Tactical issues & best practice solutions in budgeting: in an ideal world, forecasting and budgeting processes and systems become embedded at the operational level and become normal management tools; technology now makes that possible.

• Author: Hunt, Stephen W.
• Position: Forecasting/budgeting

Ask most CFOs and finance directors to describe an ideal forecasting and budgeting process, and they'll likely portray it as part of an overall integrated performance management framework, ultimately driven by value based measures. And, they'll admit that this vision involves a significant transformation from the capabilities in their organization--which can take three to five years to fully implement and embed.

Meanwhile, finance organizations face a more immediate problem: legacy systems and processes that have been in operation for 10 years or more are often broken. And, despite significant efforts, they can no longer support the dynamic changes affecting the business.

The good news is that "tactical solutions" deliver significant and usually exponential benefits, resulting in quick wins and visible benefits. However, tactical initiatives also require strong executive sponsorship, a robust and proven approach, a persuasive business case and a significant change in the way an organization views and operates its forecasting and budgeting process.

Start with Articulating the Issues

While issues involved with an organization's existing forecasting and budgeting processes and systems are often known, it is a good starting-off point to fully document and communicate the impact of each. This is especially true since many of the benefits of transforming the status quo are qualitative, and focus on accuracy and accountability. It's useful to consider seven such issues.

1. Frequency and Timeliness. Annual forecasting and budgeting cannot keep pace with today's dynamic business environment because the information produced is often out of date and irrelevant. Managers need the ability to understand and respond quickly to the impact of competitive forces and rapid changes, yet most fail to forecast the financial impact of these changes fast enough. The end-to-end process takes too long, given that the impact of any change to the financials needs to be understood within the day or even the hour.

2. Flexibility. Most forecasting and budgeting processes and systems lack sufficient flexibility to accommodate the reorganizations, divestitures, mergers and acquisitions that bare become the hallmark of contemporary business. These changes need to be modeled and reflected within the systems, both going forward and also retrospectively, to ensure relevant prior year comparisons.

3. Cost and Effort. The cost of existing processes is significant and appears to be...