Budgeting and forecasting are two essential annual activities for any organization. Many FP&A teams do not enjoy it but many also understand it is a necessary evil that they must put up with.
Year after year, the fp&a challenges surface during budgeting season without fail. This is a source of frustration not only for the fp&a team but for the finance managers and CFOs too.
While it is true that no budgeting process is perfect, there are repetitive mistakes that can be addressed in order to minimize these roadblocks to accurate budgeting.
Below are 5 of the most common roadblocks that prevent many organizations big or small from achieving a high degree of accuracy in their budgeting.
- A budgeting approach heavily reliant on Historical Data
The truth of the matter is that budgeting and forecasting are heavily reliant on historical data. It is a practice that has been observed through the years.
The main issue is that we have entered an era of too much data diarrhea. True, real time numbers can now be delivered anytime the fp&a team wishes but making use and sense out of months or years old data can lead to inaccuracies in the budgeting and forecasting.
This is why it is smart to not only rely on historical data. During budgeting and forecasting, the fp&a team must have the capability to compare actuals, budgets, and forecasts because by doing so it is easier to see patterns and identify opportunities that may not always be easy to spot.
- Lack of Unified Approach
It has been said many times that the role of fp&a is changing just as the role of a CFO is evolving. CFOs are now viewed as strategy partners within their respective organizations.
That said, it is important for CFOs to adopt a unified approach in dealing and managing numbers the same way they deal and manage overall corporate strategy.
- Non-inclusion of Non- Financial Data
The use of non-financial information in decision making has gained popularity and importance because of the ever increasing competition in the market and the volatility that comes with it.
The idea that financial records contain only financial information has no place in a modern fp&a function. Success in management of an entire organization depends not just on financial statements. It goes far beyond that.
Investors for example need to look at both financial and non-financial information in order to properly assess a company´s present and future valuation.
It is therefore crucial that fp&a teams together with the management teams are able identify crucial non-financial information that can add value to the company in the eyes of their investors or stakeholders.
- Tedious and Time-Consuming Manual Process
One of the reasons many fp&a teams are not so fond of budgeting and forecasting is because of its tedious and manual nature. So much time and energy is spent on data collection or data verification that it sucks the fun out of the entire process.
People who are trained to analyze deeply now comb through hundreds and thousands of rows of data trying to manually put them together in a way that makes sense and in the most accurate way possible. That is no fun at all.
It is therefore important to effectively automate and standardize these tasks to handle the fp&a functions better. Instead of spending all their time and energy doing manual work, automation can take care of it so that all they have to do is look for trends, patterns, and to just simple analyze.
- Lack of a Robust and Specialized Budgeting Software
These days it is not hard to convince CFOs to invest in a new technology. Almost every modern fp&a team and modern CFO understandx the importance and the return of investment this gives them.
The problem lies in choosing a software that isn´t really suitable for what they need it for. It is important for an organization to be able to model their business into the solution. After all, no two businesses are exactly the same. It cannot be a one size fits all kind of solution. It is important to tailor business into the software.
A good budgeting and forecasting software like Performance Canvas by DSPanel ensures that more than just automating, it can actually streamline your process the way your CFO would have wanted it, in a way that makes most sense to your business.
If you are in the process of choosing a software, check out this guide on buying a software https://www.performancecanvas.com/wp-content/uploads/2016/06/Whitepaper-CFO-GUIDE-TO-BUYING-A-BUDGETING-AND-PLANNING-SOFTWARE-2016.pdf
If you want to learn more about the current best practices in budgeting and forecasting and/or how your organization can drastically improve and streamline your current budget and forecast process, visit www.performancecanvas.com or email email@example.com to talk to one of our finance consultants.
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