Is the value of doing 2 and 3 year plans and 6 Qtr. Rolling forecasts to help the CFO to stay out of jail or is it more about providing a mechanism to manage the business?.

easyIn our Business Performance Executive Forum recently, someone commented in response to a question put about the politics of budgeting and its value. This was based on a CFO Magazine survey that had 2/3 of readers saying their planning process was driven more by Politics than by Strategy as asked by business author Lawrence Serven, and President at XLerant, Inc 

Christo Nei Technical Sales Manager at IBM Sydney, Australia, said  The traditional budget for the sake of budgeting, without the capability to really understand and analyse why we budget is pretty much a political process, however when a budget process is driver based and linked to strategic initiatives and outcomes; it becomes more effective. In the fast changing business world that we live it is the companies with a budget and rolling forecast that really outperform. Budget as a benchmark, but the rolling forecast as the currently reality to aim for.

He went on to talk about what is needed being rolling 6 quarter, reviewed once a week

In my view and with some experience on this too, doing a forecast to bring it all back on track is equally critical step.  Mr Nei as a business man focused on selling, knows well that is all about doing the numbers. He would also know what it means not to.

CFO’s and accountants however, often lose sight of all this and can lean a lot from business people. Doing all the detail over and over again does not work for them so once done they just want to want to see what is changing and /or getting out of control as they add to the pipeline.

As a best practice experience with me and many other we now find works very well in large businesses and global corporations. Maintain a practical view is important on how to do Plan and budgets then the 6 Qtr operational forecasts. What many see a heaven forbid basis, a good CFO will embrace using the budget as the forecast then plug the variance as it moves forward to maintain the same annual outcomes and deal with just the major exceptions. This in turn means the CFO takes shared responsibility for the result. which is his job anyway. AND to stay out of jail and put the monkey back where it did the damage the CFO must also then take the proactive step to review the plugs with his CEO and operations teams on say day 2 of the reporting month and reject any that need more attention. (E.g. more than certain acceptable % variance) That then becomes a very transparent and prudent financial control process to allow them all to decide what demands attention and/or needs be answered. It also moves attention from the politics of just defending the plan against corporate /investor scrutiny to a more business management mindset too.

At the operational level then doing weekly or even daily reviews of actual numbers against the forecast is then very easy to do and focus on a part of the cycle management. This as we all know is so important to maintain the momentum and business rhythm to ensure the objectives are met.

Sorting out the trivial variance ebbs and flows to only focus on what needs crucial attention to get the answers is the aim. Doing this is more about operational value than an accountant numbers game. with this sort of process in place action also comes very fast to look at the detail on the delinquent areas. Conversely high performers who don’t cover them up,

at the CEO /CFO level a practical approach to make this work and keep the business on track to have this reviewed like this is to add in this process so you have the answer to the budget performance issues with corrective action included in the forecasts before month reporting is closed on day3. That is just so easy to do.

With 3 year plans and 6 quarter operational rolling forecasts with daily /weekly reporting then the next 12 month operational budgets becomes just another forecast (once it spans the next full year) and work the same. One day budgeting is then a very real option and the politics of budgeting can be managed to deal with more strategic issues and the longer term aims. That is just so easy to do and I have found it works well.

What is you experience?

15 thoughts on “Is the value of doing 2 and 3 year plans and 6 Qtr. Rolling forecasts to help the CFO to stay out of jail or is it more about providing a mechanism to manage the business?.

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