Seven tips to speed up planning and forecasting
By David Parmenter
In the past accountants have tried in vain to budget at an ever more detailed level to somehow see into the future. It was and is now still a pointless exercise. We need to acknowledge that it will be wrong so let’s get it wrong quicker! Albeit as close as possible to the future actuals. In planning, many processes are carried out, year-in and year-out, because they were done last year. All the previous ‘givens’ associated with forecasting should be challenged and all the inefficient processes abandoned as Peter Drucker preached. Just as a house is built on a solid foundation, forecasting financial numbers should be built on best practice ‘foundation stones’.
Forecasting at a category level rather than at account code level
Forecasting at a detailed level does not lead to a better prediction of the future. A forecast is rarely right. Looking at detail does not help you see the future better. In fact, I would argue that it screens you from the obvious.
Separating targets and realistic forecasts
Generating realistic forecasts rather than forecasts that the board or senior management wants to achieve is vital. If the forecasting team reports what the board wants to hear, they are simply hiding the truth.
How to forecast revenue – a number you will never get right
With over 200 products and 2,000 customers how do you reasonably obtain an accurate sales forecast? Sales need to be forecast by major customer and major products. The rest of the customers and rest of the products should be put into meaningful groups and modelled based on the historic relationship to the major customers buying patterns.
Involving a “crowd” in planning and forecasting can have a major positive impact on the process. Have multiple forecasts made from different viewpoints and then take the average.
Take the politics out of planning
The annual plan should not create an entitlement to spend, it should merely be an indication, the funding being based on a quarterly rolling basis, a quarter ahead each time. This takes the politics out of planning.
To pay sales staff on a predetermined annual sales target has been broken since commerce began. It is flawed logic and will only work when you can see into the future and get it right
Abandon large forecasting spreadsheets
Spreadsheets have no place in forecasting, budgeting and reporting routines because of their susceptibility to error.. A spreadsheet is a great tool for creating static graphs for a report or designing and testing a reporting template; what it is not, and should never have been, is a building block for your organisation’s reporting, forecasting or planning systems.
Acquire a planning tool
Acquiring a planning tool is a major step forward, and one that needs to be pursued, not only for your organisation’s future, but also for the future careers of the finance team. Soon, a career prerequisite is likely to be planning tool experience, and, conversely, being a spreadsheet guru is likely to be career limiting.
Embrace lean and complete your plan in two weeks
An annual plan should be completed from start to finish including negotiations and quality assurance in a two week timeframe. Unlike wine, planning does not improve, with the more time and effort you put into it.
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Purchase How to Implement a Forecasting and Planning Tool – and get it right first time Toolkit (Whitepaper + e-templates) This paper will explain why you need to migrate from your Excel based forecast spreadsheet to a more robust and reliable planning tool. It will help you avoid common mistakes when implementing a planning tool for the first time
Purchase How to Implement Quarterly Rolling Forecasting and Quarterly Rolling Planning – and get it right first time Toolkit (Whitepaper + e-templates) If you want to replace annual planning with a quarterly rolling planning process. The lessons from this paper will help you transition from annual planning to quarterly rolling planning.