Guide to transforming your finance processes with budgeting and forecasting software

Every technological advancement, from the plow to the supercomputer, helped shrink the amount of time spent doing tasks you have to do in favor of tasks you want to do. They’re about handing off the physical and mental grunt work so you can focus on the rewarding, fulfilling, and useful work that only human beings can do. Budgeting and forecasting software is no different.

In too many organizations, the Office of the CFO is stuck with too many tasks they have to do. Data consolidation, report compiling, and a dozen other repetitive processes are done manually in order to properly budget and forecast. These obligations undoubtedly create value for the company, but the manual work involved is rarely the best use of anyone’s time.

Transforming your budgeting and forecasting processes involves using technology to reinvent, streamline, and automate them, freeing your team to pursue more high-value tasks.

Budgeting vs. forecasting (and where software comes in)

To anyone outside the Office of the CFO, budgeting and forecasting can seem like interchangeable terms. Before diving into why budgeting and forecasting software is essential for your organization, let’s make sure we’ve defined these terms.

What is budgeting?

Budgeting is a process organizations use to quantify expected revenue and expenses. From this process come budgets, which are dispatched to different departments to communicate exactly how much they’re allowed to spend over a defined period—usually a financial year or quarter. While some organizations use data from previous years to plan their budgets, zero-based budgeting can often be more effective. With this method, departments are expected to plot out their needs without simply adjusting the previous year’s budget by a few percentage points.

What is forecasting?

While budgeting deals with expected revenue and expenses, forecasting is about projecting your organization’s potential future. The Office of the CFO will use data from previous periods to build their forecasts. Sometimes, these forecasts will move forward into the future as time passes—these are known as rolling forecasts.

What’s the difference between budgeting and forecasting?

The key difference between these budgeting and forecasting hinges on two words: “expectation” and “projection.” While these words can seem similar, the expectations that come with budgeting are typically more conservative than the projections of forecasting—meaning you’ll usually have more confidence in budgets.

Budgets are about making the most out of every dollar your organization brings in while forecasts are for mapping out potential scenarios and adjusting your business strategy. If the finance team notices that departments are at risk of going over budget, there’s usually a serious conversation around sticking to budgets or re-evaluating them. If forecasts aren’t as accurate as they once were, your organization’s leadership will either change the organization’s overall strategy or adapt to a different forecast.

The advantages of budgeting and forecasting

The advantages of budgeting

Accurate budgeting grants businesses some serious advantages:

• Knowing exactly how much money is coming into the organization.
• Knowing exactly how (and where) revenue turns into expenses.
• Ensuring each department is making the most of the money allocated to them.
• Adjusting expenses to properly respond to evolving market conditions.
• Identifying potential financial problems ahead of time.

The bottom line? Budgeting is essential to grow your bottom line.

The advantages of forecasting

Proper forecasting is more than worth the effort since it brings the following benefits:

• Planning for multiple potential scenarios can help you draft an action plan for any of them, improving your organization’s adaptability.
• Asking “what-if” with forecasting can uncover issues throughout the organization that would have otherwise gone unnoticed.
• Forecasts become easier to create (and more accurate) the more data you have.
• Proper forecasting can lead to increased efficiency across the organization as you find ways to adapt to both increases and decreases in revenue.

Without forecasting, an organization may still meet its goals in a good year, but it likely won’t capture all the growth it otherwise could have. In a bad year, a lack of forecasting may cripple it.

The challenges of budgeting and forecasting

The challenges of budgeting

While budgeting is an essential financial process, it brings significant challenges:

• Inflexible budgets can make it difficult for departments to properly react to problems and opportunities.
• Resourcing to create flexible, accurate budgets can be difficult without budgeting software.
• Inaccurate budgets can hinder an organization, preventing them from fully capitalizing on opportunities.
• Excessive transparency in budgeting can create competition between departments, who feel they need to compete for every dollar.

Budgeting can be a significant stressor for some organizations, but the benefits far outweigh any potential challenges. And if you use budgeting and forecasting software, you can eliminate many of these challenges.

The challenges of forecasting

Here are some ways forecasting processes can be challenging for your organization:

• It’s easy to be overly conservative with forecasts, which can limit their effectiveness. Likewise, overly outlandish forecasts will be of dubious value. Striking the right balance can be difficult.
• Much like budgeting, forecasting can be time- and resource-intensive, especially without budgeting and forecasting software.
• Forecasting accurately can be a challenge, and forecasts need to be at least somewhat accurate to be useful.
• Putting too much trust in a single forecast can lead to decisions that are ultimately damaging to the organization.

To avoid these challenges, treat forecasting as what it is—a glimpse into a potential future—rather than a strict roadmap for planning out your financial year.

Transforming your budgeting and forecasting

This takes a combination of the right budgeting and forecasting software, the right processes, and the right attitude. A team with great software but outdated processes will fall behind, right along with a team that’s fully equipped with modern processes but isn’t sold on changing its software. Before you get started, it’s important to look at what might be holding your team back.

What’s holding the Office of the CFO back?

Prophix’s research on budgeting and forecasting has identified common problems keeping the Office of the CFO from fully transforming its processes.

Siloed data

Data is one of the most valuable assets a business has. But it’s only valuable if you can refine it, analyze it, and use it to inform your decisions. Bringing data together on a single platform makes it easier for the Office of the CFO to make good use of it.

Lack of collaboration

Data isn’t all that’s suck in silos. If each department is going its own way—without communicating with the rest of the organization—you’re likely to find bottlenecks. These slowdowns can put the brakes on even the most streamlined processes.

Lack of proper tools

Your organization is taking in more data than any human being—or even full teams of human beings—can process. Without the right tools to make sense of that data, you’re stuck trying to drink from a firehose. Having the right budgeting and forecasting software can help automate and streamline these processes.

Manual processes

The biggest obstacle to transformation is the lack of time and resources to do it. It’s hard to take on a new role if you’re stuck manually manipulating data in spreadsheets. Automation is a crucial part of a successful transformation.

Transforming forecasting processes: Rolling vs. quarterly

Once you’ve addressed the obstacles blocking overall transformation, your team is ready to dig into specific processes. Making the shift to rolling forecasting is a strong part of ensuring success for the future. Teams that use rolling forecasts can more accurately predict revenue and earnings than teams that forecast quarterly. According to Anders Liu-Lindberg, Partner and Co-Founder at Business Partnering Institute, agility and flexibility are the two major advantages of rolling forecasts:

"To make processes fit for the future of finance, finance leaders need to create flexible and agile processes. The only thing we can be certain of is that the world changes faster than we can forecast an accurate number or predict what will happen next. It's critical that we understand the assumptions behind the strategic and tactical choices we have made. We can track reality against these assumptions and know when we need to act because our assumptions don't hold anymore. That's the kind of process finance leaders need to create as they continue their transformation journey."

Rolling forecasting can be complex, painstaking, and time-consuming. To successfully transition to this process, you need:

• A single integrated solution for budgeting and forecasting software. A platform like Prophix can import data automatically, seamlessly integrating with your other business solutions.
• Collaborative tools. Prophix offers workflows that streamline forecasting by tracking inputs, logging changes, and recording approvals, all with version control and without “reply all” email chains.
• Agile tools. There are dozens of factors that can change an entire forecast: interest rates, exchange rates, production levels, and more.Prophix makes it easy to adjust these values when they change.

Transforming budgeting processes: Zero-based budgeting

Switching to zero-based budgeting (ZBB) can drive powerful change for the Office of the CFO. It allows organizations to forecast revenue and earnings more accurately and change budget models efficiently as needed.

While you’ll need an initial resource investment—like forming a cross-disciplinary committee or investing in the right budgeting and forecasting software—to make this shift, the benefits are more than worth it.

Getting started with ZBB

The ZBB process starts with people. It’s critical to have support up to the executive level. It’s a serious paradigm shift from the usual budgeting process and requires more input and involvement from other departments. Finance leaders can be champions for this process, making the business case to the C-suite.

Once you have buy-in from executives, success depends on process and training. The Office of the CFO—along with others participating in the process—will need to learn how to use the required tools. Finance leaders need to have a working knowledge of the organization, including how various departments work and what their budgeting requirements will be. This is a good opportunity for your team to become more connected to the organization and more data-savvy.

Finally, the technology component is also essential for success. While it’s possible to do ZBB manually on spreadsheets, it’s a complex and time-consuming process. A platform like Prophix can help automate what can be automated while facilitating communication and collaboration for the rest.

Start your transformation with the right budgeting and forecasting software

Digital transformation is essential for any Office of the CFO looking to take on a more meaningful and more valuable role within their organization. The agility and efficiency this transformation brings can lead to more forward-looking practices, empowering the Office of the CFO to advise the rest of the organization better. In addition, transformed financial processes increase the quality and quantity of insights derived from data—which leads to better decision-making for everyone.

Ready to get started? Watch the Prophix demo to see transformative budgeting and forecasting software in action.