Newsflash: In many organizations, variance reviews become a meaningless drill and here's why. Firstly, variances are explained by inherent uncertainty in the marketplace. Secondly, the level of detail may be inconsistent between finance and line managers. Thirdly, it’s a bunch of disconnected numbers.
Same old same old: Variance analysis becomes a “groundhog day” exercise where the same old dialog occurs. Finance listens to explanations about why some numbers are not what they were "supposed to be". This is usually a waste of time since variances are explained by inherent uncertainty in the marketplace. "Things have changed" is probably true regarding most variances, but it's not particularly insightful variance analysis.
Level of detail may be inconsistent between finance and line managers: Even though companies try, forecasting does not generally involve cost center managers at the account level. In short, there is no easy way to incorporate the variance impacts on the year in forecasts even when they are understood.
It’s a bunch of disconnected numbers: Budget and actual data are divorced from underlying operational drivers. Therefore, there is no ready information for segregating unit volume and rate variances. With most financial reporting still done in spreadsheets or in the general ledger system, the contribution to Business Value on the maturity curve is marginal.
Best Practices for Better Budgeting & Forecasting: Make Reporting Useful!
In a recent survey, 88% of finance professionals admitted reliance on spreadsheets for budgeting processes.
That said, whether you try to set up macros in spreadsheets or leverage a reporting software package, taking a best practice approach to financial reporting can save tons of time. Most importantly, putting in a best-practice reporting process represents a major opportunity for the finance to educate the business and operations teams leading to a positive impact on the bottom line.
We at Alight want to offer tips for making reports a value-add process that leads to insights, improved decision making, and better forecasting. So, please do read the three best practices below:
#1 Make Reports Interactive: Rather than showing static reports that look nice but cannot be changed, finance should explore enhancing collaboration by enabling interactive (or dynamic) reports. Interactive reports should be set up that empower your team to modify key assumptions and see the impact on model outputs right on a single interactive screen. Having a real-time on-the-fly dashboard report will educate your organization about what levers really drive the business.
#2 Answer The Question “Why the Variance?”: Start with dollar-amount variances at a high level, but then drill down into the operational metrics that tell the story. Executives as well as line managers need finance to provide insights from volume-rate variances that can lead to action items that improve the bottom line. If variance reviews don’t result in an action item, odds are, the meeting was a waste of time.
#3 Automate Batch Reporting: Many organizations require slicing and dicing by location, products, region etc. In these cases, you will often need to create dozens of reports each month in which case, you should have a reporting system that automatically updates all reports with the click of a button. You may experience version control problems and errors with a reporting process that requires you to manually update each report separately.
Source: alightplanning Author: Ben Lamorte
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