Hopefully you’re reading this on your sun lounger by the pool and a refreshing cold drink in one hand, but the question is should you be worrying about budgets at this time of year at all? Whether you’re halfway into the financial year or about to start your next budgeting cycle in October, your ideal state of mind should leave you free to enjoy your break without being plagued by worries about nasty hidden surprises or smarting about painful past mistakes. So, how can you rid yourself of this stress and focus on having a good time? Improved forecasting The importance of having accurate forecasts can’t be stressed enough. If you have a process in place, which allows you to update your numbers and revise your initial forecasts on an ongoing basis – you’ll have a much smaller chance of encountering hidden surprises at the halfway mark. If your financial year is over and you’ve been limping along with inaccurate forecast and unreliable spreadsheets, then now is a good time to lick your wounds and resolve to go into the next budgeting cycle with new policies in place, including how to improve your forecasting process – this way, at least you’ll be able to look forward to a stress free summer in 2016. Our tips for achieving improved forecasting in your business Involve more and the right people in the process This requires interacting with each department and collecting those items that have a significant impact on overall performance. Challenge assumptions on what drives performance Forecasts are assumptions. They assume a given level of resource will be applied to support a certain level of organisational activity, to produce an anticipated level of outcome. As such there is an implied connection between resources, workload and results. To assess forecast accuracy, these implied connections can be modelled and challenged. Collect evidence to back up the numbers Forecasts are an assumption about what may happen in the future. Because of this, it should be possible to provide a ‘story’ behind any number being forecast so that management can make a judgement as to whether the figures being entered are likely to be achieved. Analyse trends to see if the forecasts make sense A sure sign of an unrealistic forecast is when there is a step-change in performance from one period to the next, or where trends differ from one year to another. Now there may be a good reason for this, but it needs to be highlighted and explained. Use technology To collect forecasts in an efficient and effective manner requires a system that is accessible by many users that ‘knows’ which users are responsible for what departments along with the associated measures to be collected. Trying to do this with spreadsheets is a surefire recipe for disaster. The alternative is a cost-effective, easy-to-use application in the cloud. Financial Driver is such a system with ‘built-in’ capabilities that allow:
- Administrators to define what is to be forecast (e.g. sales, expenses and departmental costs), from which departments, and for which period of time (e.g. the next 3 months plus an annual outcome). The level of detail can vary according to department.
- The workflow capability then ‘hands out’ these requests to each user and automatically provides a tailored data entry screen to capture the needed info. The security system automatically filters out data users are not allowed to see and can provide comparatives, such as the budget, to help with submissions, which can be viewed and not changed.
- Once a user has entered their data, they can submit it for approval and at the same time they will be locked out from making further changes until the next forecast is required.
- You’ll be sent an email to let you know that a forecast is ready for review. You then get to look at the detail behind the numbers as well as plot forecasts as a continuation of the current year and superimpose them on the current budget. Should any forecast seem out of line, these can be investigated and bought to the attention of senior management.