Integrated performance management
Plan. Budget. Forecast.
Macroeconomic challenges and increasing stakeholder and consumer demands mean that traditional planning, budgeting and forecasting (PBF) processes are no longer effectively serving the business.
In an effort to understand the reason for much of this frustration and why so little progress has been made, Deloitte carried out an in-depth survey of senior finance professionals from around the world and from a wide range of industries.
Survey responses suggest that organisational culture is a significant inhibitor of PBF effectiveness. An inability to change and align values and behaviours both in Finance and the wider organisation is the primary reason why organisations continue to struggle to improve this critical business process.
Deloitte’s research into planning, budgeting and forecasting has analysed the survey responses of over 500 senior Finance professionals. Culture was identified by the research as the key to unlocking the potential of planning and forecasting. In addition to culture five areas emerged from the analysis as challenges to achieving improved PBF effectiveness:
- Integrating planning, budgeting and forecasting: Thirty-seven per cent of respondents admitted to a failure to align their planning, budgeting and forecasting effectively with corporate strategy. In these circumstances there is a risk that the activities of the organisation will be misdirected, lack focus, alignment and cohesion because expectations have not been properly set.
- Using forecasting properly: Sixty-one per cent of survey respondents recognised the importance of forecasting as a way of compensating for the static nature of budgeting. However, there is a failure to appreciate how forecasting can enhance corporate agility and specifically a lack of understanding of how it fundamentally differs from planning, budgeting and target-setting.
- Applying process discipline: Nearly a third of respondents have no formal mechanism for monitoring and managing forecast quality, while less than half of respondents are able to forecast either revenue or costs to within a five per cent variance. Too often PBF processes are poorly defined or they are changed in an ad hoc manner.
- Clarifying decision-making responsibilities: A clear decision-making framework, reinforced by culture, helps organisations strike the right balance between an inclusive process that engages executives and managers and one where clear decisions can be made swiftly and decisively.
- Exploiting technology: Collecting, aggregating and analysing data via the ubiquitous spreadsheet still constrains most businesses, making the process of dynamic forecasting and planning slow, opaque and prone to error. Where purpose built software is employed its modelling and analytical capabilities are often not properly exploited.