Strategic Budgeting and Forecasting: Five Questions

While spreadsheets have long reigned supreme as the foundation of budgeting and forecasting for many organizations, the shortcomings of this legacy tool, and the silos it creates, have become impossible to ignore. Relying on overloaded spreadsheets to guide complex business models automatically puts your organization at a disadvantage, sacrificing time and accuracy while stunting strategic decision-making.

It’s never a bad time to consider how to improve your overall budgeting and forecasting process. Start by asking yourself the following 5 key questions to evaluate whether the tools you have in place are working for you and not making the process more difficult, slower, or less accurate.

5 key questions to ask yourself about your budgeting and forecasting process

1. Visibility: How do I get the most detail and accuracy with my budget? Do we have the data we need readily available?

Data accuracy is critical to the budgeting and forecasting process. Spreadsheet-based FP&A processes don’t encourage the accurate flow of transactions throughout the model. Users can define the formulas and flow as they please, which means they can inadvertently violate your business logic and/or established accounting standards. When spreadsheets are emailed around to multiple budget contributors, versioning issues add to the loss of accuracy.

FP&A software with pre-programmed business logic and accounting rules prevents users from making such mistakes. Within a menu-driven environment featuring drop-down lists and tables, users select from each budget area, for each budget line item, either globally or individually, and are able to select unique defaults, drivers, and other logic. The best FP&A software tools automatically and spread this logic throughout the model, ensuring accuracy.

2. Confidence: Am I confident in the numbers coming out of the model? How valuable is my budget for managing the business next year?  How can we plan for an uncertain economy?

Freed from the shackles of a siloed legacy tool like Excel and managed instead within dedicated FP&A software, budgets become living, evolving documents that finance teams can use as an in-house planning tool. Flexible FP&A software lets you update plans monthly, quarterly, or on an ad-hoc basis. These tools offer an accurate, forward-looking view of your company’s general ledger, allowing you to quickly and easily perform:

• What-if scenarios
• Forecasting (and reforecasting)
• Budget vs. actual variance reporting

With the click of a button, you can turn that data into comprehensive and easy-to-use reports featuring as much or as little detail as desired. Visual dashboards let your management team track up-to-the-minute performance against the goals defined in your business plan.

3. Collaboration: How do we create more collaboration across the organization for teams to operate and submit their own budgets? Who should be involved? Does everyone involved understand their responsibilities?

It’s impossible for the finance team to have visibility into every detail and every driver. Strong collaboration across the organization is essential for a complete understanding of performance. As a distributed and remote workforce becomes the norm, collaborative tools are more important to business success than ever.

Across all business functions, flexible, cloud-based tools are essential for seamlessly sharing information and insights. Spreadsheets were not built to support and sustain the requirements for conducting business today.

Planning and analytics software ensures that collaboration is simple and seamless across the organization. As each contributor enters financial information and transaction data, those inputs automatically ripple through the budget. All relevant fields, accounts, and ledgers are updated, tying all data into the same central database. Everyone sees the same financial data, or whichever portion of the data they need to see. That extends from the most meticulous operational details to the highest consolidated financial roll-ups. The finance team and C- level executives have comprehensive information from every corner of the operation, always updated in real time without manual collection or consolidation.

Dedicated FP&A software promotes increased collaboration side-to-side between operations and finance. There is also more top-to-bottom collaboration. Importing actual results allows continuous comparisons to plan, bridging the gap between strategic and operational plans. Everyone sees a single version of the truth.

4. Agility: Can I run as many what-if scenarios as I need? How easily can I create and track an accurate budget from the plan?

The past few years have taught us that being prepared for all scenarios is absolutely essential to long-term business success.  Financial professionals must have the power to make changes to a model to test the impact of multiple scenarios quickly and easily. Stubborn spreadsheets limit this ability and impede the implementation of strategic changes (or essential pivots) across the organization.

FP&A software ensures that every aspect of the model automatically conforms and adjusts to your business logic and accounting rules. Because it’s pre-programmed, the coding behind the model will never break. Unlike spreadsheets that require modifying the underlying model to ensure that formulas are still accurate, innovative FP&A solutions empower you to simply delete and add data or rules, and the model adjusts itself.

These pre-programmed rules promote maximum flexibility, allowing you to apply them wherever needed. This means you can test any scenario or plan with full confidence that your budget will always create accurate forward-looking balance sheets, cash flow statements, and P&L projections that are synchronized to your underlying budget.

5. Automation: Is our financial planning proactive or reactive?

In the wise words of Ben Franklin, “By failing to prepare, you are preparing to fail.”  One might argue that by continuing to rely on spreadsheets for budgeting and forecasting to predict how the year ahead will unfold, and to develop, test, and deploy contingency plans as results come in, you are failing your organization and yourself.

With the proliferation of data analytics tools, machine learning, and automation, the finance team’s job has expanded and become a more critical part of the organization’s strategic planning. Through the adoption and use of technology and digital tools, organizations are experiencing better and more accurate forecasting, decision making and planning.

Accurate, synchronized forecasting of critical financial statements powered by modern FP&A software can deliver a direct line of sight into the future financial health of your company. Producing accurate and timely statements — and gaining immediately actionable insights from them — is critical for understanding what’s going on in the business and assessing the financial impact of corporate decisions.

Plan for more strategic budgeting and forecasting

As a member of the finance team, you are critical to the success of your business.  For the benefit of the entire organization, you and your team should be armed with modern, strategic tools to deliver better insights and drive more confident decisions. Consider how the legacy tools you rely on are holding you back by stunting growth, limiting agility, and preventing critical collaboration. Take a moment to ask yourself the important questions above and honestly evaluate your current budgeting and forecasting process, and the tools you’re using to plan for your organization's future.

Book a demo to see how Centage's formula-free FP&A software can upgrade your budgeting, planning, and forecasting process.