Improving accuracy and gaining agility are top priorities for many organizations intent on transforming the way they plan and budget. In hot pursuit of improvement, sometimes we don’t stop to reflect whether these goals conflict or what trade-offs we might have to make. This is a quandary that our partner Deloitte recently explored alongside many others in their research paper “Integrated Business Management - Plan. Budget. Forecast.” What Deloitte found was that for a majority of respondents, the pursuit of accuracy simply meant adding detail. The authors point out that regardless of the technology in use, 80% of organizations surveyed already take eight or more weeks to complete a budget, and adding detail could easily result in the process becoming longer still. To prevent adding time to your process in order to gain detail, Deloitte recommends the following:
- Apply more discipline to the process. Here the authors suggest identifying appropriate metrics for measuring budget and forecast accuracy, and routinely reporting these metrics to the business in the form of key performance indicators. When organizations adopt such a disciplined approach to accuracy, budget accuracy improves, often reducing variances to 5% or less. The authors also suggest that much of this improvement is directly attributable to the reduction in “sand-bagging” and gaming that occurs whenever budget numbers are used as targets for performance bonuses.
- Clarify stakeholder responsibilities. Resolving any confusion about who has ultimate responsibility for each part of the plan and using workflow to expedite the submission and approval process helps reduce cycle times. This may seem like a no-brainer, but many organizations take it for granted. Take the time to clarify responsibilities and workflow, and your budget process will reap the benefits.
- Adopt an integrated modeling-based approach to planning and budgeting. The report suggests two levels of integration. Firstly, unifying operational planning and budgeting into a single process, and secondly, integrating non-financial data about such things as demand and headcount alongside the more traditional financial data held in planning models. This is an aspect of planning and budgeting that both Folia Grace and Richard Barrett have written about recently on our blog.
- Leverage technology + process. The authors warn readers that although they may gain incremental improvements by implementing technology to automate their planning and budgeting, they are unlikely to make major gains unless they also revamp the process as outlined above. As an important element of integrating planning with budgeting, the authors emphasize the importance of selecting a tool with the capability to model different scenarios and assess the impact that variances in demand, input costs, exchange rates, and other variables have on financial performance. A solution should connect throughout the planning funnel; from pipeline commit, to revenue plan impact, incorporating OPEX impacts that waterfall into the ultimate financial budget and forecast throughout the year.