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Annual Budget, Rolling Forecast or Both

There are many advantages in utilizing both budget and forecast tools, as long as the process does not dilute progress for the business. Most everyone has heard the term "analysis paralysis"; there are many companies which invest too many resources to produce a budget which is usually outdated by the time its published. In the May 2011 edition of CFO, an article "Let it Roll" (link below) by Russ Banham, sites many examples of changing times associated with the planning process.

Joel Lesser
Joel Lesser
Unilever, a $54 billion dollar consumer products giant, has eliminated the budget process all together; they now have an eight-quarter rolling forecast. Even smaller companies, such as Norton Lilly, a $50 million dollar shipping agency adopted a 12-month rolling forecast.

The bottom line is that each organization must utilize the tools which provides the best results. I personally find a combination of the annual budget and quarterly forecasts to be an efficient combination. The annual budget sets revenue and profitability expectations tied to an incentive program. The quarterly forecasts account for current trends and/or changes to strategy, such as an acquisition or a divestiture. Management needs quick access to current business modeling that is not hindered by layers of bureaucracy, typically found in a budgeting process.

One of the most effective tools is to have routine business review meetings with the key management staff. If these meetings are focussed and the take-aways are incorporated into the forecast, they will enable the team to manage the business dynamically.

Let It Roll :

Joel Lesser is a CFO who makes decisions - with his own brand of diligence, integrity and thoughtfulness - that ensure reliable foundations on which businesses and talent may grow.
Acutely aware of the domino effect of change, he constantly asks himself, “Are we not only doing it right, but also are we doing the right thing?”

Jeudi 26 Mai 2011

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