In today’s modern society where technology has become ubiquitous, almost every aspect of our lives revolves around information and data. Data analytics are becoming a necessity for executive leaders seeking to predict corporate future events.
As such, it becomes critical for organizations to adopt the most effective practices and the greatest technologies to stay competitive.
But how does this relate to your next budgeting season? As Asif Masani noted in our webinar on the new gen of FP&A leaders, an increasing number of Finance professionals are questioning whether the traditional budgeting approach is obsolete.
Given the continually shifting macroeconomic climate, the effort and resources put into the one-off budgeting strategy are now proving insufficient. Read on to see why annual budget plans are becoming outdated and what their logical successor is.
Out with the old, in with the new: How modern Finance leaders are redefining their budgeting strategies
Business budgets are usually created using historical data and spreadsheets. This method ensures a consistent approach to managing finances but does not consider future events or real-time fluctuations.
The traditional budgeting process is under scrutiny right now because the value it offers does not justify the time and resources it takes. Many FP&A professionals agree it is time to get rid of the old budget preparation method and replace it with a new one for a variety of reasons, including the following:
1. It creates a false sense of control
Traditional annual budgeting method, which is mostly based on guesswork too far ahead, might create a false sense of control. This is particularly true if it is the sole tool your business uses to track performance. A team's time is better spent comparing relative measures to actual progress instead of relying on 12-month projections.
2. Budgets are outdated before starting the fiscal year
Budgets are frequently out of date even before the new fiscal year officially begins. This is because they are made in advance and have an outlook on the world that may not be the same months later. Legacy budgets prioritize assumptions based on past data from a business over putting industry standards, market trends, and economic fluctuations front and center. This is crucial to keep in mind, especially if your business operates in a fast-paced and highly competitive market.
3. The financial planning budgeting process takes too long
For a resource that could soon become obsolete, several months, endless iterations, and a significant amount of management time are too much for the little actionable value it offers. This effort would be far better used to carry out frequent, accurate forecasting and market analysis.
4. Annual budgets tend to be set-and-forget documents
Yet outdated, one-year budget plans are still seen as a set, rarely modified guideline, although business and market conditions are constantly evolving. The go/no go decisions are often taken at the time of the yearly budget. Which leaves little flexibility for chasing new opportunities coming from outside events, and causes a gap between budget targets and business objectives.
But now you might be wondering: If not classic budgeting strategies, then what?
It is not about completely eliminating your one-year budgeting plan, but rather about paying greater attention to other complementary and more agile techniques for really solving business problems.
Most leaders agree that live rolling forecasting is the solution every organization should adopt. By eliminating the need to spend hours manually inputting data into spreadsheets, rolling forecasting enables you to get fast access to all your financial data in one place.
Because dynamic forecasting provides real-time updates and useful insights into trends and potential outcomes, this method may help you plan ahead, prepare for unforeseen developments, and make smarter spending decisions throughout the year.
All in all, switching to a better connected and periodically updated process will allow you to be more proactive with information and transform data into realistic, practical insights. All while focusing on growth initiatives and deploying resources efficiently to achieve long-term goals.
Why is the distinction between raw data and useful insights vital in your budget strategy?
Being able to distinguish between a collection of data and information that is genuinely useful to the company is one of the major challenges facing department leaders today. Data is only useful if it can be analyzed, understood, and acted upon. Thus, your true value as a Finance analysis leader lies in your ability to gather the appropriate data now, so that you can influence your company's development tomorrow.
The way you use the collected data to create or upgrade products or services will determine how successful your business is in its industry. It is not enough to just collect data; you need to understand what that data means and plan how to act on that information.
This is the point at which live rolling forecasting truly shines in comparison to traditional budgets. Live rolling forecasting gives you the capability to analyze data in real-time and take immediate action based on results. Which allows you to react quickly to market conditions and adjust your plans accordingly.
In other words, live rolling forecasts take static budgets one step further. They enable you to make informed decisions with actionable insights instead of relying on mere, already outdated numbers.
Put an end to wasteful practices: Save time and money by automating your financial data collection and analysis
Are you one of the Finance executives searching for a more agile and strategic approach to budgeting? Do you want to get rid of old, pointless procedures? If so, Abacum's budgeting tool might be worth checking out.
At Abacum, we created an FP&A solution to assist Finance professionals to excel in their organizations through greater insights and faster execution. By moving to rolling forecasting and automating the data collection process, you may improve the accuracy of your future projections, while also becoming more resilient and future-proof against potential setbacks.
Request a demo now to find out how to make better decisions faster and optimize your financial management strategy.
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