3-way budegting, planning and forecasting

Ask most CFO’s and finance directors to describe an ideal forecasting and budgeting process, and they’ll likely portray it as part of an overall integrated performance management framework, ultimately driven by value-based measures. At the same time, however, they’ll admit that achieving this vision involves a significant transformation to their current forecasting and budgeting processes, systems and organisation.

As planning, budgeting and forecasting (PBF) moves up the corporate agenda, it’s importance as a strategic contributor is becoming more apparent. Finance executives know the days of static budget preparations and a rigid finance plan for the year are decreasing, but the pace of change is slow. A few early adopters have embraced innovative and experimental technology through a complete overhaul of their systems and processes, but most will only commit to dipping their toe cautiously into the future of PBF.

Example: 3-way budgeting

Since the pace of change and the level of uncertainty increases, it is important to model the financial impacts of a whole range of scenarios, months and years in advance. Being able to model the financial impact of any decision in advance makes all the difference in successfully improving cash flow and growing business value.

A budget should never be just a profit and loss prediction without any real thought for growth, strategy and business improvement. 3-Way Budgets not only provide a target for profitability, but also budgets for the balance sheet and most importantly cash flow.

The 3-way budgeting approach means you can always be certain that your Profit & Loss, Balance Sheet and Cashflow reports are in synch. With double entry accounting logic behind every number, you can be confident that the numbers are right, every time. All three budgets can then be used to navigate your business and have strategies in place to reach your desired goals.

Translate your strategy into plans, budgets and forecasts

3-way budgeting unifies and adapts financial statements and planning in one solution. This can lead to dramatic increases in process efficiency. Not just compared to typical Excel only processes but even compared to specialised planning applications that typically only cover the planning aspect well and then create a lot of maintenance efforts to integrate data with a separate data warehouse, data discovery applications or financial statements. This approach often shortens budgeting and forecasting cycles from weeks to a few days.

Finally, in this value-driven environment, the adoption of leading budgeting and forecasting practices is critical in achieving finance mastery and, ultimately, high performance. Business strategy must be effectively translated into long-term plans, mid-term budgets and short-term forecasts in order to make sure that strategic objectives are met, financial targets are reached, and shareholder value gets created in a proper and sustainable manner. 3-way budgeting enables companies to produce a representative picture of an organisations financial and operational data.

At bi5, we believe that advanced PBF can be performed in many different ways, however, its is necessary to identify which ”way” suits your team and organisation best.

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