Most financial executives use some form of rolling forecast to guide their financial planning and budgeting efforts, but do so in rudimentary fashion, employing mostly manual business performance management processes and spreadsheets that inevitably fail to deliver the accuracy and manageability they are seeking.
A recent survey of more than 320 senior finance executives in North America and Europe showed that over 68% of companies have developed and deployed rolling forecasts. However, most of these executives still feel they need to improve the accuracy of their financial forecasts as well as the time it takes them to produce these forecasts.
The study, conducted in September 2006 by CFO Research Services (Boston, MA) and Cartesis also showed that:
- Companies need better forecasting methods, which solutions such as Cartesis Business Performance Management software can provide. These solutions allow the expanded use of operational drivers, better what-if scenario creation and increased collaboration throughout the forecasting process
- Finance executives — hampered by a shortage of time and resources — endorse an incremental approach to changes in their forecasting technology and business processes
Forecasting With a Moving Horizon
The manner in which a company forecasts its financial and operational activities is a key factor in how efficiently and effectively that company can allocate its resources, make investments, guide shareholders and achieve and measure results. Finance executives in the survey agreed that better forecasting would lead to tangible benefits, such as reduced risk and increased profitability.
The survey also showed that two-thirds of respondents who use rolling forecasts utilize a basic 12-month time horizon, when 15 months or more is actually preferred. And nearly one-half of respondents use only spreadsheets for financial forecasting, while an additional 21 percent use custom applications built around spreadsheets. Less than one-fourth use a dedicated financial planning, budgeting and forecasting application, such as Cartesis Planning, or a fully integrated business performance management software solution, such as Cartesis 10.Steps to Better Budgeting and Rolling Forecasts
In order to help companies address the financial forecasting and budgeting challenges discussed above, Cartesis recommends a pragmatic approach. The approach ensures that early wins will save time and money, which can be later “spent” on additional improvements that create long-term value.
Quick wins through automation — The use of planning and forecasting applications, such as Cartesis Planning, enables companies to automate processes and reduce reliance on spreadsheets for immediate benefits.
Ease of use as a priority — Rolling forecasts are simple to create, even for multi-year horizons; forecast templates adjust to each business unit; and benchmarking and what-if analysis are easy, enabling managers to better predict and measure business performance.
Collaboration with flexibility and control — Collaboration, made easier with workflow management, results in forecasts that are more accurate and aligned with the corporate strategy.
Adaptive financial planning for continuous change — Adaptive planning involves continuously improving the planning process to capitalize on previous gains.