When Aberdeen Group conducted a study in 2011, they identified three classes of performance in corporate financial planning, budgeting and forecasting: Best-in-class, industry average and laggard. The research group outlined steps to help companies improve their performance, regardless of their current class.
Advice for laggard organisations
1. Stop relying on spreadsheets as the sole means of communication and interaction
Many laggard companies are putting themselves at risk of inaccurate data by using spreadsheets. While top performing companies also use spreadsheets, they are more likely to export them from other applications that are securely accessed from a shared server.
2. Increase the frequency with which forecasts are updated
Laggards are more likely to re-forecast every three months, whereas best-in-class companies do so on a monthly basis. Three months is a long time in today’s dynamic business world.
3. Link the achievement of budget goals to compensation for all employees
Financial rewards can encourage employees to take a more active role in ensuring the accuracy of budgets and forecasts. Currently, best-in-class companies are four times more likely than laggards to link compensation to budget goal achievement for all employees.
Advice for industry average organisations
1. Use technology to receive alerts triggered by internal events
Internal events can have a major impact on the viability of budgets and forecasts. Thus, receiving alerts when these events happen helps decision-makers react quicker and make adjustments.
2. Perform what-if scenarios and change analysis before finalising corporate financial plans
Being prepared and grasping the effects of events before going into the corporate financial planning and budgeting can really make a difference.
3. Establish enterprise-wide collaboration from the top-down and bottom-up
Collaboration leads to improved performance by delivering visibility and ensuring buy-in and accuracy.
Advice for best-in-class organisations
1. Use technology to receive alerts triggered by external events
Receiving alerts ensures fewer surprises and aids in adaptation. Decision-makers can receive alerts automatically via websites, social media, subscribed services or enterprise applications.
2. Use automatic, guided workflow for the planning, budgeting and forecasting process
Having employees guided through these steps automatically ensures best practices are followed and no crucial step is missed.
3. Align sales forecasts with overall business revenue and cost forecasts
Because achieving sales forecasts has an effect on costs and revenue, aligning sales forecasts ensures everyone is working towards the same goals.