Most finance executives use some form of rolling forecasting to drive their financial planning and budgeting efforts, but do so in a rudimentary way, using mostly manual business performance management processes and spreadsheets that inevitably lack the accuracy and manageability desired.
A recent survey of more than 320 finance executives in North America and Europe showed that over 68% of companies have developed and are using rolling forecasts. However, most of these executives still feel that they need to improve the accuracy of their financial forecasts, as well as the time it takes them to produce those forecasts.
The September 2006 study by CFO Research Services (Boston, MA) and Cartesis also showed that:
- Businesses need better forecasting methods, which solutions like Cartesis Business Performance Management software can provide. These solutions allow for expanded leverage of operational drivers, better what-if scenario creation, and increased collaboration throughout the forecasting process
- Finance executives—hindered by time and resource constraints—are advocating a phased approach to changes in their forecasting technology and business processes
Forecasts with a moving horizon
How 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, manage shareholders, and achieve and measure results. Finance leaders who took part in the survey agreed that better forecasting would lead to tangible benefits such as reduced risk and higher profitability.
The survey also showed that two-thirds of respondents using rolling forecasts use a baseline time horizon of 12 months, although 15 months or more is actually preferred. And nearly half of respondents only use spreadsheets for financial forecasting, while another 21 percent use custom spreadsheet-based applications. Less than a quarter use a dedicated financial planning, budgeting and forecasting application like Cartesis Planning or a fully integrated business performance management software solution like Cartesis 10.Steps to better budgeting and rolling forecasts
To help organizations address the financial planning and budgeting challenges discussed above, Cartesis recommends a pragmatic approach. The approach ensures that early wins save time and money that can later be ‘spent’ on additional improvements that create long-term value.
Fast wins through automation – Using planning and forecasting applications like Cartesis Planning allows organizations to automate processes and reduce reliance on spreadsheets for immediate benefits.
Ease of use as a priority – rolling forecasts are easy to generate, even for multi-year horizons; Forecast templates adapt to each business unit; and benchmarking and what-if analysis are easy and allow managers to better predict and measure business performance.
Collaborate with Flexibility and Control – Collaboration facilitated by workflow management results in more accurate forecasts aligned with business strategy.
Adaptive Financial Planning for Continuous Change – Adaptive planning involves continuously improving the planning process to capitalize on past gains.