In my second post of the tips for financial planners series, I discussed three ways financial planners can create precise and accurate forecasts. In the this third post we take a deep breath and brace ourselves as we ‘stop thinking in terms of budgeting cycles’.
Many businesses follow the notion taught at business schools that budgeting has to come in cycles – be it annually, quarterly or monthly, depending on the nature of business or the markets. During “budget time” many CFOs and their teams start to prepare ambitious, driver-based plans and get excited about how an organization will be going from strength-to-strength in the future – at least on paper that is.
So why do financial planners need to stop thinking in terms of budgeting cycles?
- The Budget does not run the business
In many companies across Asia, budgeting cycles is still the normal behavior. Executives priorities their budget and planning cycles as the primary focus of change. Unfortunately, the budget cannot run the business and neither can a static planning framework.
This is a time of harsh competition. In Asia, the ASEAN Economic Community and even larger, the upcoming Trans-Pacific Partnership planning must be adaptable, scalable, able to incorporate so-called rolling forecasts. If prepared well, this could form the backbone of a new and useful information channel that connects all the pieces of the organization together, and gives senior management a continuous picture of the current position, as well as both the short-term and long-term outlook.
- Your numbers are out of date before they are signed-off
As markets change, the business world changes, and the executive roles are changing too.
The CFO is becoming the “Chief Revenue Officer” as he is being asked to help find new sources of revenue, offer new forecasting models, try different approaches and leverage vast arrays of data while demand for transparency and visibility is increasing. Such activities cannot be done by excessive use of spreadsheets, especially in the financial planning world.
To adapt, to self-manage, to collaborate in bigger and more flexible teams, cloud solutions for budgeting and planning are the order of the day. Without them, the conventional budget cycle will continue to engulf months of data churning and multiple layers of consolidation and reviews in the grey halls of the financial department, as well as painful adjustments to actual positions and realignment of targets, and one thing becomes clear: In fast-moving environments these forecasts are out of date before the numbers can even be signed off.
- There will be few if any second chances
Looking outward, budget planning has to be agile and capable of reacting to market shifts at a moment’s notice. Decisions have to be informed, quick and effective. There will be few, if any, second chances. Without cloud-based tools, “budget planning season” can in fact be a miserable time of the year.
Number crunching, coupled with the hope that business objectives won’t shift while data is gathered from countless disjointed systems and consolidated into a massive spreadsheet universe, can be more than tedious. With cloud-based financial planning and budgeting tools, instead, a company can gain real-time insight into each business unit’s performance against the overall plan while identifying opportunities to take action or correct course when business priorities shift – more or less in real-time and without being dependent on an IT department or a software service desk to adjust tools or having to call for help from an outside consultant. With easy-to-use on-demand components, different scenarios can easily be modelled, and response to change can be made proactively, all the while the impact on the budget, resources and the revenue forecast is kept being measured.
In summary, the third tip in this blog series is to drop the budgeting cycle behavior for a rolling forecast approach. Start building living plans that move with the business, adapt to market conditions and forecast growth you can achieve!