Budgeting & Forecasting

As the modern finance function continues to evolve, teams are relying on BPM solutions for better budgeting, forecasting and reporting. A new survey reveals that finance teams are most interested in budgeting and forecasting functions from their business performance management (BPM) software solutions. They’re using these tools to improve key reporting processes and support strategic, finance-led business planning. The Pulse of Performance Management survey—which is released annually by advisory firm BPM Partners—provides an unbiased examination of the trends and technologies that are shaping the BPM software market. This year’s survey focused on finance’s evolution into an agile, forward-thinking planning function. It also explored the value of BPM solutions when it comes to adapting to changing business conditions. When asked to identify the BPM components they’re most interested in, 76% of survey respondents said “budgeting and forecasting.” “Financial reporting” and “financial modeling” were second and third on the list at 68% and 48%, respectively. Furthermore, when asked to point out the primary drivers behind their BPM software projects, “improving management reporting” topped the ranking at 66%. The next two responses in that category were “more frequent, agile planning” (45%) and “better decision making” (40%). Respondents were also asked to identify which aspects of finance transformation are most important to their teams. The top three responses were “operational reporting” (63%), “increased planning frequency” (57%) and “predictive forecasting” (51%). In today’s ever-changing business environment, it’s easy to see why finance teams are turning to BPM software solutions to support budgeting, forecasting and reporting. Modern BPM tools allow finance teams to consolidate company-wide data for real-time planning and analysis—ultimately empowering key stakeholders with the information they need to make agile, data-driven business decisions. Source system integrations and process automation eliminate the manual tasks associated with budgeting and forecasting, such as data entry, template generation and variance reporting. With more time for meaningful analysis, finance teams can shift from static annual budgets to a more continuous reforecasting and planning cadence. This is critical, because if teams are still relying on static budgets to plan through the year, their numbers will be obsolete as soon as business conditions change—making it tough to plan for the future with any degree of confidence.  That’s why budgeting and forecasting features are so important in the BPM software market right now. Vena Solutions, for example, supports streamlined budget orchestration, real-time forecasting and agile, finance-led business planning. Vena won a BPM Pulse Award this year for its superior budgeting and planning performance, earning an overall satisfaction rating of 4.62 out of five. The software is also known for its ease of use, scalability and quick time to value for customers. With the right budgeting and forecasting tools, finance teams can report on key insights faster and always ensure their business plans are based on reliable, up-to-date data. And as more finance teams evolve into strategic, forward-thinking business partners, that kind of insight will be crucial when it comes to planning for today and tomorrow. Discover how Vena can streamline your budgeting process and enable accurate, real-time forecasting so you can plan confidently across every function of your business. Check out BPM Partners’ 2020 Pulse of Performance Management webinar on demand here.

It’s not just a matter of choosing the right technology. Financial leaders also need to think about aligning resources with corporate objectives.  Which comes first: the budgeting software or the budget plan? This may seem like a fairly obvious chicken-and-egg question, but some of the brightest minds in finance technology will tell you it needs to be answered in a highly sophisticated way. No, most companies will not go out and buy tools to improve budgeting before ensuring they know where they want to take their business over the next year. How they approach that journey, however, may be trickier than it sounds. “…Weaving strategy and budgeting together is the hard but necessary work that defines the CFO role today.”  On TechTarget, for example, a consultant who specializes in working with corporate performance management (CPM) applications says a good budget doesn’t just inform the organization’s overall strategy. Instead, the budget is created with a plan in mind, and developing it requires considerable preparation: “Some companies buy budgeting software to improve the efficiency and effectiveness of their budgeting cycles,” he writes. “While this approach can be useful operationally, it shouldn’t come at the expense of giving adequate attention to the formal planning that is essential in having an effective budgeting strategy.” The planning process outlined in the post includes breaking down budgets into areas aimed at operational efficiency, projects, capital expenditures and overall growth. Some of these areas have specific time frames that need to be kept in mind as well. “A strong methodology will help with consensus building, midcourse corrections and the ability to extend the budget each quarter, once actuals come in,” he adds. Accountants will tell you the same thing. In fact, an executive from Grant Thornton recently wrote a post for FEI Daily that argues that weaving strategy and budgeting together is the hard but necessary work that defines the CFO role today: If strategic planning is a top priority, the finance function needs to invest in its people and in the technology necessary to support business processes, such as budgeting, forecasting, and long-term planning. This planning effort is not only related to financial data, but also to the operational information that drives the business. It starts with defining key business metrics and then tying these metrics to how they affect or drive bottom-line performance. Assuming you’re done the planning and budgeted based on the strategy, technology like cloud-based CPM can streamline everything. Which means that instead of something that seemed like a chore, the budgeting process becomes the catalyst for everything important that the company accomplishes afterward. The post Why CFOs Need To Bring Planning, Strategy and Budgeting Together appeared first on Blog | Vena Voice | Vena Solutions.

It’s not easy for anyone to do more with less, but in the case of the CFO’s team, there’s little doubt their impact is only going to grow. There are some who mistakenly believe working in the finance department is an ongoing exercise of figuring out where to chop next. Those people might be surprised to realize that even those on the CFO’s team aren’t immune from the axe. In fact, according to a study from consulting firm The Hackett Group that was covered by The Wall Street Journal, automation and other forces are leading to direct reduction in the capital allocated to finance departments to do their work. “Companies are continuing to do more with less,” said Jim O’Connor, a principal at consulting firm Hackett Group. Corporations plan to shave finance department budgets by an average 3.8% this year, after trimming them by 4% last year, according to a survey of executives from more than 180 large companies. The cuts would come despite projected revenue growth of 4.1% on average in 2017, Hackett said.” No one likes to see their budget cut, and certainly, no one wants to lose their job, but leading a finance department in 2017 is becoming a matter of identifying the best ways to manage people through the transition to more efficient processes. Finance departments feeling the pinch will still need to be a part of the overall budgeting process and may be in the best position to help other departments figure out how to think through their own needs. A blog post on Forbes, for example, warned against incremental thinking and failing to engage a wide range of participants to make sure the budget is not only realistic but growth-oriented. He used market share as a case in point. “For most businesses, the market share in terms of sales may be possibly 0.5 percent or 1 percent of the overall market. Thinking of ways to increase market share to say 1.5 percent – 2 percent will create a roadmap to increase business by five or six times,” he wrote. “Too many entrepreneurs and even CFOs are guilty of simply looking only at the financial statements as a part of the planning process.  Budgeting is a business exercise, not a financial ritual.” As finance departments see some of their own cutbacks, treating the budget as a ritual will no longer be an option. Instead, it will become something that rallies different parts of the organization together for a common, critical purpose. The post The Bright Side of All Those Finance Department Budget Cuts appeared first on Blog | Vena Voice | Vena Solutions.

Strategic thinking has never been more important for financial executives, and experts say will involve not only technology but ever-fallible human beings. When you “do a 180,” as the idiom goes, you’ve taken a sudden but necessary change in direction — physically, philosophically or otherwise. That’s because the 180 refers to degrees. But what if 180 was the new number of days it took to develop a real sense of direction for chief financial officers? This is the approach suggested by consulting firm Deloitte, which recently participated in a special event for finance professionals based in Johannesburg, South Africa. It included discussion about the firm’s CFO Transition Labs program, which is designed for those taking on a new position as head of a company’s finance department. A story on The Independent Online explained how it works: “As part of the labs, the CFOs are expected to define and communicate their priorities, assess and develop a talent strategy, understand and influence key stakeholders and develop an action plan for their first 180 days . . . In the 180 days, the CFO is expected to assess the team and talent. Failure to allocate responsibilities could result in the CFO being bogged down by operational matters. CFOs need solid finance teams to free them from operator and steward roles.” Traditionally, of course, new leaders are asked to develop a plan for their first 100 days, but those extra 80 days for CFOs may be necessary because of the soft skills and cultural changes that need to be considered as part of the finance department’s evolution. Fault-Tolerance At its own recent CFO conference at Harvard University, for example, Accenture Strategy noted that many attendees were struggling with digitizing processes while also managing risk. An Accenture Strategy executive wrote a post suggesting that such shifts require some patience and fault-tolerance: “Finance has traditionally lived in fear of errors, and rightly so. Balance sheets matter. But, when driving value and finding new ways of doing business, failures matter because they indicate movement and growth,” the post says. “It no longer makes sense to spend six months developing business processes around a product that may have a shelf life of one year before the next iteration is developed. Be fast and flexible and allow for failures. They mean your team is innovating.” In other words, you don’t have to wait to start a new job to develop a 180-day plan to reimagine the finance department. Just make sure you consider the human beings at the heart of what will change along with the technology, and make enough time to account for the mistakes that will happen along the way. Then you’ll be able to move forward with confidence – without having to suddenly do a 180. The post Why CFOs Should Budget 180 Days for Meaningful Change appeared first on Blog | Vena Voice | Vena Solutions.

Technology is opening a lot of doors for finance professionals, but the question is how many other parts of the business are trying to walk through them, too. In an ideal world, the budget should represent a moment of truth. Too often it feels more like a leap of faith. When companies treat budgeting as little more than a guesstimate, it provides few mechanisms for senior leaders to meet business challenges. Just ask Kevin Held. The CFO for TradingScreen, which provides products to help hedge funds and other financial institutions, recently wrote an article for CIOReview called “Demystifying Budgeting and Forecasting Solutions,” that reflected both on how challenging it can be but also how advancements in business intelligence (BI) and related technology are greatly increasing what it’s possible to do. “One of the biggest gains we have seen from these systems is the ability to be able to change models and financial forecasts on the fly. Creating ‘what if’ scenarios and multiple budgets and forecasts can be done in a matter of minutes,” he writes. “As financial executives, we’re expected to be able to use information and make decisions from a strategic point of view. This functionality can be invaluable in modeling out new business lines or products and making those ROI determinations.” It’s great to hear first-hand from a CFO about what technology can do, but the larger question may be how involved they can be in the analysis. CloudTech recently reported on a survey of large enterprises about who owns analytics and BI and the results were eyebrow-raising: 23% of those polled said the CIO was responsible for analytics, compared to 17% who cite the CFO. In contrast, only 4% of respondents said they have a chief data scientist in charge, compared to 9% for a chief data officer and 13% a chief analytics officer. With this in mind, there is also a distinct lack of consensus on the models that organizations adopt. The majority (44%) of respondents said they use a centralized model, whereby a central group oversees analytics development for the entire company, while 22% said they opt for an approach where individual business units govern themselves. 16% adopt a federated approach, which blends the two. This should prompt some interesting discussions, both within finance and far outside it, about how things like budgeting should evolve as a practice. As the survey suggests, there may be no one-size-fits-all approach to analyzing information. On the other hand, Held shows that more finance professionals are getting their hands dirty with tools that give them the ability to move quickly as data and circumstances change. Ultimately things like a budget may require collaboration between finance, IT, and many other stakeholders, but the end result should be information in which everyone can believe. The post Whose Budget Is It Anyway? Technology Has the Answer appeared first on Blog | Vena Voice | Vena Solutions.

In the words of management guru Peter Drucker, “the greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”  For a textbook example of acting with yesterday’s logic in Finance, you need look no further than the persistent, almost addictive reliance among most companies on the static, annual budget. This continues today in spite of almost 30 years of financial innovators and prominent business leaders – former GE CEO Jack Welch and Drucker among them – criticizing the budget in favor of driver-based rolling forecasts. As Gregory Milano and John Cryan of Fortuna Advisors put it in a recent article, The Annual Budget May Be Past Its Useful Life: “The annual budget may be past its useful life. If most companies stepped back and assessed whether they’re really earning an adequate ROI from their budgeting processes…many companies would curtail their current practices.” There’s certainly no shortage of logical arguments and expert advice urging companies to make the move to rolling forecasts. So why are companies still hesitant? Human Nature Gets in the Way Today’s CFOs often find themselves “ill-equipped to go beyond the numbers and effectively drive organization-wide change,” in large part because they’re met with huge resistance, Deloitte found in their 2010 CFO Signals survey. Resistance to change is a hallmark of human nature and it’s no different when it comes to rolling forecasts. “It’s hard to break a dangerous habit,” says Steve Player, program director for the Beyond Budgeting Round Table. As a consequence, many just decide to stick with outdated annual budgets, even though PwC found that 28% of finance executives consider them obsolete before the fiscal year even starts. That human tendency to revert to the familiar also presents itself in the gap between what finance leaders and management see as the value Finance brings to the overall organization. “The widening gap between what accountants report and what decision-makers need involves a shift from reporting descriptive historical information to analyzing predictive information, such as budgets and what-if scenarios,” explains Gary Cokins, founder of Analytics-Based Performance Management. Pointing Human Nature in the Right Direction Drucker once observed that it takes roughly 35 years for an innovation to gain widespread adoption, but Cokins goes a step further: “attitudes will change as a more analytical generation of managers replaces the existing one, and as accountants begin to think more like engineers.” In other words, it’s only a matter of time before rolling forecasts become universal. That said, there are steps any company can take to nudge the process in the right direction. Player suggests that Finance needs to make it clear to management how moving to a rolling forecast doesn’t have to be onerous, time-consuming or disruptive. Instead, taking it step by step, for example, by using rolling forecasts for specific departments before a company-wide adoption would show immediate value to the organization and paint a real picture of how smooth the adoption can be. Whether you’re talking rolling forecasts or cloud computing, when human nature catches up with expert opinion and best practices, Finance will finally be able to do away with yesterday’s logic and bring maximum value to the entire organization.

Despite decades of evidence pointing to greater financial capabilities, business insights and even profitability associated with using rolling forecasts – most companies still rely on the increasingly outdated and static annual budget. Let’s take a look at some of the common obstacles and myths getting in the way.  For the past 30 years, finance experts, executives, and academics have all agreed on one thing: the annual static budget is outdated, time-consuming and even political at times. The most progressive finance and business leaders have become early adopters of rolling forecasts to take advantage of driver-based, agile and smarter business planning. Yet today, we still find companies have not adopted rolling forecasts on anything resembling a widespread scale. In a previous article – 5 Reasons the Annual Budget is Losing to Rolling Forecasts – we examined the most concrete and results-oriented reasons why top-performing companies have already made the move; but it’s just as important to analyze why others haven’t.   For starters, let’s look first at the top 3 myths perceived to be the most significant barriers to the adoption and implementation of rolling forecasts: 1) Myth: The benefits don’t add up – Logical arguments abound for adopting rolling forecasts, from increased capabilities and insights, to direct impacts on companies’ bottom lines. Aberdeen Group has found that companies with rolling forecasts, compared to those without, report: a 43% greater revenue growth over a 24-month period; a 46% greater increase in share price over the same period ; being 2.4 times more likely even to be able to measure the accuracy of their forecasts. Like cigarette advertisements, if logic won the day, this point would be moot. Such arguments may be factually valid, but they are missing the critical drivers of decision making: emotions and human nature. 2) Myth: We’re limited by the right technology – Rolling forecasts first came on the radar screen of financial executives roughly 30 years ago, when the Internet, advanced financial software and even Windows were still years away. Today, however, cloud delivery, powerful analytics and seamless integration with source systems are table stakes for any enterprise financial planning and analysis tool. In short, technology today isn’t even remotely a limiting factor. 3) Myth: There’s too big a cultural gap between finance and management – The gap between what finance leaders and management expect from the finance department has been a reality for decades and – in all likelihood – will continue for years to come. Consider how IT has evolved in “Internet time” on the one hand since the early 1990’s, but on the other hand still struggles with management to play a more strategic role in the business than glorified technical support. Such gaps are a fact of life in business, not a barrier to adopting a best practice. Although we should be able to put these myths to rest by now, it is doubtful we’ll stop hearing about them in the immediate future. Progressive finance leaders would be smart to but these myths behind them and focus on the real barriers to rolling forecast adoption. To this end, no article about barriers to rolling forecast adoption would be complete without touching on the much more relevant factor of human nature. Resistance to change and taking the path of least resistance are hallmarks of human behavior, and the annual budget is a textbook case study in these phenomena. “It’s really hard to break a dangerous habit,” says Steve Player, founder of The Player Group and the Beyond Budgeting Round Table, referring to financial professionals’ almost addictive reliance on and familiarity with the annual budget. Such resistance to change is perhaps best illustrated by the fact that 28% of finance leaders consider their budget obsolete before the fiscal year even starts, according to research from PwC. Yet most companies still rely on it out of familiarity, resistance to change, and an often preconceived notion about the annual budget that, “if it ain’t broke don’t fix it.” Human nature is a reality of life but – unlike the myths discussed above – there are things financial and business leaders can do to influence and nudge human nature in in the right direction.

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” – Charles Darwin For the last couple of decades, financial experts and executives around the world have pointed to the same fact: the annual budget is well past its useful life, and companies who incorporate a rolling forecast, experience markedly increased revenue and profitability, smarter and faster decision making, and greater shareholder value. As Gregory V. Milano and John R. Cryan of Fortuna Advisors said in a recent article: “The annual budget may be past its useful life. If most companies stepped back and assessed whether they’re really earning an adequate ROI from their budgeting processes through superior decision-making and optimal resource allocation, we believe, many companies would curtail their current practices.” Yet despite decades of evidence pointing to a greater return on investment when implementing rolling forecasts, some companies are still using the outdated tool of the annual budget. Historically, new and innovative ideas, no matter how efficient, always encountered obstacles and skepticism, even when old practices don’t produce desired results. Whether a company’s hesitance to adopt a rolling forecast is due to misinformation or fear of innovation is a subject for another day. In the meantime, if you’re still on the fence, these are the top five reasons the annual budget is losing to the undoubtedly better rolling forecast: 1) Time and Resources The traditional annual budget process takes too long, with companies using up far too many resources to finalize it. Some companies start in May and are barely done by December–on top of that, by the time the fiscal year begins, many budgets are already obsolete. Since the annual budget is static in nature, it doesn’t account for any fluctuation in business conditions, rendering it obsolete if any metrics change. On the other hand, with rolling forecasts the process is ongoing and updated throughout the year. Instead of leaving the incredibly arduous and costly budgeting effort for a determinate time of the year, rolling forecasts are constantly changed and updated, every month or every quarter, allowing the financial department to access actionable and up-to-date information throughout the year. 2) Accuracy The annual budget is, in simple terms, a guess (albeit highly educated guess). And when it’s finally published, it’s usually inaccurate, since it doesn’t account for market volatility or internal changes in the company that can’t easily be predicted. According to Steve Player, a budgeting and planning expert and the North American program director at Beyond Budgeting Roundtable, 20 percent of companies can’t rely on the budget on the first day of the fiscal year and two-thirds of companies see their budgets as completely worthless six months into the year because the numbers are simply not accurate. On the other hand, with rolling forecasts companies are able to mitigate the risk of outdated data and scenarios. In fact, according to Aberdeen Group, 71% of top performing organizations eliminated the risk of inaccuracy by continuously updating (rolling) the forecasts “to reflect current business conditions”. With business rules, workflow and regular variance analysis that build continuous data improvement into the process, organizations with rolling forecasts are twice as likely to be able to even measure their accuracy of forecasts. 3) Agility Businesses today need to be nimble and be able to react to changes in the market with speed and confidence. Traditionally, companies have attempted to do this using the annual budget but as we’ve mentioned above, the process is all too time-consuming and static, leaving companies stuck in the past and unable to make timely decisions. With rolling forecasts, companies are twice as likely to have real-time updates to financial metrics and more than twice as likely to allow business users to create their own reports without relying on IT.  This provides businesses with the much-needed agility to adapt to current market changes on the go. The rolling forecast takes into account that the modern role of the financial leader is less of a number-cruncher and more of a strategic business partner; instead of looking back, the rolling forecast is constantly looking forward, flexible enough to adapt to present circumstances and provide a continuous planning process that produces better results in the future. 4) Outlook When using annual budgets, besides all the issues mentioned above, you are (by definition) forecasting only for the next fiscal year and nothing beyond that point. If anyone in your team wishes to plan for anything beyond whatever remaining months you have in the budget, they have to wait till the next annual budget is finalized and at this point, it might be all too late. Rolling forecasts, instead, keep moving and updating as months go by, so you always have access to a clear, up-to-date picture of what’s coming ahead. The rolling forecast is a continuous, organic planning document that adapts to your business needs. According to Aberdeen Group, with rolling forecasts companies are 4.5 times as likely to perform “what if” scenarios, allowing them to plan for factors outside of their control, and resulting in a smarter outlook into the future. 5) Concrete Results What’s most impressive about the rolling forecast is that the process translates into concrete results in terms of revenue, profits, share price and even credit rating. Companies with rolling forecasts report 43% more revenue growth over a 24-month period; those with reliable forecasts also saw share prices increase by 46% in a three-year period; lastly, investors today demand more frequent and accurate projections and unreliable processes impact share prices with inaccuracies and outdated information–companies with reliable processes saw overall share prices rise 33% more than those without. With so many tangible proof points for moving to rolling forecasts, and countless success stories from again for the past three decades, why are some companies are still hesitant and stuck in the past?