How to better connect planning, forecasting, and budgeting

How to better connect planning, forecasting, and budgeting

Finance professionals are taking on strategic duties in addition to
traditional reporting and compliance roles, and they’re becoming more
influential in their organizations. But they still have an opportunity
to make improvements, particularly when it comes to the use of
forecasts.

“[The] increasing speed and complexity of business has caused a rapid
decrease in the planning time horizon,” strategy experts Michael
Coveney and Gary Cokins explain in the introduction to their CGMA book
Budgeting, Planning, and Forecasting in Uncertain Times.
“As a consequence, the traditional planning processes of strategic
planning, annual budgeting, quarterly forecasting, and monthly
reporting have become unsuitable for most organisations’ needs. In
light of this, senior management struggles in determining what
planning techniques they should adopt as a replacement.”

Their book is based in part on a survey of 495 CGMA designation
holders, who offered insight on the state of budgeting and planning.
Here are some takeaways from the survey:


Deficit in scenario planning.
The looming specter
of black swan events hovers over businesses. But so does the
possibility that companies will be able to leverage new technologies
for sudden, significant gains. Many businesses aren’t entertaining
these possibilities in their planning. Just 46% of CGMA designation
holders said in the survey that scenario planning is part of their
organization’s planning process. Lack of adequate resources was a
common reason listed for not engaging in scenario planning, while many
respondents (23%) said scenario planning was unnecessary.


Spreadsheets still rule.
Although technology is
advancing, spreadsheets are the tool of choice of CGMA designation
holders for many tasks. At least half of respondents said they use
spreadsheets or personal productivity tools for cash planning (71%);
capital planning (67%); forecasting (64%); financial
planning/budgeting (56%); strategic planning (53%); and tactical
planning (51%).


Finance leaders still love budgets.
Although
improving and expanding forecasting is a priority for many businesses
in the digital age, finance leaders still possess an affinity for
traditional budgeting. About 62% of CGMA designation holders said they
are somewhat or very satisfied that financial planning and budgeting
processes are achieving their purpose in their organization. Fewer
respondents (55%) said they are somewhat or very satisfied that
forecasting is achieving its results in their organization.


Leverage forecasting in strategic decisions.

Businesses sometimes underestimate the importance of forecast data in
guiding strategic decisions. Many organizations struggle to get their
forecasting and strategic planning in sync. Just 50% of CGMA
designation holders said they are somewhat or very satisfied with the
alignment of forecasting with strategic planning in their organizations.


Essential role for finance.
Eighty-eight percent
of respondents to the CGMA budget and planning survey said the finance
function has at least moderate involvement in strategic planning, and
86% said finance has high or very high involvement in forecasting.
 
ROLLING FORECASTS VS. BUDGETS

Steve Player, CPA, CGMA, the North American program director of the
Beyond Budgeting Round Table, offered insight into the state of the
budget and the shift toward better forecasting methods:


On abandoning budgets:
“The debate about
abandoning budgets is ongoing actively, and many companies are
actually dropping the budget. Yet, finance organizations in many cases
are the last bastion to hold on to the budget. Understand how damaging
that is to the organization, how irrelevant that makes finance, and
really make finance the leader in breaking free from that, and instead
going to a continuous rolling forecast in terms of moving forward.”


On tracking the right metrics:
“You have to step
back and say, ‘What is our strategy? What’s critical to our success,
and what metrics tell us if that’s happening?’ And you need to make
sure you’ve got a balance of metrics, not just output measures, not
the final score. … Move that even further upstream to begin to have
not only process measures, but predictive measures. What things have
to start way at the beginning of the process that foretell the future
results coming down the road in terms of where we’re marching to?”


On communicating results:
“We’ve got to convert
into more moving pictures, more graphics, more understanding how to
highlight and illuminate the important things, more how to tell the
story of what’s really happening in operations and understanding the
key drivers. … Finance people ought to be great storytellers, but
right now we just stack up the numbers and hope somebody else can sort
it out. If we’re going to become relevant and the kind of people we
can be, we’ve got to understand how to convey messages of what’s
really important.”

The full version of this article, “How to Better Connect—and
Communicate—Planning, Forecasting and Budgeting,” by Ken Tysiac and
Jack Hagel, is available at tinyurl.com/qzaqmt9. More
information about the CGMA book Budgeting, Planning, and
Forecasting in Uncertain Times
is available at tinyurl.com/p62j7ju.    

Jack Hagel, editorial director
CGMA Magazine

Also at cgmamagazine.org

Ethical Dilemma? There’s an App for That

The Institute of Business Ethics (IBE) launched a free mobile-device
app and online toolkit to provide users with immediate guidance on a
range of scenarios from accepting gifts and hospitality to conflicts
of interest.

The launch comes on the heels of an IBE survey that shows bribery,
corruption, and facilitation payments remains the most significant
ethical issue for 80% of respondents from FTSE 350-listed companies.

Through the app, users can answer a series of questions to determine
the appropriate conduct in a particular scenario. The content focuses
on anticompetitive behavior and situations covered by the UK Bribery
Act. The IBE version of the app is believed by some to be the first of
its kind.

The full article, “Introducing: The ‘Conscience in Your Pocket,’ ” by
Samantha White, is available at tinyurl.com/msaagxm.

Internet, Chit Chat Are Biggest Office Distractions

The same technology that can help employees work more effectively is
distracting them from their jobs. Internet use not associated with
work duties is the most common cause of employees’ frittering away
their time in the workplace, a new survey shows.

Thirty-two percent of more than 2,100 US CFOs surveyed by staffing
consultant Robert Half Management Resources said non-business-related
internet use—including social media—is the biggest time-waster at work
for employees. Employees chatting and socializing—cited by 27% of
CFOs—ranked second among time-wasting activities, and personal calls
or emails (20%) was the third-most commonly cited misuse of time.

The full article, “How to Keep Employees From Wasting Time,” by Ken
Tysiac, is available at tinyurl.com/neqevlb.  

Regulation Tops List of Risks for 2014 

Regulatory changes and scrutiny are the risks business leaders are
most concerned about for 2014, according to a new survey conducted by
North Carolina State University’s Enterprise Risk Management
Initiative and consultant Protiviti.

The survey took responses from 370 executives and board members about
the risks that concerned them most. Economic conditions was the No. 2
risk. For the full list of the risks, read “Regulation Leads List of
Top Ten Risks for 2014,” by Ken Tysiac, at tinyurl.com/oj6wwed.

Visit CGMAMagazine.org

CGMA Magazine is published in conjunction with the Chartered
Global Management Accountant designation, which was created through a
partnership between the AICPA and CIMA. The magazine offers news and
feature articles focused on elevating and emphasizing management
accounting issues.

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