Why CFOs should change their budgeting and forecasting process

The CFO’s role in strategic planning has been evolving considerably over the last few years as organizations grapple with increasing complexity. But it’s not really a secret that most don’t relish the annual budgeting and forecasting process.

For many, simply getting hold of the necessary data to create an accurate forecast is a big challenge. Many teams struggle to find data – let alone get it into an analyzable format – and by the time it trickles its way up to the finance team to be manually re-entered into yet another spreadsheet, it’s already out of date.

(And since it’s in Excel, running different scenarios is next to impossible.)

It’s clear that if the CFO’s role in strategic planning is to be a meaningful one – indeed if “CFO strategic planning” is to be a viable prospect - then it requires a complete transformation of the budgeting and forecasting process.

Let’s explore a few reasons why CFO forecasting must look beyond the traditional process of the annual budget.

1. Data is already obsolete as soon as you see it

Most annual budgets and forecasts are based on a single snapshot in time, focusing on top line elements only.

However, these numbers are usually based only on headline figures from individual teams, building their own individual budgets based on their own snapshots. (And in many cases, teams will have to request reports from their IT teams, creating an even longer time lag.)

This makes it impossible to develop a single view of the truth – the data you have access to is already several weeks old when you’re in a position to do anything with it.

In an optimal forecasting process, your organization should be comparing actuals to the forecast on a continuous basis to create a more accurate view of both the present and the future.

This can only be achieved with flexible, self-service tools that can access data from anywhere in the business immediately, without the need for IT intervention.

2. Spreadsheets aren’t databases – and they also aren’t analytical tools

Spreadsheets are excellent tools for what they were designed for – allowing accountants to quickly perform calculations with an array of different figures. (And we doubt anyone who remembers the period where spreadsheets were compiled meticulously by hand has any desire to turn back the clock.)

But they weren’t designed for the exacting demands of an FP&A budgeting process. Creating a budget in Excel means collating data – often manually – from a variety of disparate sources and this is where Excel falls short. As different versions of the same spreadsheet are passed around, accumulating more and more edits, revisions, queries, and accidental deletes, your teams rapidly come face to face with a major challenge.

Not only do they not know where the most recent version of the truth can be found – they can’t even be sure if it’s true at all. According to Grant Thornton, 39% of leaders use spreadsheets alone for forecasting in budgeting, for internal reporting, and for FP&A tasks. (No wonder they’re not fans of the process.)

Moving towards a functional version of strategic planning requires dedicated software – not “do-it-yourself” solutions centered around spreadsheets.

3. Data collection and analysis takes far too much time – and a unified data warehouse doesn’t necessarily make for better forecasting.

Most companies are confronted with both an ever-growing data mountain, and it’s contributing greatly to a general crisis in productivity.

On average, according to Ventana Research’s report Spreadsheet Use in Today’s Enterprise, people waste about 12 hours per month updating, revising, and consolidating data via spreadsheets. For financial managers, that figure rises to 18 hours a week.

The obvious and intuitive solution to this problem is to build a single, centralized data warehouse. But this may not be the silver bullet in reality. Building a custom data warehouse can cost upwards of $2 million (according to one IDC report, the Data Warehousing ROI Study), and can take months if not years to complete. And even after spending the money, a data warehouse is unlikely to help you meet your business objectives.

Once again, the logical answer to both of these problems is embedding specialised tools into your enterprise ecosystem that can perform data integration automatically, rather than attempting to cobble together a homebrew approach.

4. Annual budgets typically aren’t tied to strategy – because they can’t be

Most budgets don’t account for non-financial metrics of performance, nor are they tied explicitly to the business’s non-numerical goals. Because many financial forecasts are built on assumptions derived from past performance, they are not tied to any strategic and tactical realities – and because of this, many business units will often ignore them entirely. Creating plans and budgets of their own, using their own methodologies – meaning different parts of the organization aren’t just marching to the beat of different drums but in completely different directions.

5. Modern analytic tools deliver high value beyond making the budgeting and forecasting process easier

Cloud-based FP&A tools have become so advanced it resolves many of the problems we’ve discussed: automating the process of data collation, incorporating financial AI and machine learning techniques to make scenario planning and rolling forecasting a much more realistic prospect, and allowing for a single source of truth with numbers that are; truly up to date, and help create financial stories that are relevant to the business’s strategy – in the present and the future.

How can Unit4 help you?

Unit4’s Financial Planning and Analysis solution is specifically designed for the needs of people-centric businesses; with integrated data visibility across finance, HR, and operations and powerful AI-supported forecasting capability that allows you to create predictive models that help you plan for any scenario you can envision.

To learn how our solution can help you to create a new approach to budgeting and forecasting that helps you break away from the disadvantages of traditional methods, check out our dedicated FP&A product pages.