Even in a steady economy, most organizations still have difficulty setting budgets. And as a result, managers spend most of their time trying to operate within the constraints of their given budget.
With monthly and even daily fluctuations in economic forecasts, it is challenging to create a single, dependable budget to coordinate business divisions and track performance over a full fiscal year. Traditional budgeting methods in today’s volatile times are likely to be ineffective.
Below are areas where cloud financial planning and analysis can help boost your business and help you navigate difficult times.
The budget process is frequently a consensus-building exercise in more stable times. Some businesses may also make contingency plans for “worst-case” events. Companies might speculate on numerous unfavorable situations and put together a budget or strategy to address these eventualities. This system isn’t flexible enough to respond to rapid or unexpected economic developments. It’s more of a “what-if” scenario than anything currently happening. A corporation is still left with a yearly budget at the end of the day. They have a variety of possibilities from which to choose. (Learn more about scenario and sensitivity analysis.)
Budgeting and Forecasting quarterly
In times of great uncertainty, some businesses abandon long-term ambitions to focus on the next three months. Companies under such stress, particularly those through a turnaround, may consider ditching annual planning instead of quarterly budgeting. These businesses should concentrate on cost-cutting and managing their working capital for immediate demands. Because the horizon is much narrower, this short-term approach allows organizations to allocate resources in real-time and generate better forecasts. It’s also simpler to assess their performance and determine what works and doesn’t.
Most current budgets are derived from past ones, with minor adjustments to account for inflation or changing business patterns. Identifying operating and capital expenses and connecting them with the company’s strategy is the first step in zero-based budgeting. Because you’re diving deep into all of your costs, this strategy might add time to an already lengthy procedure. As a result, it should only be employed in regions where the potential savings are the greatest (e.g., capital spending and costs such as procurement). Identifying the organization’s total costs and determining whichever can be effectively decreased is beneficial. Employee costs and real estate costs may be fixed and difficult to modify. Other expenses, such as marketing and capital expenditures, can be reset at the start of each year.
Obtain Budgeting and Forecasting Support with Performance Canvas
Cloud Financial Planning and Analysis Software like Performance Canvas which manages a company’s daily operations, has emerged as a standard and essential tool for a diverse range of industries, such as manufacturing, healthcare, distribution, and services industry, among others. However, due to the abundance of available options, selecting the appropriate software for your company’s budget management can be challenging. If you’re in search of the most effective FP&A modeling tool, Performance Canvas is your best bet.
Performance Canvas is not only designed to assist finance teams to fast-track time-consuming tasks, but it also optimizes budgeting and forecasting processes, as well as provides interim financial management and project execution as needed.