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7 ways to improve the budgeting & forecasting process
When did you last review your budgeting and forecasting?
October 8, 2024When was the last time you reviewed your budgeting and forecasting process? If you’ve been dealing with inaccurate budgets, dubiously useful forecasts, and a lack of reliable financial data, you might have found your culprit.
Regularly reviewing your budgeting and forecasting process can save you time, money, and potentially expensive mistakes down the road. There are seven key areas your team can examine to improve this process; some of these improvements can be made quickly while others are done slowly over time.
Budgeting and forecasting are crucial finance processes within your organization, and associated protocols must be made efficient and error-proof. Robust processes improve financial management, integrated business planning, and overall growth.
Budgeting processes should be automated wherever possible and involve regular cross-department collaboration. Your budgets should also be flexible and adjust to market or business changes. Your finance team, senior management, and budget managers should all have input and know your budgeting process well.
Forecasting processes should keep your business drivers in mind. They should also leverage your historical data, market trends, and any other factors that may help you make the most informed decision. Data analysis and implementing rolling forecasts are also crucial for overall effectiveness.
Aside from aligning goals across the organization, budgeting and forecasting are important in times of change. Budgeting revenue for a specific period and forecasting for the next can impact your short and long-term financial strategies.
Now let’s explore how you can improve your budgeting and forecasting processes.
Enhance data accuracy and integrity
Streamlining your data management will only be helpful if your data is accurate to begin with. Using data validation techniques and integrating reliable sources can improve data accuracy and integrity.
Data accuracy ensures that you’re not dealing with outdated or incorrect data, like old revenue numbers or skewed expense reports. Data integrity goes beyond this, covering its completeness (e.g. are you getting every report you need?) and its quality (e.g. are the historical budgets you’re reviewing following a recent, robust methodology). Enhancing these two elements of your process can go a long way.
The quality of your data will determine how realistic your forecasts are and how effective your budgets will be. After all, if you’re using inaccurate data, you might build budgets that don’t reflect your organization’s needs at all, and your forecasts may be way off target.
Utilize advanced data integration tools
Using budgeting software to integrate data across teams is a great way to streamline processes, align on standard practices, and reduce the risk of human error. These tools can automate the data validation processes to ensure data accuracy and integrity are top-notch.
Some tools are relatively easy to implement, with a minimal learning curve for your team. They take your processes in Excel and elevate your data integrity in a way that can scale with your business.
Implement rolling forecasts
A rolling forecast is a prediction of future numbers continuously over a certain period. It could predict overall business performance, providing more lead time to adjust the financial strategy if necessary. Unlike traditional forecasts, rolling forecasts are constantly updated—usually automatically—as time goes on.
You’d establish your rolling forecast by using both historical and real-time data. These continuous updates will allow your team to stay agile and make the most effective moves for the business, so it’s vital that your data be accurate and well-recorded.
Adjusting forecasts with market changes
You can use finance technology that provides real-time and historical data to account for market changes. That way, your rolling forecast will allow you to predict patterns and respond to market shifts, better preparing your team for any challenges.
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If you don’t already, leveraging scenario planning should be the next thing you do to improve your budgeting and forecasting processes. Scenario planning enables a team to model various outcomes and better strategize and forecast the future.
Scenario planning identifies a particular set of uncertain outcomes of what might happen to your business based on the market and your historical data. Then, these are formalized into “scenarios,” which can be referred to later when making business decisions. You could, for example, build a scenario representing a broader market downturn and reduced earnings for the organization. You can then use that scenario to build forecasts or budgets reflecting a need to tighten expenses.
Identifying key business drivers
Before starting your scenario planning, you must identify your key business drivers. Key business drivers include anything that significantly impacts your business’s performance. Examples might be your website traffic, number of stores, units of production, and pricing on products sold.
Identifying these drivers and understanding how they contribute to your organization’s performance—and the broader market—is essential for building realistic scenarios.
Improve collaboration across departments
Data often stays siloed within departments, and the same is true of financial data. Come budgeting and forecasting season, individual departments might be asked to produce numbers or reports used to build budgets, and that's where their contributions end. Teams rarely have any visibility on financials elsewhere in the organization, which can cause you to miss out on opportunities to generate more income or decrease expenses—leading to potentially skewed budgets and forecasts.
Establishing a centralized budgeting process
With centralized budgeting, you no longer have to gather spreadsheets, reports, and data from multiple departments only for accounting to spend hours cross-referencing documents to ensure they're working with the latest version. Usually enabled by a fully integrated financial performance platform, like Prophix One, centralized budgeting and forecasting keeps the lines of communication open and ensures that the most up-to-date data is always used—no emails or copying and pasting required.
Why choose Prophix One™ for budgeting and planning?
Incorporate advanced analytics and AI
Many financial platforms now have AI-powered insights, allowing financial professionals to turn a mass of data into actionable, valuable information in a fraction of the time it would have taken a team of analysts.
While these AI-powered tools won't completely replace financial professionals, they can do a ton of the grunt work involved in the analysis that produces the budgets and forecasts your organization relies on.
Predictive analytics for accurate forecasting
AI won’t just give you insights on existing data, it can also be used as a predictive tool. Machine learning can churn through that data, establish patterns, and use them to predict future trends. Having AI predict financial performance by analyzing historical data and contrasting it with current trends will give your team a head start on building flexible financial plans. Often, finance platforms have AI models baked into their products.
Regularly review and adjust your budget
No matter how much time and energy you put into a budget, a single event can make it completely unrealistic. Whether it's the departure of a key team member or an upswing in the broader market that needs to be capitalized on, regularly reviewing your budgets is essential to keeping them relevant.
Tracking ongoing expenditures and comparing them to historical budgets ensures you'll spot potential issues before they come up, while forecasting the impact of business drivers on expenses can tell you whether adjustments will be needed.
Conducting monthly budget reviews
It's important to strike the right balance between reviewing enough data and moving swiftly so adjustments are made in a timely manner. Generally, you'll want to review balance sheets, income statements, and any expense reports from individual departments.
Ensure that the same monthly budget reviews are conducted across all departments. This will ensure alignment and that everyone stays focused on broader business goals.
Invest in the right budgeting and forecasting software
Lastly, it’s important that your team invest in proper budgeting and forecasting software. This can streamline budgeting, forecasting, and other finance needs. Key features you should look for when choosing a platform include:
- Automation: Administrative work can pile up and become tedious for your team to complete. Look for software that can automate simple tasks and compile data without a team member having to do it. This will save time and labor in the short term, and overhead costs in the long-term.
- Integration: Manually copying or exporting data across tools is error prone. Choose finance software that integrates with your ERP, HRIS, or spreadsheets so data flows seamlessly between applications and is exactly where you need it, when you need it.
- Ease of use: The onboarding learning curve can slow down productivity and create frustration among teams. Thorough training takes valuable time out of every department, and ironing out bumps in the road can also be difficult without proper support and resources. Pick a platform that’s easy to use and comes with a strong support team to lessen the strain of onboarding.
- Breadth of services: Budgeting and forecasting are just two of many essential finance processes for your business. Choose a financial performance platform that supports the Office of the CFO and the processes—from planning to close.
Selecting a scalable solution
It’s also critical that you choose a financial performance platform that will scale with your team. Can your current software handle your data set? Could it in 5 years from now? Are there any accounting processes you may grow into as your business grows?
These are essential things to consider as you shop around. A financial performance platform, like Prophix One, will address all of your key financial processes and scale effectively with your organization.
Conclusion: Elevate your financial planning process
It’s time to evaluate your current budgeting and forecasting processes. There are many areas of improvement that can have a significant impact on them, including enhancing data accuracy, improving collaboration, leveraging rolling forecasts, and using AI-driven insights.
Making these improvements doesn’t have to be strenuous. Implement these changes steadily, ensuring each stakeholder understands the changes to the process. Review the impact of any changes and adjust as needed so your processes improve consistently. In the long term, this will allow your team to deploy effective financial strategies more efficiently.
Choosing a finance performance platform that can support all these improvements is crucial. Your financial outcomes and overall business success will be bettered with the right tools to do the job.
Ready to get started? See what you can do with Prophix One™