Cartesis[R]: the 'should we, shouldn't we? 'debate on planning and budgeting rages on as the pressure on CFOs to achieve even greater accuracy from performance management processes increases. With the help of new research findings, Jonny Cheetham answers your questions.

Author:Cheetham, Jonny
Position::Questions & Answers - Chief Financial Officer

We've been reading lots about how organisations should "blow up the budget", but can this ever be a reality for a large multinatlonal company?

The budgeting and planning process has long been an intrinsic part of the performance management framework for big companies and, despite predictions by many industry analysts to the contrary, it still is. The theory is sound enough, but the vision of continuous forecasting remains just that for the vast majority of firms. According to a survey of 700 multinationals by Ventana Research, 62 per cent still produce an annual budget and 69 per cent review budgets monthly and reforecast two or three times a year, rather than continuously.

Instead of abolishing budgets, CFOs are focusing on how they can achieve better accuracy, agility, insight and consistency from budgeting and planning. The survey shows that a significant number of respondents believe they spend too much time on the process--and most of that is spent on collating data rather than analysing it. In fact, 70 per cent of the finance department's time is spent on non-strategic activities.

This need to get on top of the process is perhaps a reason why the adoption of predictive planning techniques has not been as quick as many people may have thought. There's no doubt that in the future many multinationals will move closer to "blowing up the budget". The essential first step, which arguably offers the biggest return, is to streamline processes, reduce the time they take and increase their accuracy.

Where does planning and budgeting fit into the business performance management (BPM) cycle?

BPM has been defined many times by many people, although a consistent message is emerging. It's an umbrella term for the methods, metrics and systems used to monitor and manage business performance. It brings together management reporting, statutory consolidation, performance analysis, budgeting, planning, forecasting and all the data these involve into one integrated set of processes in a single system.

There are many individual, but related, processes going on inside an organisation. We view some of these as annual processes and some as monthly. Each one is a process on its own but also drives the next stage. Take the following highly simplified example: you start a budget by looking at the previous year's results; when you look at actual performance data, you compare it against a point of reference--ie, the budget in most cases; and using the results of...

To continue reading