The humongous task of managing business performance, for startups as well as established companies, is getting more and more critical with each passing day in response to the complex and volatile economic climate that they face these days.
Necessity of managing business performance better brings forth the need to redefine and improve financial planning and forecasting. This tool ensures a high level of investor confidence and provides the necessary business insights to decision makers
The reshaping and restructuring of financial planning and forecasting is a herculean task when it comes to delivering value to the organization as a whole and is a real challenging art. Just adopting the latest technology is not the answer, it goes way beyond that. To attain sustainable improvements in financial planning and forecasting we need simplifying the process as well as deciding the level of detail required, we need inputs from strong internal leaders and also their commitment to effect the necessary changes.
Challenges encountered in improving Financial Planning and Forecasting
Any process improvisation requires organization-wide changes from technology to norms to values and ethos. The transformation process demands grave commitment and substantial investment of time before this planning and forecasting process actually delivers its intended value to the business.
Few of the common hurdles faced while trying to improve financial planning and forecasting are:
1. Long drawn out process
Organizations have a budgeting cycle which on an average span over eight to ten months. Numerous factors are responsible for this like manual information gathering, sorting, dependence on IT department, verifying these figures etc.Outdated technology & tools use increases the dataneeded from various cost centers and more people are involved in the process hence the process becomes slower.
Investment in technology is the solution to this problem, wherein many repetitive tasks are automated, process is streamlined and brings in consistency and standardization which results in reduction of planning and forecasting cycle time.
2. Business changes and uncertainty are causes of variability
When an organization´s financial planning and forecasting process leverages external indicators and business drivers, there is a better chance of success in utilizing uncertainty and delivering value. However, the fact remains that these business changes and uncertainty are still pinpointed as the leading factors cited as causes for variability from actual performance. The central understanding is that by doing business driver planning, better business insights are attained.
3. Reaching the optimal level of planning and forecasting
The most mindboggling question at the time of planning and forecasting remains the optimal level of planning. It is very difficult for planners to decide on the volume of information required, how much is `too much’ and how little is `too little’. All-embracing detailing in planning and forecasting lengthens the cycle and consequently the output of the process becomes irrelevant, unconnected and of little value to the business.
4. Weak links between sales, operational and financial data
Customer and product level data mustbe in line and of use to planners. Today it has become imperative for all companies to establish robust linkages between sales and operational planning activities & outputs with the financial planning and forecasting process.
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