Despite continuing investment in planning and budgeting system, a new piece of research titled ‘Increasing Budget and Forecast Process Productivity’ from the Corporate Executive Board suggests that 90% of FP&A directors are still dissatisfied with the amount of time it takes to complete a budget and 82% dissatisfied with the time it takes to do a round of re-forecasting. It’s all the usual bugbears that still crop up to – lack of accuracy, timeliness of output, and the amount of work and time involved in each process.
In the study, FP&A Directors were asked to evaluate their budgeting and forecasting against six process value characteristics and one cost-related characteristic and the results were fairly dire across the board. But respondents were least comfortable with the level of process efficiency, which came out at 8% for budgeting and 21% for reforecasting.
The study isolated a number of factors that appear to have no impact on the productivity of budgeting and reforecasting and do not differentiate top quartile performers from those in the bottom quartile. These include:
- Having a calendar of submissions and ownership guidelines
- Using one standardized budget model and set of templates across all parts of the organization
- Using a bottom-up versus top-down budget target setting models
- Use of automated tools and systems to generate forecasts
- Making use of scenario-based forecasting techniques
- Using rolling forecasting that look beyond the current year
The report points out that while the above may add value, they are likely to slow the process down and suggests that if your goal is to improve the efficiency of your budgeting and forecasting processes, then the following suggestions gleaned from their top quartile may help:
- Consider the needs of their business units when making changes to their FP&A processes by allowing them work at a level of detail and accuracy that they are happy with – rather than enforcing a complex chart of accounts on everyone. It means a bit more work upfront, but as today’s planning and budgeting solutions support such heterogeneity, I say why not!
- Focus on the root causes of variances by distinguishing controllable from uncontrollable performance drivers and spend more time on helping business units understand the accuracy in their underlying assumptions that underpin their submission rather than pursuing a forensic approach to the accuracy of individual line items. (Those who advocate building budgeting and forecasting models for ongoing businesses around a handful of key external market and internal operational drivers will be happy that this finding seems to support their view).
- Have a clear understanding of the purpose of their budgeting and forecasting efforts before attempting process improvements. The authors of the report write that companies try to bundle too many objectives into their “budget” these days, such as using it for setting incentive targets which reduces its effectiveness as a resource allocation instrument and drives unhealthy managerial behaviour that compromises accuracy and slows the process down.
In summary, take time to get the big picture right before you make any changes to your processes even when you are deploying a best in class solution such as SAP Business Planning and Consolidation. Your colleagues in the business units will thank you for it.