Most of our clients supplement their budget with an estimate such as a rolling forecast. Forecasting is often done several times a year and covers a range of future periods regardless of calendar year. The idea is to make a more flexible estimate of future outcome.
A forecast can be a combination of actuals for past periods and budget for future periods. Or it can be a more sophisticated model, where the budget for future periods is adjusted based on accumulated actuals as a percentage of last year’s accumulated values.
MANAGEMENT BY OBJECTIVES
The idea is to let the objectives help generating opportunities. Many companies set their targets as high as possible but don’t let the bonus be directly dependent on them to avoid sandbagging. The targets are instead related to the performance of the competitors (benchmarking) which often gives a better result.
The strategic planning is more long term (3-5 years is common), and focuses less on the rows in the profit & loss and balance sheet and more on the drivers affecting those rows – for example sold volume or electricity price. Planning is therefore often more suited to the operational management than budgeting.
So what are the advantages of using a standard solution rather than a standalone Excel solution? Here are some of them:
• Reduced manual effort in compilation and consolidation.
• Easier to work with different budget and forecast versions.
• Less person dependency in the budget and forecast processes. Standalone Excel solutions often have one creator who is the only one knowing all ins and outs.
• Less risk of human errors, broken links and erroneous formulas.
• Process support, work flow and overview for administrators.