Guest blog post by Steve Player, Program Director, Beyond Budgeting Round Table. Click here to register for his webinar on Mar. 19, where he will discuss five common financial budgeting mistakes, and how you can avoid them using cloud-based financial planning tools.
The discussion of how to best plan and control organizations is happening around to globe. I send this blog update from the Jutland region of Denmark where Adaptive Insights’ partner Inspari A/S is hosting a morning seminar for forty planning, budgeting, and forecasting professionals. While much of the meeting is in Danish, my keynote on “Rolling Forecasts: Best Practices and Common Mistakes” will be in English.
Since publishing our first book, Future Ready: How to Master Business Forecasting (John Wiley & Sons, 2010), my co-author Steve Morlidge and I have literally circled the globe many times sharing our message of how to move beyond time-wasting, non-value added budgeting practices and how to replace them with a series of more effective tools including relative targets, rewards based on what was actually delivered, adaptive financial planning, and continuous resource allocation and adjustment. The simple place to start is by improving the forecasting process. This is what led us to write our book.
Five years later our work is in even higher demand. Many are now forecasting but have fallen into the trap of several mistakes. Here are some of the most prevalent, and how to avoid them:
- Forecasting only to the year-end (what we call “forecasting to the wall”), which both increases shortsightedness and also distorts reality.
Companies should use a consistent rolling forecast horizon.
2. Companies confuse targets with forecasts. The target is what you want to have happen. The forecast is what you think is and will happen unless something changes. Merging the two results in “trust me forecasts,” which greatly reduces the robust planning discussions that should be occurring.
Companies should maintain clear definitions and track these separately.
3. Many are driving additional detail into their forecasts because their systems can go down to the chart of account level. This greater detail merely waste time in excessive data collection and gives organizations more and more places to be wrong. Instead, companies should plan at the key driver level.
Companies should avoid turning your FP&A team into data monkeys. Instead they should focus on the key drivers that help predict future results.
4. A high percentage of organizations still use Excel spreadsheets as their primary tool for business budgeting and forecasting. While Excel is a great personal productivity tool. It becomes dangerous to use when collaboration is required.Companies must compensate by again turning their FP&A function into data monkeys.
Companies can easily avoid this by implementing cloud based planning tools. These can be quickly and easily implemented literally anywhere in the world – and at very nominal cost.
If you want to join a complete discussion of these common mistakes and how to avoid them, please join our webinar, “Five Tips to Improve Forecasting Success”, on Wednesday, March 19th at 1pm Eastern/ 10am Pacific.