- Where are redundancies hampering progress?
- What activities are the most time consuming for the budgeting and forecasting team? And can these be streamlined?
- How can communication be improved across all departments?
- Does the budget reflect the overall strategy of the organization?
And so on.
In doing this your organization may quickly identify a few bottlenecks and adjust accordingly. Or you might find that a different approach to budgeting is needed. Perhaps your organization would be better served by rolling forecasts or quarterly planning updates.
Without taking a hard look at the process, it’s difficult to tell, which is why this step becomes a key component to discovering a solution.
Any way you slice it, the budget and forecasting process is a serious undertaking. However, developing a handful of key enhancements can be the first step in optimizing the entire operation and seeing improved results.
If you’d like to review your own organization’s budgeting process, consider this week’s webinar. The CFO Playbook on Planning: will show you how to create a budgeting process that is more efficient and effective saving quite a bit of time and hassle in the long run. Click this link to register.
Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planning, financial forecasting, financial consolidation and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.