FSN’s “Agility in Planning, Budgeting and Forecasting (PBF)” Survey 2021 allows you to benchmark where your organization is on the ‘agility dial’ and more importantly provides clear pointers to improving the performance of the PBF process. This exciting survey involved more than 500 senior finance professionals around the globe who took the time to contribute their views.
2020/2021 has been a challenging period for many businesses, and FSN’s research last year confirmed that the PBF process was the most disrupted of all of the core financial processes. In a nutshell, organizations found it extremely difficult to reforecast agilely in a period of stress and change. This prompted the question that forms the basis of this year’s research, namely, “How can organizations improve the agility of their PBF process?” – not only in the face of a global crisis such as COVID, but also in response to ‘normal’ business change such as acquisitions, new business models, disruptive competitor activity and reorganizations.
The results of the benchmarking overall are extremely revealing. The benchmarks show that on the whole, we forecast more quickly that we did four years ago but that forecast accuracy has deteriorated. Only 43% of organizations can forecast revenue to within plus or minus 5% and 80% cannot forecast beyond a year. 52% are unable to look out further than 6 months.
In broad terms, the ability to quickly make minor changes to forecasts is achievable for most organizations but that agility does not extend to changes to hierarchies in business models and reports. It is this part of the process that was the undoing of forecasting at the peak of the pandemic and will remain a problem for those industries and sectors undergoing profound market change. So, what can we learn from the 5% of transformation leaders who have completely transformed their PBF process?
The survey confirms that transformation leaders outperform those companies that have not transformed in almost every measure. They forecast more quickly, more accurately and further into the future. But, this enhanced agility is made possible only because they have mastered their data, use more advanced analytical tools, have invested in a unified business model and leverage specialized PBF software in the cloud. They also place a premium on eliminating disconnected spreadsheets for data collection and reporting, although it is noteworthy that even transformation leaders struggle to eliminate the latter.
But what else can finance functions do to improve agility? This survey reminds us that businesses have to have the basics in place before they can make any impression on performance. Centralized business models shared across the business, probably in the cloud, enabling one trustworthy source of data is essential. None of this is achievable using disconnected spreadsheets and none of the advanced accounting techniques, such as rolling forecasts, zero based budgeting (ZBB) or scenario planning are realistically within grasp without this robust foundation.
For many years a debate has raged in the accounting profession about the value contributed by rolling forecasts, zero based budgeting and scenario planning. Each technique tends to have its own proponents, often preferring one technique over all the others. But FSN’s research provides first-hand quantifiable proof that each technique contributes uniquely to the agility of the PBF process.
The good news is that all of the techniques improve all facets of the forecasting process with one minor exception. (As one would expect, ZBB does not enable organizations to forecast further into the future). If one was to single out one overriding characteristic of each technique then one would say that rolling forecasts enable a rapid response to change, ZBB leads to more accuracy, and scenario planning enables organizations to look much further out into the future.
So, the clear message is that all of these techniques are valuable, and none should be discounted. However, the research suggests a hierarchy of complexity and difficulty. So where should organizations start? Provided businesses have secured the foundation layer (data, cloud, specialized PBF software) we suggest that they should commence their journey with rolling forecasts, followed by ZBB and scenario planning.
We trust that you find the survey’s conclusions set out in this document thought-provoking and interesting. But above all we hope that the contents of this report and benchmarks will inspire you to explore and discuss with your colleagues how you can make the PBF process more agile in your own organization.
Related Infographics in the Agility in Planning, Budgeting & Forecasting Series
HOW AGILE IS YOUR FORECASTING PROCESS? In this first infographic we explore how responsive or agile the PBF (Planning, Budgeting and Forecasting) process is to change against a series of FSN stress tests. The research finds that changing reports and reporting structures (hierarchies) remains a challenge.
HAVE WE SACRIFICED FP&A ACCURACY IN FAVOUR OF SPEED? The second infographic from our “Agility in Planning, Budgeting & Forecasting” research shows that forecast accuracy is getting worse – this despite many organisations forecasting more quickly.
WHICH IS BETTER? – ROLLING FORECASTS OR FORECASTING 4 TIMES A YEAR? The third infographic from our “Agility in Planning, Budgeting and Forecasting” research demonstrates that Rolling forecasts imbue PBF with agility.
THE CHARACTERISTICS OF THOSE USING ROLLING FORECASTS The research find that in essence if you are spreadsheet-bound, have not mastered your data and are not using specialist software, then rolling forecasts are technically out of reach.
ZERO BASED BUDGETING IS A MARKER OF AGILITY If you want to improve accuracy, then FSN’s latest research, “Agility in Planning, Budgeting and Forecasting” highlights that ZBB is the way to go
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