Planning, budgeting, and forecasting
The financial planning process of a company involves a series of steps that focus on the company’s ability to make the best use of free capital through investments and other activities to potentially achieve its financial goals. Most financial goals often focus on savings, returns, and real estate investments to develop a roadmap for financial freedom and are based on the company’s strategic plans overall.
The classic financial planning process is a continuous process that includes the following elements.
The process is supported by the finance department who also helps prepare the company’s budget for the year, and ongoing forecasts to help with the financial follow-up.
What are budgeting and forecasting?
Budgeting and forecasting are important areas when the company needs to implement strategic plans and plan for future activities. But planning, budgeting and forecasting are often resource-intensive processes with interdependencies where the latest updates are not reflected.
The budgeting process often involves several departments that need to update their business plans – often based on other people’s input – and ensure coherence to other areas, so that the finished budget is coherent and based on the same foundation.
The benefits of a modern solution
Whether the solution should support an annual budget, a rolling forecast, or simply input for future plans in general, a modern solution provides a number of benefits:
- Integrated processes – e.g. establishing a link between sales and the financial budget
- Workflow overview: Who needs to complete which tasks?
- Integration with other IT systems
- Simulation/what-if scenarios – the ability to work with multiple versions also makes it easy to set up several scenarios
- Use of historical data as a basis and/or distribution key
- Create a central place for planning initiatives and follow-up
- Combine top-down goals with bottom-up input
- Possibility for developing reports in real-time
Budgeting and forecasting are typically based on the finance department’s annual program when schedules and activities are to be determined, and the data basis for these activities depends to a large extent on the other work tasks in the department as well as the ability to be effective with the help of digital solutions.
A budgeting and forecasting solution from Kapacity
Our approach to budgeting solutions ensures that we touch all aspects of the budgeting process.
We start by mapping the most important elements of the budget model in an analysis workshop.
We recommend taking the chart of accounts as a starting point, as this is most often central to the solution and links the various budget areas together on operations, balance sheets and cash flow. After this, we can expand the solution to solve specific areas such as salary, IT, and final investment & depreciation, so that balance and the future cash flow can be estimated.
Budgeting and forecasting are not isolated activities
Kapacity’s approach ensures a link between financial planning and follow-up. Budget and forecast are updated and approved in the Performance Management solution, but often the approved business plans will be exported to the Business Intelligence solution so that follow-up and deviation analyzes are performed in the existing BI solution.
We are increasingly experiencing companies using statistical algorithms to increase the quality of budgets. Time-based projections can support the development of budgets, and confidence intervals can validate budget inputs and give rise to a qualitative dialogue concerning the level of budget and forecasts.
Most importantly, however, the input from the algorithm is explained and accepted by the business as budget input and not the final budget output. With modern Performance Management, it will be possible to adjust the technical input.
Kapacity can help with the following:
- Assessment of needs and level of ambition
Evaluation of existing solutions with suggestions for changes and improvements
- IT support of the entire planning process
Sparring about organization, roles, and responsibilities
Project management in connection with the implementation of solutions
Guidance in relation to change management and anchoring of the solutions
