2007 Budgeting and forecasting study

2007 by PricewaterhouseCoopers – “The research was executed via 200 cross-industry web surveys and four in-depth interviews with organizations whose revenues are greater than $2 billion.

PricewaterhouseCoopers identified five key trends impacting budgeting and forecasting processes:

1. Budgeting and forecasting processes face significant transformation; linkage to strategy is top of mind.
2. Today's process is too granular and not focused on value-added activities.
3. Underlying technologies and applications lack integration.
4. Finance and operations must be more closely aligned.
5. Standardizing processes and systems is a primary focus of improvement efforts.

Key indicators

1. Fifty-six percent of budgeting and forecasting effort is spent on low value activities including data collection and consolidation, reviews, approvals, and report preparation.
2. Seventy percent of respondents are dependent on spreadsheets for all or a portion of their financial planning activities
3. Management and employee dissatisfaction with the current planning process is high due to the level of granularity and lack of alignment with business strategy
4. Sixty five percent of respondents believe that the strategic relevance of budgeting and forecasting will increase over time, while only five percent expect a decrease
5. More than half of respondents reported that creating closer links between strategy and operations was one of the top two priorities

Conclusions

“To improve and refocus budgeting and forecasting, organizations need to standardize, streamline, and integrate these activities with the company’s short- and long-term goals. If done properly, budgeting and forecasting processes can play a leading role in an organization’s strategic direction by becoming a way to rapidly assess and adapt to a changing marketplace. Companies that take full advantage of an ongoing strategic budgeting and forecasting process will:

• Use budgeting and forecasting as a tool to integrate strategic planning and day-to-day operations.
• Reduce the budgeting cycle time (perhaps even by creating an ongoing rolling forecast process) and improve forecasting accuracy by standardizing data collection and consolidation across the organization.
• Deploy rolling forecast concepts, which extend forecasting beyond year¬end. This reduces the dependency on manufactured deadlines that are not aligned with a constantly changing marketplace.
• Shift the focus of the budgeting and forecasting process from data collection and reporting to target setting, analysis, and ongoing measurement.
• Break organizational silos by using the budgeting and forecasting function as a way to increase collaboration between finance and operations.
• Increase the organization’s understanding of creating value through the budgeting and forecasting process and supporting it with a robust performance-management function.
• Consider developing or using a methodology that provides a flexible approach to changing business processes, technology and systems, organizational structure, and data.”

180 View – The report is 50 pages long and worth a read. Too bad that only organizations with revenues exceeding $2 Billion were included in this study. We think that mid-sized organizations suffer the same problems as the large ones. Our guess is that the indicators would be even greater for the mid-sized organizations.