Our friends at the Aberdeen Group recently published a white paper on removing the hurdles to financial planning, budgeting and forecasting. It was most telling to read that out of over 200 participants in their survey, over 25% indicated that their current planning processes are simply too difficult, too long, and too resource intensive.
So we thought we’d share some of Aberdeen’s analysis and key takeaways with you today.
To begin with, Why Plan and Budget? The number one response to that question according to survey participants was that “market volatility creates the need to dynamically account for change.” Other factors cited included “growing operational costs” (so what’s new, we wondered…); and others that implied that the process was simply too long, too resource intensive, or that the company “could not trace business success to its key components.” Finally, about one-fourth cited the simple “corporate mandate for growth” as its reasoning.
But as always, Aberdeen likes to focus on the positive results that accrue to those firms who do successfully accomplish the task – in this case, following through on budgeting and planning. As it turns out, their Best-in-Class (top 20% of performers) were the most accurate and agile in their planning, which in turn enabled more informed decision and investments. Those Best-in-Class performers, in turn, reported that
- 94% of financial reports are delivered on time for decision making
- Actual costs are within 3% of budget, and
- Actual revenue is within 2% of forecast.
In other words, this stuff works.
Meanwhile, by comparison, the middle-tier of performers (the middle 50%) reported timely financial reporting only 76% of the time, costs within 9% of budget, and revenues within 10%.
And the worst performers, the ’laggards’ (the bottom 30%) reported only 58% timely reporting, and over a 20% variance from both budgeted costs and revenues. Clearly, those going through the effort (and pain) of budgeting, planning and forecasting as a business were seeing substantially more timely, effective and positive results.
In short, the ability to plan was severely impacted when firms failed to make the effort, and one can imagine a fairly severe impact on the bottom line as a result.
As it turns out, the top performers in the area of budgeting employed just a handful of strategies to manage their planning, budgeting and forecasting. But they worked at them, and it showed in the key takeaways when all was said and done. We’ll take a look at those key strategies and takeaways in our next post on this topic. Stay tuned…