Is there any insight in your forecasts?

Prophix Feb 20, 2018, 3:22:00 AM

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Just 40% of respondents to FSN’s recent survey on planning, budgeting and forecasting (PBF) say that their forecasts deliver insight. How can this be true? And, if forecasts don’t deliver insight, what are they for?

The survey shows that organisations have made great strides in planning, budgeting and forecasting in recent years. 72% say their planning processes are now ‘inclusive’, suggesting a greater level of collaboration than may have been seen in the past. 70% believe their forecasts are respected across the business.

So, what is going wrong? Why aren’t these improvements translating into insight that supports strategic decision-making?

Barriers to insight

I can see two potential barriers.

The first comes from what executives want from the budgeting process. Do they want insight into what might be? Or do they want a tool to shape the business as they think it needs to be? Budgets are often the means by which management’s vision for the business is communicated and enforced. Too much insight might introduce a version of reality that clashes with management’s vision.

The second comes from the issue of trust. There has been a sharp improvement in forecasting accuracy over the last year but it came from a low-base. Even with a 9% improvement this year, just 44% of respondents say they can predict revenue performance to within 5%. In this increasingly volatile environment, 71% now re-forecast more than twice a year – up from 56% in the previous study a year earlier.

Solving the insight puzzle

How might these issues be addressed?

Firstly, the finance function needs to be even more open and collaborative. Pulling in data from non-financial sources can have a demonstrable benefit for forecasting accuracy. Expanding the conversation about foresight beyond formal PBF processes will give more opportunities to provide insight to management and peers across the organisation.

This is only possible if the process of creating forecasts is both flexible and rapid. Finance teams should be comfortable enough with their FP&A skills and tools to use forecasts to answer business questions. But right now, both skills and tools are lacking. Only 16% of respondents to the survey are using on-premise specialist software for PBF, and just 10% have implemented specialist cloud software. Spreadsheets just don’t offer the speed and flexibility to enable rapid turnaround – or the simple integration of new data sources, such as non-financial data.

Skills and collaboration are at the core of the most successful modern finance teams but both are underpinned by investment in the right infrastructure.

Download the full report at future-of-finance.com

FSN Future of Planning, Budgeting and Forecasting Report 

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