3 Steps to more reliable financial forecasting

3 Steps to more reliable financial forecasting

When a company fails to meet its financial targets, business leaders want to know why. Was it the pandemic? Did sales underperform? Did operations overspend? Were their purchases more expensive than expected? Was productivity below established standards? Did finance develop a forecast that was wrong from the start?

Determining the causes of budget variances is an effective way to avoid similar missteps in the future, as well as during times of disruption. But many businesses struggle to understand the causes of variances and to define a process that will turn out accurate forecasts every quarter.

Finance and business teams must work together to identify the activities or data gaps that led to a missed forecast projection and caused price, cost, and efficiency variances. Whether poor decisions were made, the business landscape changed, or customer needs evolved, digging into the root cause starts with building relationships based on trust and transparency.

Companies need to continuously answer these three questions: What? So what? and Then what? Answering the first question—What happened?—requires good reporting with visibility. Answering the second question—So what?—involves separating the signal from the noise and determining what is relevant from the reporting. Arguably, answering the third question—Then what?—is the most important and critical part, because only these decisions impact the future.

Here are three tips that will help your finance team set performance targets and standards that company leaders can be confident in.

Step #1: Bring everyone to the table

Hitting a financial forecast isn’t just about meeting sales goals. Employee turnover, travel expenses, marketing costs, and other operational expenditures must be accurately projected to create a viable financial forecast.

But finance teams can’t analyze all these variables on their own. They need to work closely with sales, HR, marketing, operations, and executive teams to get a clear view of past performance, changes on the horizon, and potential risks and opportunities.

Centralizing financial information in a single shared database reduces the time it takes for finance teams to gather this information, giving them more time to focus on analyzing causes of variances and speculating on potential outcomes. Collaborative financial planning software also helps keep information up-to-date by making reporting easier for other departments.

It may take time to get the whole company on board with a new data collection, integration, and delivery process, but the payoff that comes with more reliable reporting is worth the effort.

Step #2: Plan for multiple outcomes

It’s impossible to know for certain what the future might hold. No one has a crystal ball for this. But there are ways to view the planning horizon. One way is to create multiple projections that account for different scenarios. This can include sensitivity analysis by changing some of the variables, such as the forecast sales volume and mix, to calculate projected profits. This can keep your company running on all cylinders—regardless of what comes its way.

Project for at least two possible outcomes—one optimistic and another cautious—so you can create proactive response plans. Look closely at the assumed factors and variables that are most likely to impact your projections. For instance, a change in the price of raw materials, in labor rates, or the emergence of a new competitor could create pricing pressure, which might lead to a decline in revenues.

Scenario planning can also help companies navigate regulatory changes that come with political transition or turmoil. According to a survey by KPMG, 77% of U.S. CEOs say they are focusing more on scenario planning to manage change in the current political environment.

However, with the increasing responsibilities falling on FP&A teams, many feel they don’t have enough time for this type of proactive planning. Sixty percent of CFOs estimate that ad hoc analysis, such as running a new scenario for the forecast, takes up to five days, according to a survey we published a few years back.

Planning and budgeting software can help FP&A teams speed up the time it takes to outline the financial implications of different scenarios and outcomes. The right tool lets teams run reports with the click of a few buttons, giving them more time to consider the risks, opportunities, and assumptions to create comprehensive response plans.

Step #3: Collect customer data

Understanding changing customer preferences, needs, and demands can also help improve the accuracy of financial projections—and boost a company’s overall financial health. However, a third of U.S. CEOs say the depth of their customer insights is limited by a lack of quality customer data, according to KPMG. So it’s no surprise that nearly two-thirds expect to invest in data analytics technology in the next three years.

“The whole idea of knowing what the customer wants before they want it is sort of the brass ring,” Tom Hayes, president and CEO of Tyson Foods, told KPMG. “We have real-time data from the shelf back to our supply chain. It takes out a lot of waste and helps us to more accurately forecast—a great benefit for products with a short shelf life.”

Taking the right steps to figure out where a missed forecast and associated assumptions went wrong will help keep business performance on target year after year.​

Original blog by Gary Cokins for Workday Adaptive Planning

5 Tips to engage other departments in the planning process

5 Tips to engage other departments in the planning process

In the bustling corridors of Australian businesses, financial planning often feels like a secluded island, far removed from the day-to-day operations of other departments. However, involving other departments into the financial planning process can unleash a wealth of insights and foster a collaborative environment that drives organizational success. With the advanced capabilities of modern day software, this idea becomes not just feasible but highly effective. Here are five tips to engage other departments in the financial planning process.

1. Foster Open Communication Channels

The cornerstone of any collaborative effort is robust communication. Encourage an open dialogue between finance and other departments to bridge the gap that often exists. Use the collaborative features of capable planning tools to create shared workspaces where departments can easily access, share, and discuss financial data. Regular inter-departmental meetings and updates can also help maintain transparency and keep everyone on the same page.

Pro Tip: Schedule bi-weekly cross-departmental sync-ups to review financial projections and gather feedback. Utilise dashboards to visually present data, making it easier for non-financial departments to grasp complex information.

2. Educate and Empower with Training

Not everyone is a financial expert, and that’s perfectly okay. Providing training sessions on the basics of financial planning and the functionalities of the software you use, can empower other departments to contribute meaningfully. Tailor these training sessions to the specific needs and roles of different departments to ensure they can see the direct benefits and applications in their daily operations.

Pro Tip: Develop role-specific training modules and offer hands-on workshops to demystify financial jargon and processes. This will not only boost confidence but also enable more accurate and insightful contributions from all departments.

3. Create Cross-Functional Teams

Forming cross-functional teams for financial planning projects can significantly enhance engagement. These teams should include representatives from finance as well as other key departments such as marketing, sales, and operations. By involving diverse perspectives, you can develop more comprehensive and realistic financial plans that reflect the true needs and opportunities of the organization.

Pro Tip: Leverage FP&A collaboration tools to facilitate seamless communication within these cross-functional teams. This allows for real-time updates and collaborative scenario planning, ensuring all voices are heard.

4. Set Clear Goals and Objectives

Clarity is crucial when bringing multiple departments into the financial planning fold. Clearly defined goals and objectives help each department understand their role and the value they bring to the process. Outline these goals and track progress, making it easier for everyone to see how their contributions align with the overall business strategy.

Pro Tip: Develop a financial planning roadmap, highlighting key milestones and deliverables. Regularly review this roadmap with all involved departments to keep everyone aligned and motivated.

5. Recognise and Reward Contributions

Acknowledging the efforts and contributions of other departments can go a long way in sustaining engagement. Implement a system to recognize and reward departments that actively participate in the financial planning process. This could be through formal recognition programs, performance bonuses, or even simple shout-outs in team meetings.

Pro Tip: Use the analytics and reporting features of your FP&A software to highlight and celebrate the achievements of different departments. Visualizing the impact of their contributions can reinforce the importance of their involvement and encourage continued participation.

Engaging other departments in the financial planning process is not just a good practice; it’s a strategic imperative for any forward-thinking organization. With tools like Workday Adaptive Planning and Planful, you can facilitate a collaborative environment where every department feels valued and contributes to the financial health of the company. By fostering open communication, providing education, creating cross-functional teams, setting clear goals, and recognising contributions, you can transform financial planning from a siloed activity into a unified, organization-wide effort.

By integrating these tips into your financial planning approach, you’ll not only enhance the accuracy and relevance of your plans but also build a stronger, more cohesive organizational culture. So, gear up and start breaking down those silos today!

Cloud Solutions Ebook

Webexpenses Solutions Overview

Webexpenses Solutions Overview

Wednesday, 24 February, 2021 — 11:AM Brisbane / 12:00 PM AEST

If you missed this popular webinar, grab the opportunity to join this insightful overview of the solutions Webexpenses offer.

Webexpenses has a simple aim – to provide smarter, safer, and more effective ways to manage company costs.

Join us to find out more about the solutions that Webexpenses has to offer.