Financial Budgeting and Planning Best Practices
Financial budgeting and planning allows companies to draft a financial roadmap for their operations. This process for many companies involves a significant number of Excel spreadsheets and several cups of coffee to keep them awake and sane.
Through financial budgeting and planning, a company can review historical data such as previous year´s budget to determine whether or not they successfully followed the company guidelines and determine why variances are present. However, the reality is that budgeting and planning is time consuming and resource intensive.
For some, it takes 6-8 months to complete that by the end of the budgeting period, the data becomes irrelevant and unusable because too many factors have played in. There are of course companies that can finish it in just 2 months or less depending on how big the organization is and how thorough they do their budgeting.
Additionally, financial forecasting process is another process many finance departments struggle with. PwC released a survey in 2015 stating that only 10% of finance personnel that do the forecasting for the company is confident that the actual performance difference is about +/- 2 from forecasts.
It is this complex and painful budgeting and planning process that has removed the fun, energy, and thinking in this supposedly deeply analytical process because all they do is fix broken links and macros.
We have prepared the top 5 Financial Budgeting and Planning Best Practices that can help you improve the way you do financial budgeting and planning today.
- Perform Driver-based Planning
Traditional budgets have always shown a high degree of inaccurate assumptions apart from consuming too much time and effort. Driver based planning makes use of mathematical and linked relationships to create a very detailed budgeting, forecasting, and planning models that has fewer inputs and has fewer errors.
- Perform What-if Analysis
In today’s economic climate where there is too much instability, unpredictability, and volatility, the slightest material deviation that occurs during any given year can severely paralyze an organization especially if the organization has no efficient way of determining the cause of change. By performing What-if analysis, a company’s budget can take into account the performance of the company under varying scenarios. Doing this ensures that all risks are thoroughly evaluated and the future properly planned for.
- Establish a Performance-based framework
One of the problems of traditional budget is that it does not clearly and sufficiently link investments to outcome. This limits the finance team´s ability to do in-depth analysis and understanding of the real return of investment. Establishing a performance-based framework can improve visibility into the real and tangible impact of the company’s financial decisions.
- Establish a Priority-based Framework
Budgets, plans, reports, and analyses are all done in response to requests from different stakeholders in the company. Each group justifies its projected expenditures based on their needs rather than overall goals of the organization. By establishing a priority based framework, concrete targets and plans can be made to truly reflect the strategic goals of the company. Once these targets and plans are passed on to all the stakeholders, faster decisions may be made without having to deal so much with negotiation issues that each party tries to put forward.
- Use modern technology to aid the process
As common practice, Excel has been the de Facto tool for financial budgeting and financial forecasting but every single finance person that has worked with this knows this is too complex and time consuming. Use innovative technology like Performance Canvas by DSPanel to make the entire budgeting and planning process less stressful.
Modern and innovative technology like Performance Canvas by DSPanel allows companies to reduce time to consolidate data, it uses tools to make use and analysis of information intuitive, and it improves the speed of the entire process as well as makes companies gain better insight. Technology when chosen and used properly can bring desired results. Technology can aid CFOs and finance persons in making sure a more developed and collaborative budgeting and planning process is in place.
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