This page is currently only accessible to registered members of our website. Please register here to view this content. Thank you.
The recent Financial Service Network (FSN) survey on Planning, Budgeting and Forecasting (PBF) showed two key characteristics for those organisations that produced the most insightful finance forecasts. First, was the ability to leverage non-financial data. Second, was the application of advanced analytics. We will look at how the most successful organisations expand their vision beyond the narrow financial view of the future to produce more valuable foresight in their PBF processes.
The financial component of enterprise resource planning, whether part of a full-fledged ERP system or a mom-and-pop shop running Quickbooks, has historically been the ‘home of truth’. Finance was where everyone turned for answers, since the only quantitative test of performance and sustainability was the P&L and the balance sheet. Finance largely birthed the IT function in a bid to automate the production of some of these answers. Most famously, in the production of payroll. Despite this, finance has now lagged in technology investment for some years, being overtaken by marketing, sales and operations.
With new technology at their fingertips and an increasingly scientific approach, other functions in the business have begun to answer their own questions, collecting and analysing their own data. The numbers in marketing may still be a little hazier than in finance but marketing has begun to offer insight into things that finance cannot, or has not. Market trends and consumer behaviour tell leaders not just about what is but what might be. This forward-looking insight has often contrasted with finance’s view of the future.
Finance’s view of tomorrow has, by contrast, been rather singular in its source – the past. Predictions of tomorrow have been based on the evidence of the most recent year, with management’s desire for growth most often being the biggest factor steering the positivity, or otherwise, the forecast for the year ahead. Only negative macro factors have dissuaded forecasters from positivity about the bottom line and all the pressure that brings to bear on sales for revenue growth and operations for ever greater efficiency.
The figures from FSN’s report might suggest this had changed. 72% of finance leaders say their forecasting processes are now inclusive, drawing on sources from across the company but dig further into the figures and this starts to feel more like an aspiration than a reality.
78% of the senior finance executives surveyed agreed that greater use of non-financial data is the best way to improve their PBF process and outcomes. 76% recognised the importance of connecting with more stakeholders from outside of the finance function to improve the accuracy of forecasts. The need to connect with other functions and share data is clearly acknowledged.
But 74% say they are struggling to identify all relevant non-financial data sources. Why? Over 55% of respondents say that the lack of involvement of non-finance personnel is amongst the greatest barriers to forecast accuracy.
The obvious conclusion is that the connections between finance and the rest of the organisation just aren’t there.
The lack of cross-cutting relationships through the business is not the only issue blocking the better application of non-financial data for improved forecasts. A quarter of respondents say their senior managers do not appreciate the value of non-financial data. And surprisingly, 23% delegate non-financial data tasks to more junior staff despite 43% of respondents ranking it in their top 3 sources of ‘most insightful data’.
Insightful it may be but there remain concerns about the quality of non-financial data when compared to the sources with which finance professionals are more familiar. 41% of CFOs are concerned about its integrity and believe it is less reliable than financial sources. This may well be true but these issues can be addressed, with appropriate weighting and analysis. The potential value of the data is clear, to ignore it would be nonsensical.
So, how do finance leaders address these issues in order to improve insight into their planning, budgeting and forecasting?
Relationships across the business rely on reciprocation and communication, not just shared goals. Finance has to be able to bring value to the other functions of the business if it is going to extract value back.
That value comes from the insight finance can bring. Most functions in the business are seeking better analysis of their situation and environment, and finance should have the skills to deliver that.
That comes with a time penalty of course but increasing automation of the base functions of finance should be releasing resources. This is a great way to apply the released resources to improve results.
Relationships will be hard to build without the soft skills of communication, and this is another area where finance has historically fallen down. In our interactions with younger members of finance teams, we consistently find a lack of training on offer in anything beyond technical skills. This frustrates the ambitious and leads them to move on. Training then offers a two-fold benefit to the business: better collaboration and a greater chance of retention.
This isn’t to say technical skills aren’t important. Finance leaders need to be constantly up-skilling their teams in planning and analysis, and equipping them with the right tools to apply their learning. Then, they can efficiently integrate non-financial data into their models, improving forecasts and returning value to the other business functions.
As FSN says in its own report, “Mastering non-financial data is the key to being able to forecast accurately and further into the future.” The only way to do this is to enhance the relationships that finance holds across the organisation, by investing in the skills of its people.
For more information on ERP and the future of financial systems, read the FSN report on the topic – HERE
Prophix develops innovative software that automates critical financial processes such as budgeting, planning, consolidation and reporting — improving a company’s profitability and minimising its risks. Thousands of forward-looking organisations in more than 90 countries use software from Prophix to gain increased visibility and insight into their business performance.
Encompass Solutions is a business and software consulting firm that specializes in ERP systems, EDI, and Managed Services support for Manufacturers and Distributors. Serving small and medium-sized businesses since 2001, Encompass modernizes operations and automates processes for hundreds of customers across the globe. Whether undertaking full-scale implementation, integration, and renovation of existing systems, Encompass provides a specialized approach to every client’s needs. By identifying customer requirements and addressing them with the right solutions, we ensure our clients are equipped to match the pace of Industry.
Budgeting is the lifeblood of any company and there are instances whereby the time the budget is complete, it’s already stale. Spreadsheets may be the go-to choice for budgeting and planning, but they quickly become error-prone, insecure, disconnected, time-consuming, and are non-collaborative. Many companies treat cash as an afterthought, neglecting to forecast the Balance Sheet because it’s simply too difficult. Instead, they rely on spreadsheets to organize data from a General Ledger.
Corporate Performance Management (or CPM) is an umbrella term for software applications that automate your business’s non-transactional processes – specifically picking up where your ERP system leaves off. We’re partnering with the CPM experts at Prophix to deliver a live webinar on Innovative Budgeting and Planning practices.
In this webinar, we discuss how to automate your financial processes to focus on analyzing trends in your data, promote collaboration and develop integrated financial planning across the organization.
After this webinar you will know how to:
Encompass Solutions, Inc. is an ERP consulting firm and Epicor Gold Partner that offers professional services in business consulting, project management, and software implementation. Whether undertaking full-scale implementation, integration, and renovation of existing systems or addressing the emerging challenges in corporate and operational growth, Encompass provides a specialized approach to every client’s needs. As experts in identifying customer requirements and addressing them with the right solutions, we ensure our clients are equipped to match the pace of Industry.
When it comes to gauging corporate performance, the less time spent on non-revenue generating processes, the better. Unfortunately, the budgeting process is essential to proper performance and forecasting. That means mistakes can’t be afforded. Not only do you want to reduce the time and errors associated with manual budgeting in spreadsheets, but building an efficient process around your budgeting activities is of critical importance. Get rid of rigorous workflow processes and meet the growing needs for data security, data accuracy, cross-functional integration of data, and remain nimble in the face of rapid change with these strategies. Budgeting Process Improvement can be achieved with ease, simply follow the steps outlined below.
While budgeting is primarily a financial process, it affects just about every department of a business. defining the process ensures that it is managed efficiently, frees up time, and provides financial professionals the ability to conduct meaningful analyses, improve forecasting, and respond quickly to changing needs. only after the budgeting process is defined can you begin with budgeting process improvement.
Understand the infrastructure that supports your process. Employees, financial and project management skills, processes, and technology are what makes your process run efficiently and ensures the steps required for execution are adhered to across the board.
A budget is a detailed account of your ability to conduct business processes based on available resources. An effective budget will provide enough detail to make sound decisions in both short-term and long-term scenarios. Defining the parameters of your budget will enable informed business decisions related to spending.
Key Performance Indicators (KPIs) will help you stay focused on the goals you have set for your company. Be sure to set these KPIs at the onset of your budgeting, the resulting budget, and related processes to determine the financial health of your organization as it relates to revenue growth, earnings growth, debt reduction, and EBITDA margin.
Siloed systems and departments are characteristic of poorly organized businesses. By enabling and actively encouraging collaboration among your staff, budget-related issues can be addressed and resolved much more quickly, while new standards for your organization can be detailed, understood, adopted, and monitored more effectively.
The only constant is change, so plan accordingly. Businesses that are already in or want to be in a position of industry leadership need their budgeting and planning processes to be in line with this philosophy. Planning scenarios, maintaining an understanding of the latest trends, and implementing best practices all contribute to an organization’s overall financial health as a byproduct of budgeting process improvement.
Adopting software solutions designed to increase the efficiency, accuracy, and consistency of budgeting processes yields measurable time savings for finance professionals. Industry analysts Aberdeen Group recently identified how Best-in-Class organizations use software automation solutions to increase the efficiency of budgeting and achieve tangible benefits. Corporate Performance Management (CPM) software is designed to help such organizations automate budgeting and planning processes.
Interested in learning more about what you can do to reduce the time committed to your company budgeting efforts? Want more insights and concrete data regarding your performance in the marketplace? Download the free whitepaper for these details, action items, and more. Otherwise, you can reach out to us directly using the link below for more information or a demonstration of how Corporate Performance Management (CPM) Software can improve operations for your organziation.
Prophix develops innovative software that automates critical financial processes such as budgeting, planning, consolidation, and reporting—improving a company’s profitability and minimizing its risks. Thousands of forward-looking organizations in more than 90 countries use software from Prophix to gain increased visibility and insight into their business performance.
Encompass Solutions, Inc. is an ERP consulting firm, NetSuite Solution Provider and Epicor Platinum Partner that offers professional services in business consulting, project management, and software implementation. Whether undertaking full-scale implementation, integration, and renovation of existing systems or addressing the emerging challenges in corporate and operational growth, Encompass provides a specialized approach to every client’s needs. As experts in identifying customer requirements and addressing them with the right solutions, we ensure our clients are equipped to match the pace of Industry.