Budgeting and forecasting can be an arduous, tedious and stressful process for many finance and accounting practitioners. An annual budget can contain thousands of lines of detail from various departments that must be aggregated, validated, analyzed and ultimately presented for approval. Forecasting can be equally difficult when a company does have the capabilities to quickly perform what-if scenarios or incorporate actual financial results into the planning process. Microsoft Excel is the most widely used application for budgeting, and especially forecasting due to the inflexible nature of many software solutions.
Improving the forecasting process can create benefits throughout the organization as forecasting can and should be a strategic management tool for aligning the goals of the company. First and foremost, it is important to have an easy to use, yet powerful application to manage the budgeting, forecasting and reporting process.
- Strategic Alignment: A rolling forecast serves to continually reinforce the objectives of the company via a consistent review and reporting process. A quarterly review of company performance emphasizes the importance of the organizational goals as outlined in the yearly budget. It is a very simple and significant tool that can dramatically impact organizational objectives. The goals need not be strictly financial in nature, as customer satisfaction, retention and other metrics should be incorporated as well. A company’s most important metrics should be incorporated in a constant feedback loop to reinforce organizational values and other strategic objectives. Companies that move as a single unit towards a single goal will be more effective than those that are not aligned.
- Continuous Improvement: As Peter Drucker stated, “What gets measured, gets managed.” This idiom still holds true for businesses today. With so many distractions in an organization, it can be difficult for managers to focus on what is important. By incorporating rolling forecasts, managers can periodically review how they are performing, make corrective adjustments, and ensure they are meeting the company’s objectives. Rolling forecasts also allow for managers to participate in evaluating the effectiveness of other corporate operations. A collaborative environment in financial planning can create unforeseen benefits by crowdsourcing ideas to the company. Regular forecasts create a closed loop feedback process that will help departmental managers achieve desired results.
- Business Agility: The economic environment is constantly shifting, and at a very rapid pace that appears to be continually accelerating. Markets are evolving and businesses are expanding dramatically with digital technology. Organizations need to evaluate market opportunities, quantify risk and make better, more informed decisions. Using forecasts, businesses can plan and adapt the business model on a more frequent pace than within a yearly budget. Additionally, forecasts allow managers and new business line directors a quicker feedback loop on performance and potentially corrective action. Forecasts help business managers adapt quickly to changing market demands.
Rolling forecasts can be beneficial to an organization but it must be easy to implement within an organization. Cloud technology, specifically Adaptive Insights, enables organizations to streamline the budgeting, forecasting and reporting process with easy to use, yet powerful software. Organizations that adopt Adaptive Insights generally see a 70% increase in productivity during the budget cycle. With Adaptive, companies can easily forecast at an interval that makes sense to the organization. Kraft is a long-time partner and user of Adaptive Insights. At Kraft, our goal is our customer’s success.