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Pressures, actions, capabilities, and enablers in planning, budgeting and forecasting

Posted by Rick Yvanovich on

A report published by Aberdeen Group in 2011 has identified the leading challenges for companies in terms of financial planning, budgeting and forecasting. Over the study’s three-year period (2009-2011), Aberdeen Group found that the leading pressures include:

  • Market uncertainty, which creates the need for agility
  • The need to better align planning/budgeting with corporate strategy
  • Corporate mandates for cost control
  • Inefficiency of the process
  • Decision-makers’ lack of commitment or interest in delivering expected results

pressure in planning and budgeting

Notably, although there have been signs of economic recovery, market volatility continues to pose the greatest challenge to planning, budgeting and forecasting. An interesting finding is that as market uncertainty increased year after year, emphasis on the negative impact of current or past budget inaccuracy declined progressively.  

This does not demonstrate a lack of attention; rather, it is evidence of the increasing willingness to adjust budgets with proper justification. However, the accuracy of budgets and forecasts (ratio of actual performance to budget/forecast) recovered in 2011 after falling for three years, despite changing market conditions.

Effective planning, budgeting and forecasting demands a combination of strategic actions, organisational capabilities and enabling technologies in order to address market pressures. This is called the PACE framework (Pressures, Actions, Capabilities, Enablers).

The top two actions, or strategies, Aberdeen Group suggested are developing a formal planning/budgeting/forecasting workflow process and improving data quality. These can be achieved if the organisation has:

  • The ability to re-forecast as market conditions change
  • The ability to track actual performance vs. budget/forecasting
  • The ability to carry out what-if scenarios and change analysis
  • The involvement of managers accountable for budget accuracy in the planning and budgeting process

To assist companies in obtaining the above capabilities, technological enablers, in order of popularity, include:

Top performers or best-in-class companies earn their status by achieving more than 100% overall budget accuracy (ratio of actual performance to budget) and forecast accuracy. They also see improvement of profitability year after year and are able to finalise the budget prior to the new fiscal period. Lastly, best-in-class businesses are more likely to enable their budgeting process with technology.

Read more interesting findings and recommendations in the full report “Financial Planning, Budgeting and Forecasting in the New Economy.”

Download the Aberdeen Report  "Planning, Budgeting and Forecasting in the New Economy"

Topics: Planning and Budgeting, Enterprise Performance Management (EPM)

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 Rick Yvanovich
 /Founder & CEO/

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