Planning, budgeting and forecasting still costly and ineffective
Organisations are currently spending up to six months a year on their main budgeting processes, which are often changed at the last minute – resulting in reduced stakeholder buy-in. However, some organisations (16%) are managing this process within one month, according to new research from Deloitte.
The level of detail demanded from planning, budgeting and forecasting activities remains consistently high, regardless of company size or industry. One of the reasons for this is that finance is still the primary owner of these critical business processes in 86% of organisations. In addition, more than 60% of respondents only look at financial outcomes rather than other corporate performance indicators.
Simon Barnes, partner in Deloitte UK’s finance transformation team and author of Deloitte’s Integrated Performance Management survey, said: “Organisations have struggled with this issue for many years as there are so many dimensions to the problem. The way to overcome these challenges is to work on all areas simultaneously by driving process change, improving ownership and using the latest technology that removes reliance on spreadsheets. This is most effective when applied to a particular part of the organisation or a specific process with a plan that covers all areas over time. This provides the quickest and most cost effective way to business benefit.
“It is clearly an unacceptable waste of time, effort and resource to spend up to six months preparing a set of numbers that few in the enterprise believe and even fewer use. Businesses need to understand these processes are a key component to how information is generated and processed, how decisions are made and how responses are formulated – all of which steer the organisation and impact future performance.”
Over a third (39%) of organisations still use spreadsheets as their main budgeting and forecasting tool; only a quarter uses rolling forecasts. Barriers to technology implementation, as with many other planning challenges, were similar across all organisation sizes. A third of the respondents also felt frustrated that plans and budgets were often changed at the top with no clear action or reasoning fed back.
Simon Kerton-Johnson, partner and UK finance leader at Deloitte, said: “Many organisations are undertaking significant finance transformation projects, but often neglect the planning, budgeting and forecasting process. The challenges of driving change in organisational behaviour, often beyond the boundaries of finance, simply places it in the ‘too difficult to do box’, to the longer term detriment of the business.
“Change not only requires processes to be reengineered. A cultural shift must take place across all executive and staff communities. It is not just about making finance processes more efficient and effective; it is about making the organisation as a whole more effective and responsive. Finance cannot afford to tackle this as merely a finance initiative. Achieving true change needs to involve executive and operational managers and decision makers from across the organisation,” Kerton-Johnson said.
In addition to culture, five areas emerged from the survey responses as challenges to achieving improved planning, budgeting and forecasting effectiveness:
Integrating planning, budgeting and forecasting – 37% of respondents admitted to a failure in aligning their planning, budgeting and forecasting effectively with corporate strategy, which creates a risk activities could be misdirected and a lack focus, alignment and cohesion could appear.
Using forecasting properly – 61% of respondents recognised the importance of forecasting as a way of compensating for the static nature of budgeting, but very few appreciate how forecasting can enhance corporate agility.
Applying process discipline – nearly a third of respondents have no formal mechanism for monitoring and managing forecast quality, while less than half of respondents are able to forecast either revenue or costs to within a 5% variance.
Clarifying decision-making responsibilities – a key differentiator between high-performing organisations* and the rest is clarity on where responsibility lies for decision-making within the organisation’s specific operating model.
Exploiting technology – collecting, aggregating and analysing data via the ubiquitous spreadsheet still constrains most businesses, making the process of dynamic forecasting and planning slow, opaque and prone to error.