Accurate forecasting can’t happen in a bubble. Department heads beyond finance, however, are typically hesitant to participate in forecasting and planning activities.
This becomes more pronounced as you move away from the top of the company: While the vast majority of CFOs believe their teams successfully communicate with each other and the C-suite, according to our CFO Indicator Q4 2015 report, less than half think they’re doing a similarly good job with their peers in the marketing department—with whom they may have had long-standing confusion or conflict over financial resources.
But in an increasingly complex environment, every department, regardless of whether they’ve been traditional allies, needs to work in concert to create accurate plans. While the finance team must lead the forecasting process, it’s critical to give operational managers ownership and responsibility for important forecast elements.
Some 70% of recently surveyed CFOs say collaboration with other business units is a top priority, and nearly half cite the inability to align with other departments on key metrics as a significant problem.
Here are four steps to help you zero in on a teamwork-based approach:
1. Democratize the data
When business unit leaders have a deeper understanding of the budget and forecast, they’re more invested and engaged in the process. That means they’re better able to understand that moving one lever will affect all of the related line items. In order to increase colleagues’ engagement, finance leaders need to determine what data is meaningful to employees outside of the finance pod. What metrics drive growth in various business units? Include those metrics— and not just internal financials—in your forecasts, and put that actionable data in the hands of your users. In order to do this, Accenture’s Brian McCarthy recommends using data visualization technology. If, for instance, an insurance company allows its field agents to view insights on their phones, he says, they can better prioritize which small-business customers to approach regarding insurance coverage changes.
2. Make it real time
If forecasting is an annual process, it’s natural for department heads to pay attention to it … just once a year. The more real-time you can make the forecast, the more relevant and less onerous it will appear to other departments. Frequent forecasts alert colleagues to differences from expectations early, before they snowball into a big problem. And if the finance team requires its operational partners to update their forecasting inputs regularly, everyone will pay more attention. Your sales manager may, for example, notice that sales were down last month because two salespeople left. Rather than waiting until the end of the annual cycle, when that underperformance has likely gotten worse, the sales and finance teams together can note the dip, adjust expectations accordingly—and work with human resources to ensure hiring and training is prioritized.
3. Fine-tune the KPIs
Ask department heads to look at too many metrics, and you risk diluting their efforts. Yet flattening the forecast into just one number is equally risky—many senior executives use a one-figure forecast while noting associated upside and downside risks. The middle ground can avoid both pitfalls: Identify a manageable number of relevant, essential metrics that collaborators should understand to have an impact on the company’s growth and bottom line. How many is too many, or not enough? A PwC CFO survey found the sweet spot is to measure somewhere between 10 and 20 drivers. A proper mix of KPIs reflects both strategic and operational figures.
4. Tie it to performance
Finance can’t tie performance reviews to budget and forecast accuracy, of course. Starting this conversation, however, drives home the idea that budget owners will be held accountable for meeting their numbers and that all parts of the business need to collaborate to ensure the best possible performance.
Check out Adaptive Insights’ webinar, Forecasts That Don’t Disappoint, for more concrete tips.