Budgeting and forecasting can be a demanding process with less than satisfactory results. Although there is no “magic bullet” for forecasting and budgeting success, these tips may help the process go a bit more smoothly and result in a better outcome.
- Reach out, early and often – Forecasting and budgeting should be collaborative endeavors – those who will have to live with the budgets and forecasts may have valuable ideas and inputs that will make them better but will also prevent a lot of objections and revisions later in the process. Keep those lines of communication open throughout the process to minimizing issues, driving participation and ensure alignment between organizational and operational strategy.
- Learn from experience – How well did performance follow expectations in recent years? Look at performance to budget and forecast for guidance on how future projections can be more valid. Identify areas that might need a bit more attention, so you can understand any underlying issues and consider limitations or challenges in new projections. You may want to provide additional support to these departments and units during and after the budgeting process.
- Pick your battles – Use the 80/20 rule (Pareto analysis) during the review process before finalizing the budget. Focus on the minority of accounts (the 20%) that represent the majority (the 80%) of the money, profits, costs, or uncertainties.
- Be reasonable (and efficient) – Set up your budgeting cycle and process for maximum effect with minimum impact on departmental resources. Understand that budgeting and forecasting do not move product out the door (the highest priority for operations) so it can be considered a distraction. Do keep operations involved but be sensitive to their needs and availability.
- Maintain visibility – Forecasts and budgets are powerful management tools – it is difficult to hold departments and business units accountable for their performance to budget if they have limited visibility. Provide departments and business units with convenient access to financial and operational performance to budget to support quick decision-making.