How to better connect – and communicate – planning, forecasting and budgeting

Finance professionals are taking on strategic duties in addition to traditional reporting and compliance roles, and they’re becoming more influential in their organisations. But they still have an opportunity to make significant improvements, particularly when it comes to the use of forecasts.

“[The] increasing speed and complexity of business has caused a rapid decrease in the planning time horizon,” strategy experts Michael Coveney and Gary Cokins explain in the introduction to their CGMA book Budgeting, Planning, and Forecasting in Uncertain Times, which is scheduled to be released this month. “As a consequence, the traditional planning processes of strategic planning, annual budgeting, quarterly forecasting and monthly reporting have become unsuitable for most organisations’ needs. In light of this, senior management struggles in determining what planning techniques they should adopt as a replacement.”

Their book is based in part on a survey of 495 CGMA designation holders, who offered insight on the state of budgeting and planning. Here are some takeaways from the survey, with insight from CGMA thought leaders:

  • Deficit in scenario planning. The looming spectre of black swan events hovers over businesses. But so does the possibility that companies will be able to leverage new technologies for sudden, significant gains. Many businesses aren’t entertaining these possibilities in their planning. Just 46% of CGMA designation holders said in the recent survey that scenario planning is part of their organisation’s planning process. Lack of adequate resources was a common reason listed for not engaging in scenario planning, while many respondents (23%) said scenario planning was unnecessary.
  • Spreadsheets still rule. Although technology is advancing, spreadsheets are the tool of choice of CGMA designation holders for many tasks. At least half of respondents said they use spreadsheets or personal productivity tools for cash planning (71%); capital planning (67%); forecasting (64%); financial planning/budgeting (56%); strategic planning (53%); and tactical planning (51%).
  • Finance leaders still love budgets. Although improving and expanding forecasting is a priority for many businesses in the digital age, finance leaders still possess an affinity for traditional budgeting. About 62% of CGMA designation holders said they are somewhat or very satisfied that financial planning and budgeting processes are achieving their purpose in their organisation. Fewer respondents (55%) said they are somewhat or very satisfied that forecasting is achieving its results in their organisation.
  • Leverage forecasting in strategic decisions. Businesses sometimes underestimate the importance of forecast data in guiding strategic decisions. Many organisations struggle to get their forecasting and strategic planning in sync. Just 50% of CGMA designation holders said they are somewhat or very satisfied with the alignment of forecasting with strategic planning in their organisations.

Evaluating strategic options

Eniola Ogunbodede, ACMA, CGMAAnalysing data derived from forecasting should be an integral part of evaluating strategic options, according to Eniola Ogunbodede, ACMA, CGMA, a plant finance manager for Procter & Gamble in Lagos, Nigeria. It’s important to clearly highlight through forecast data how the execution of a proposed strategy will translate into results for the business, she says.

An important prerequisite for effective forecasting, Ogunbodede says, is letting the facts speak for themselves. Optimism and a positive attitude often are applauded in the business world, but those qualities can be a hindrance in forecasting.

“Generally, I believe businesses have become overly optimistic in the area of business planning, and this has led to delivering lower-than-expected business results,” Ogunbodede said. In forecasting, she said, it’s critical to:

  • Be objective. Information should be evaluated and projections should be made based on facts and assumptions that have been tested against historical data, where possible.
  • Properly reflect expected risk levels. An accurate assessment of what a strategy can achieve is dependent upon an objective assessment of risks to that strategy.
  • Balance data against business reality. Comparing previous forecasts to actual results can help forecasters more closely reflect reality. “And then ask yourself, ‘Would I make the same assumption?’ Because maybe I have realised that things may not necessarily work in this manner. Or the data has shown me that this assumption does not hold true.”
  • Essential role for finance. Eighty-eight per cent of respondents to the CGMA budget and planning survey said the finance function has at least moderate involvement in strategic planning, and 86% said finance has high or very high involvement in forecasting.

Reduce, focus, compare

Donny Shimamoto , CPA/CITP, CGMABut more can always be done to help organisations improve strategic planning. Donny Shimamoto, CPA/CITP, CGMA, the CEO of Intraprise TechKnowlogies, says management accountants would be wise to:

  • Reduce the volume of data. “You really have to come down to what’s important,” Shimamoto said. “What are the controllable costs that you want managers to focus on?”
  • Focus on the real business drivers – which may not be financial. “A salesperson … won’t tell you how much money they will make, but they’ll tell you how many cars they can sell,” Shimamoto said. “And then that’s something they can own.”
  • Get buy-in from business units. “There’s always a gap between what management wants and what the operations person is going to do,” Shimamoto said. “That’s the gap where you negotiate, talk about it, figure out what really is realistic and what the business can achieve.”
  • Compare actual results to the forecasts to make sure the direction is a good one. “One of the key roles that we as accountants play,” Shimamoto said, “is really helping to see, ‘Are we going on the right course?’ ”

Rolling forecasts vs. budgets

Steve Player , CPA, CGMASteve Player, CPA, CGMA, the North American programme director of the Beyond Budgeting Round Table, offered insight into the state of the budget and the shift towards better forecasting methods:

  • On abandoning budgets. “The debate about abandoning budgets is ongoing actively, and many companies are actually dropping the budget. Yet, finance organisations in many cases are the last bastion to hold on to the budget. Understand how damaging that is to the organisation, how irrelevant that makes finance, and really make finance the leader in breaking free from that, and instead going to a continuous rolling forecast in terms of moving forward.”
  • On tracking the right metrics. “You have to step back and say, ‘What is our strategy? What’s critical to our success, and what metrics tell us if that’s happening?’ And you need to make sure you’ve got a balance of metrics, not just output measures, not the final score. … Move that even further upstream to begin to have not only process measures, but predictive measures. What things have to start way at the beginning of the process that foretell the future results coming down the road in terms of where we’re marching to?”
  • On communicating results. “We’ve got to convert into more moving pictures, more graphics, more understanding how to highlight and illuminate the important things, more how to tell the story of what’s really happening in operations and understanding the key drivers. … Finance people ought to be great storytellers, but right now we just stack up the numbers and hope somebody else can sort it out. If we’re going to become relevant and the kind of people we can be, we’ve got to understand how to convey messages of what’s really important.”

Ken Tysiac ( is a senior editor and Jack Hagel ( is the editorial director at CGMA Magazine.