Planning, budgeting and forecasting are still too costly and ineffective and most organisations, according to a survey from Deloitte. Companies are taking up to six months to a year on their main budgeting processes and make changes at the last minute.
The professional services firm polled more than 500 senior finance professionals from the US, Europe, Middle East, Africa and Asia Pacific regions on planning budgeting and forecasting. More than half were from companies with revenues larger than US$1bn.
Deloitte found that the level of detail demanded from these activities is consistently high, as finance is still the primary owner of these processes in 86% of organisations. Moreover, more than 60% of respondents only look at financial outcomes rather than other corporate performance indicators.
The long, drawn-out budgeting process is resulting in reduced buy-in from stakeholders, Deloitte said. However, about 16% of companies are completing their budgeting processes in one month.
Simon Barnes, partner in Deloitte UK’s finance transformation team, believes that organisations can cut down on lengthy budgeting processes is by driving process change, improving ownership and using the latest technology that removes reliance on spreadsheets. “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,” he said. “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.”
Fully 39% of respondents said they still use spreadsheets as their main budgeting and forecasting tool, while only a quarter are using rolling forecasts. Most organisations had similar barriers to technology implementation. A third of respondents also admitted to being frustrated that plans and budgets were often changed at the top with no clear action or reasoning fed back.
Even though many organisations are undergoing significant finance transformation projects, they are neglecting the planning, budgeting and forecasting process, noted Simon Kerton-Johnson, partner and UK finance leader for Deloitte. “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,” he said. “Change not only requires processes to be reengineered. A cultural shift must take place across all executive and staff communities.”
Survey respondents also identified five other areas as challenges to improving planning, budgeting and forecasting effectiveness.
- Fully 37% of respondents admitted to failing in integrating planning, budgeting and forecasting effectively with corporate strategy. This can result in a lack focus, with activities being misdirected.
- About 61% of respondents recognised the importance of forecasting as a way of compensating for the static nature of budgeting, but very few understood how forecasting can enhance corporate agility.
- 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.
- A key differentiator between high-performing organisations – the top 20% of respondents by descending share price performance – and others is a clear understanding on where responsibility lies for decision-making within the organisation’s specific operating model.
- Collecting, aggregating and analysing data via the ubiquitous spreadsheet still constrains most businesses, making the forecasting process slow, unclear and prone to error.
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