Budgeting and Forecasting: Issues and Leading Practices

Forecasting and budgeting should form part of an integrated performance management framework. Achieving this ideal can take years, but finance executives can gain immediate benefits from tactical solutions as they work toward the adoption of forecasting and budgeting processes that lead to high performance.

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Finance directors agree that an ideal forecasting and budgeting process should form part of an overall performance management framework—but achieving this ideal requires a significant transformation.

In fact, Accenture's experience shows it can take one to three years for a company to transform its forecasting and budgeting processes, systems and organization, delaying the journey toward high performance.

Companies also face a more immediate problem: the imminent collapse of many legacy systems and processes. Accenture believes that the tactical solutions required now deliver significant benefits—but that they must form part of a longer-term strategic initiative. Successful tactical initiatives are essential in obtaining support and sponsorship for a longer term strategic initiative.

Both tactical and strategic solutions require strong executive sponsorship, a robust and proven approach, a persuasive business case and a significant change to the way the forecasting and budgeting process is handled.

It is important to fully document and communicate problems with the existing forecasting and budgeting processes to gain executive sponsorship and drive momentum for change.

The issues are as follows:

• Frequency and timeliness: Processes take too long, resulting in out-of-date and irrelevant information.

• Flexibility: Most of these systems lack sufficient flexibility to accommodate re-organization, divestitures, mergers and acquisitions.

• Cost and effort: The cost of existing forecasting and budgeting processes is significant and appears to be growing every year.

• Accountability and ownership: The finance function becomes responsible for forecasting and budgeting, rather than acting as a facilitator.

• Transparency and access: Lack of accountability relates to lack of transparency and access to information offered to operational management.

• Accuracy: The complexity of gathering the correct data from the appropriate models and integrating them may cause inaccuracies.

• Finance skills and morale: The problematic process takes its toll on those involved and compromises the finance function's reputation within the company.

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Until recently, most information about best practices in budgeting and forecasting was academic.

Now technological advances offer capabilities that enable many best practices to be implemented. They include:

• Rolling forecasts: Significant gains can be made from eradicating this single period/annual mindset and moving to an 18-month rolling forecast approach.
• Increased participation: Those who can produce the best projections of business activities are those who undertake and are responsible for those tasks. Therefore sufficient practical training of end users is essential.
• Detail linked to accountability: Identify end users who are responsible for certain sections to keep the system simple and relevant.
• Driver-based forecasting and budgeting: This enables the underlying business model to be encapsulated within a standardized and structured forecast and budget capability.
• End-user analysis: This enables analysis and reporting capabilities to be deployed to a larger and more widely distributed base of operational end users.
  
  

Stephen Hunt is a senior manager in Accenture's Finance & Performance Management service line in London.