This article provides an overview of the topics and cases presented and discussed by the expert panellists at the webinar “From Traditional to Better and Beyond Budgeting”, as well as the results of our polling questions.
The organisation used to spend over 52 weeks on planning, but with an accuracy of only 92% -- low when compared with the resources allocated.
It is commonly agreed that the traditional budgeting process is time-consuming and costly. It rarely focuses on strategy and adds little value. Although traditional budgets have evolved over the years, they hardly meet the challenges of the modern economic and business environment.
Corporate Performance Management (CPM) has long consisted in breaking the company’s strategy down into operational objectives and indicators, measuring the achievement of these objectives against operational entities' budget or forecast and take action on that basis. This approach was effective in a stable business environment, with slow and controlled changes.
The New Normal means that planning is no longer an extrapolation of the past. Similarly, business drivers that worked last year may no longer be relevant for the future. The reality is that organizations face multiple possible futures. Each one can be triggered by a crisis or an unforeseen event that will require the company to adjust or even change course.
So how should FP&A adapt to this New Normal?
Today’s uncertain times mean that it is no longer good enough for organizations to have one fixed plan and forecast. Historic data by itself cannot help predict the future, nor can classical planning methods and standard variance analysis provide sufficient information to manage a business. It is time to change and adopt a fact-based mindset towards business decisions.