Financial Planning and Forecasting

Today´s complex and volatile economic climate has made managing business performance even more critical both for start-up companies and established companies. Financial planning process has become a tool to ensure high levels of investor confidence and a tool to provide the necessary business insight to decision makers.

With the increasing need to manage business performance better, the need to improve financial planning and forecasting within the organization has also increased.

However, reshaping the financial planning and forecasting process to deliver value in the entire organization is an art – in fact quite a challenging one for many.

The needed improvements go well beyond just adoption of technology. Technology in itself cannot lead to sustainable improvements in the financial planning and forecasting process. When you use technology alone as the primary driver for corporate planning and forecasting improvement, very little value and very little desired results can be seen.

Reshaping financial planning and forecasting process apart from technological improvements requires collaborative partnership between different areas of the business such as the corporate office, the different functional areas, and the different business units.

Further, simplifying planning and forecasting process and deciding the level of detail required demands the buy-in from strong internal leaders and their commitment to effect the necessary changes.

The Modern day Challenges to Financial Planning and Forecasting Improvement

As previously mentioned, reshaping the financial planning and forecasting process demands organization-wide changes from technology to norms to corporate culture.

This is a transformation process that requires serious commitment and significant investment of time before the corporate planning and forecasting process can truly deliver its intended value to the business.

In the many years that the Performance Canvas team has been working with various finance departments, there are glaring problems that we encounter time and again.

For the benefit of this article, we will only mention the 5 common challenges that are met when trying to improve financial planning and forecasting.

  1. The planning and forecasting process continues to be time consuming

It is not unusual for a big organization to have a budgeting cycle time that spans several months. In fact, many of the multinational manufacturing companies we have worked with have a cycle time of about 8-10 months on average. There are several factors for the delay – manual information gathering and sorting, reliance on IT department, spending too much time verifying the figures or tracing where they come from, and so on.

The more backwards the company’s tools are when performing corporate planning and forecasting, the more data needed from various cost centers, and the more people involved in the process, the slower this process becomes. This is where investment in technology steps in. Collaborative planning and forecasting tools like Performance Canvas by DSPanel can come in handy in the sense that you rely less on IT, you automate many repetitive tasks, and you streamline the process by enforcing organization wide business rules that allows consistency and standardization which subsequently leads to significant reduction in the planning and forecasting cycle time.

  1. Business changes and uncertainty are still the main culprits for variability

When a company´s financial planning and forecasting process leverages external indicators and business drivers, there is a higher chance of success in harnessing uncertainty and delivering value. However, the fact remains that these business changes and uncertainty are still pinpointed as the leading factors cited as causes for variability from actual performance.

Read Also:  3 Tips on how to Improve Financial Forecasting

It is then important to keep in mind that by doing business driver planning, better business insights are achieved.

  1. There is still ongoing debate as to optimal amount of level for planning and forecasting

This is always a difficult question to answer for many organizations. This is precisely why it currently still is a hot topic for many organizations.

Just how much information is too much and how little is too little is a mind boggling question many FP&A teams have to contend with. Extensive detail in planning and forecasting extends the cycle time and therefore, makes the outputs of the process more irrelevant and of little value to the business once produced.

  1. Continued struggle within ownership of business and finance of the planning and forecasting process

Many companies struggle with shared ownership between business and finance of the financial plan. Adding to this, the inherent conservativeness of certain corporations are strongly felt in the financial planning and forecasting process as well.

  1. The lack of strong links between sales and operational data and financial data

Year after year, many companies realize the importance of establishing strong linkage between sales and operational planning activities or outputs with the entire financial planning and forecasting process. Today, many companies still display weak links between sales and operational activities to the entire financial planning process.

One thing worthy of noting is that – care must also be taken in order to avoid flushing too much data such as customer and product level data that may lead to reducing flexibility and even extending the planning and forecasting cycle time even more.

Again, the transformation of financial planning and forecasting process is an art. There are many challenges that are to be overcome and many decisions to be made. Technology is not the miraculous answer to this desired transformation. Instead, it forms part and parcel of the multi-pronged solution.

If you are looking into transforming and improving your financial planning and forecasting process within the organization and are starting out with a technological investment, visit www.performancecanvas.com for more information.

If you are also curious about the best practices in improving the entire financial planning and forecasting process, you can email info@dspanel.com to arrange for a free online session with one of our financial consultants or you can request to see a free online demo of the planning and forecasting product.

 

What would you like to do next?

 

About DSPanel
DSPanel offers cutting edge technology platform for business analytics, planning, and visualization. DSPanel designs, builds, and operates with the end users in mind. Performance Canvas was created by DSPanel to answer the unarticulated needs of the market not addressed by previous available solutions. With Performance Canvas, information is transformed into valuable business insights for the business executives to utilize in their decision-making process. DSPanel currently has over 2500 organizations deploying their solutions.

 

Comments are closed.