Planning in the Future: Budgeting, Forecasting, and Modeling

This article will explore and discuss what planning should and will look like in the future, zooming in on what you need to know about finding the right solution for your organization.

Last week, I wrote generally about Corporate Performance Management (CPM) in the future. This week, let’s focus on planning or budgeting, forecasting, and modeling in streamlined, modern, collaborative ways that mirror the times – through technological solutions. In the coming years, CPM platforms will offer fully integrated strategic planning, forecasting and budgeting functionality as part of their CPM suites. Here is some of the key functionality that will help support optimal forecasting and budgeting:

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Event-Driven Functionality

CPM Suites will increasingly offer automated modelling functionality so that managers quickly can provide forward-looking plans and scenarios that are event driven. In other words, if there is a market crash, a company may quickly need to produce an updated cost reduction budget, or if a company is looking to acquire another business, they may need to analyze the cash flow impact and produce pro-forma financial statements to executives to help them make optimal decisions.

Purpose-Driven

Other important functionality that will be better and easier in future CPM suites is the ability for smaller businesses or resource-strapped accounting departments to automatically create budgets or forecasts to be used, e.g. to get a line of credit at the bank or to set commission quotas for a sales team that are dynamically connected back to a budget scenario. This can eliminate the massive use of manual, non-integrated spreadsheets that exists today for special or departmentally-driven micro-planning processes such as the examples provided.

Strategy-Driven

While today, most organizations enter and store their strategic goals and initiatives outside their CPM tools, in Microsoft Word or PowerPoint, in the future they will be able to easily capture these in their CPM suite and thus fully integrate the related key metrics in forecasts, budgets and reports, thus ensuring that all users have constant visibility to strategy and goals for their decision-making processes. This is extremely valuable to a company because it helps ensure that decisions at all levels are aligned with the planned strategic direction of the organization. A survey published by the Harvard Business Review found that only 5% of employees understand the company’s strategy. It is easy to imagine the benefits to a company when the opposite is true, and this can be enabled by including such metrics and information within the CPM platform, so that strategy and goals are not forgotten and “lost” to employees, but instead are constantly visible and available to users to help guide their decision-making processes.

Automated Strategy Adjustments

Not only will CPM suites of the future be able to automatically integrate strategy and goals into a budget, but the reverse will also be true. For example, if there are changes in, e.g., funding requests because a department suddenly needs to hire 10 people not planned for due to a new product idea, a change in direction or a response to competitive threat, a reforecast due to any of the mentioned events may automatically drive a change to the related strategic goals.

Budget Planning Optimization

While preparing an organization-wide budget typically is an arduous process in itself, especially for bottom-up processes where a large number of people are involved in entering and reviewing budgets, it gets even more complicated when advanced business rules and constraints are involved. The actual planning process ends up becoming very complex and time-consuming as a result of numerous decision points that need to be evaluated concurrently, including market demand and funding availability. In future CPM suites, planning and analysis optimization techniques will more effectively translate business rules into mathematical formulas that can be used to create dynamic budgeting and forecasting scenarios. Furthermore, integrated algorithms will be able to solve those equations and provide the best budget allocation options among all possible scenarios and types of drivers, such as risk reduction, cash flow targets and profitability goals.

Machine Learning and Automated Forecasting

According to Wikipedia, machine learning is “the subfield of computer science that gives computers the ability to learn without being explicitly programmed.” In recent times, there has been increasing interest in and development of algorithm-driven programs to automate the ability of software programs to perform all kinds of personal and business tasks. In the field of CPM, this includes forecasting future metrics based on historical data as well as current and estimated conditions, such as weather, inflationary risk, and more. The more variables you add to the mix, the harder it is for a human brain or basic spreadsheet models to figure out, and the better suited advanced algorithms that dynamically update and improve themselves are to perform tasks such as forecasting.

A practical example, often of critical importance to a business, is to forecast future inventory needs as accurately as possible. This is often referred to as predictive analytics and “real-time forecasting” because it can be almost instant without the need to collect forecast data from end users. Another example is in sales, where machine learning and algorithms can look at a large number of variables and patterns and figure out which customer is most likely to buy a specific product from you right now and thus should be prioritized by your sales team. This is typically referred to as prescriptive analytics. In both examples, CPM software can enable world-class decisions and help propel a company to the leading position in their industry.

Solver enables world-class decisions with BI360, leading web-based CPM suite made up of budgeting, reporting, dashboards, and data warehousing, delivered through a web portal. Solver offers BI360 through cloud and on-premise deployment and is reinventing CPM with its next generation solution. BI360 empowers business users with modern features including innovative use of Excel in the model design process. If you’re interested in learning more, our team is excited to hear about your organizational needs and goals.

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  1. Pingback: Future Planning: Budgeting, Forecasting, and Modeling - Microsoft Dynamics GP Community

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