Rethink budgeting with a digital-first mindset
4 MINS READ
For organizations across industries, the annual budget planning process is essential to keep them on track and monitor areas that need improvement to deliver sustainable, profitable growth.
Budget planning is often time-consuming, stressful, and workforce intensive, more so in uncertain macro-economic scenarios. Future-proofing the budgeting process, is therefore, an imperative for organizations. Common budgeting challenges include:
Lack of adequate in-depth analysis that often results in a poor understanding of return on investments (ROI) .
Demand-based and misaligned with the overall goals of the organization.
Consistently workforce intensive, requiring massive time commitment, and resulting in inaccurate estimations due to human errors.
Inadequate resources to withstand major uncertainties.
From the chaos they experience during uncertain times, companies learn to rethink traditional ways of doing business.
To successfully formulate and future-proof budgets, organizations need to consider agile and iterative methods that imbue flexibility, responsiveness, and adaptability into the budgeting process.
Applying agile principles to define a minimum viable plan (MVP) in the most valuable business areas first, followed by short iterative sprints, can broaden the budgeting capabilities of an organization. This means compressing 3-6 month forecasting cycles down to 2-3 weeks. Additionally, harnessing digital forecasting engines can increase the speed and agility of the budgeting and planning process. Such an approach not only addresses short-term budgeting needs, but also revolutionizes the process by overcoming common budgeting challenges.
Agile budgeting best practices
Four key practices can help organizations adopt agile budgeting processes and overcome typical challenges.
Realigning the organizational culture: Better leadership and management, starting at the board level, can help build a flexible, and agile budgeting approach. Many can relate to the situation of a large-scale organization implementing a program that is designed to alter the way its teams look ahead and forecast. Companies urge their budgeting teams to develop six-month forecasts in just one week by planning ahead in shorter cycles using an agile mindset of controlled experimentation and innovation. The forecasts are then consolidated in the second week and presented to the executive team in the third week. Such disruptive practices cannot flourish without the support of top leadership.
Begin with the end in mind: Understand the key drivers of success for the organization and maintain budgeting rigor around these drivers. Organizations generally begin building KPI dashboards based on the availability of data or current demand. These short-term agendas often fail to achieve a significant change in how companies operate. Focusing on a limited set of key value drivers, on the other hand, can help achieve better budgeting outcomes.
Adopt a short-term mindset: Shooting for a full-year budget with more than 90% accuracy may not be the ideal way to approach budgeting. Instead, it helps to focus on flexible, iterative planning to increase accuracy. Shorter iterations and adjustments will increasingly help predict short-term events with more frequent forecasts.
Focus on capability and knowledge building: For modern organizations, the ability to predict and rapidly respond without disrupting business as usual is a key competitive differentiator. It is therefore best to focus on building an optimized finance and budgeting process as a core capability, rather than evaluating the success or failure of each iteration.
Eliminating redundancy and errors is the first step to a successful transformation.
To begin, assess your current processes to identify areas that can be automated to improve efficiency and accuracy. Many of the current budgeting and forecasting practices are still largely manual and can be easily automated. Leveraging digital platforms that automate repetitive tasks, and blending them with AI and machine learning engines, can significantly accelerate cycle time. One of the leading global technology players improved its forecasting efficiency by more than 80% using technology and intelligent algorithms to tackle the more mundane and arduous tasks. But given the complexity involved in leveraging these technologies, few organizations can do this on their own. Striking partnerships with proven service providers can help companies not only access the right capabilities and avoid the typical pitfalls associated with such implementations but also accelerate time to market and ROI.
Adapting agile budgeting and forecasting ensures flexibility and resilience.
While letting go of traditional approaches can be disconcerting for business leaders, making a clean break with legacy procedures, using best practices and leveraging technology can set organizations on the path to success. A global technology players improved its forecasting efficiency 80% using intelligent algorithms to tackle the more mundane and arduous tasks. Harnessing digital forecasting engines can increase the speed and agility of the budgeting and planning process.