Budgeting & Forecasting

Research has shown that over 50% of companies that use traditional budgeting tools and methods are unhappy with the process and the resulting plan. In most cases the reasons for this widespread discontent can be traced back to two key issues: A poor budgeting process and inappropriate tools.


The path to completing the budget is strewn with obstacles. Budget holders struggle to collect the data that they can, consolidate it, tweak the figures and horse-trade with subordinates in an effort to come up with final numbers that they feel are achievable. This gaming of the system undermines the validity of the planning process and afflicts both the budgeting and forecasting, since the forecast is often little more than a re-adjustment of the original budget target.

Reduced credibility

When departmental figures are collated and they fall short of the original high-level targets, CFO's often resort to issuing top-down directives. In order to meet these requests budget holders may cancel projects and initiatives without a thorough analysis of their overall impact. Consequently, while the budget may meet its targets and be completed on time, the resulting plan lacks credibility. It's no wonder then, that only 30% of budget holders feel that the budgets they agree to are achievable.

The shortcomings of budgeting technologies

These days it is not unusual for businesses to attempt to complete their budget using the data capture module of their ERP or perhaps a bespoke spreadsheet solution. The problem with these approaches is that they use products that have not been designed with collaborative corporate budgeting in mind. Spreadsheet systems are cumbersome, single user and prone to error. ERP modules can be clumsy to use and may focus on capturing data at general ledger level. It is not uncommon for departments to use multiple or incompatible tools and collect data at different levels. The result is inaccuracies, delays and slow budget cycle times.

Better budgets: A long-term view

Budgets often end up being short-term, reflecting the pressure for rapid growth felt by many organisations, particularly listed companies facing the quarterly demands of shareholders. Whilst many best-practice companies have realised that corporate value is created when operations are aligned to a clear long-term strategy, many other organisations still need to adjust their budgeting processes to fit this mindset. Budgeting and planning are vital elements of broader Corporate Performance Management (CPM) implementation - and successful CPM requires both strategy and budgets to be closely interlinked. Senior management must, therefore, establish long-term objectives and assign values to measure the success of each objective.

Better budgets: Assign measures to tactical elements

Through clear examination of the key assumptions and measurements regarding the business environment, a company can then move to consider its tactics. This is where high-level operational budgets come into play. Assigning measures to tactical elements is crucial at this stage since it will mean that when budgets and tactics are defined, the organisation can assess the feasibility of the entire plan, identify associated risks and hone the strategy to make it more realistic. Once agreed, the high-level costs and revenues from this plan become the budget’s targets.

Better budgets: The benefits of a single-vendor solution

There are signs that companies are starting to understand the benefits of a single-vendor solution as they try to simplify their budgets and align them with strategy. CPM systems bring together all data used for consolidation, budgets, forecasts and strategy management; web-based systems dramatically change how users interact with data, reducing errors whilst improving both reliability and accountability. CPM systems that link strategy to budgeting also shorten the budget cycle and allow companies to better measure whether strategic initiatives are successful; they also enhance strategic decision-making, enabling leaders to more quickly identify, analyse and forecast the impact of changes as they occur within and around their business.