Automate, streamline and enhance budgeting and forecasting processes

Budgeting and forecasting are major tasks for the ‘office of finance’ in any organisation.

April 14, 2014

By Greg Bogiages, Director at Cortell Corporate Performance Management

Budgeting and forecasting are major tasks for the ‘office of finance’ in any organisation and the collection and collation of financial data can take months of preparation. However, in today’s fast-paced world, these time-consuming manual processes can prove to be a major hindrance. More than often, by the time budgets have been set, market influences have changed, making months of work and effort outdated and inaccurate, even potentially obsolete. Automating processes through the use of technology significantly reduces the risk of human error, and enhances the ability to budget ‘on the fly’ for ‘what if’ scenario planning that adapts to the pace of the current business environment. These tools are also instrumental in reducing time spent with the budgeting process.

Aside from these advantages, budgeting and forecasting technology can also provide a host of other benefits to organisations. However, while these tools can go a long way towards solving budgeting and forecasting challenges, organisations need to be careful not to fall into the trap of over-complicating their budgeting just because the technology allows for it. Effective budgeting and forecasting is about streamlining and creating efficient processes. While technology can aid in this, it can also generate unnecessary complexity that adds no value.

Budgeting and forecasting can prove to be incredibly onerous, involving the collection and manipulation of data from multiple sources by multiple departments within the organisation, often into a single spreadsheet, which can only be accessed by one person at a time. Not only does this take months to execute, but the more manual processes involved, the greater the risk of human error, ultimately affecting the accuracy of outcomes. Considering that organisations base many of their important decisions on the budget, accuracy is a key factor.

Using advanced budgeting and forecasting technology, organisations can reduce the time it takes to compile budgets by automating and streamlining many of the processes involved. For example, collaboration enables many people to work on their areas of the budget simultaneously, while creating a full audit trail. This can also be linked to a workflow system, which ensures that the hierarchy of approval is followed. Furthermore, it enables deadlines to be closely monitored and bottlenecks to be addressed, creating greater responsibility and accountability. Removing manual elements such as spreadsheets, will help to reduce the risk of error, delivering a ‘single version of the truth’ that enhances the accuracy of budgets and forecasts. These tools can also significantly shorten the budgeting cycle and provide the ability to create rolling forecasts that can be reviewed more regularly, allowing organisations to factor in dynamic influences such as fluctuating exchange rates and changing market factors.

Ultimately, technology can deliver the ability to create easily prepared, auditable, accurate and flexible budgets and forecasts in a fraction of the time it takes to do this manually. However, all of the power that budgeting and forecasting technology provides also creates the potential for additional challenges. While using manual spreadsheet-based processes, organisations are often limited as to the amount of detail they can provide on the budget, or the level of granularity. When advanced technology is implemented, this barrier is removed – budgets can become incredibly detailed, down to line items and individual pieces of equipment. However, adding extra details does not necessarily add extra value. Organisations may fall into the trap of having budgets that are accurate down to granular detail, but which lead to incorrect decision-making as there is too much detail focused on the wrong areas.

For example, budgeting for salaries is usually done per organisational level or category, which is reasonably accurate. New technology, however, gives you the ability to budget at an individual salary level. It also provides the functionality to list fixed assets per individual item. In an organisation with 10 000 employees or 10 000 pieces of equipment, 10 000 budget line items are generated, which is unnecessary for accurate budgeting and adds complexity and detail, delivering no value. This complicates the budget, increasing the time it takes to compile for no valuable reason, since the same level of accuracy can be obtained from less granular detail.

Another example may be Key Performance Indicators (KPIs). Through the use of advanced technology it is possible to budget according to hundreds of KPIs. This means that organisations can lose sight of the actual business drivers – not everything carries the same level of importance. Adding hundreds or thousands of KPIs adds layers of complexity, but no additional value, nor does it increase accuracy, since the result is a lack of focus, which can cause errors to creep into the decision-making process.

Budgeting and forecasting technology can prove to be hugely beneficial to organisations looking to create agility that leads to competitive edge. However, when implementing these tools it is critical to define the level of detail needed for accurate budgeting without over-complicating the process. All budgeting items and levels of detail need to add value, otherwise they only add complexity, which in turn adds time to the budgeting cycle and erodes the benefit of using advanced technology.