Six Techniques for Optimizing Your Budgeting & Forecasting Process
by Tony Ard
The New Strategic Role of Finance
It is both a challenging and exciting time to be in finance.
Financial planning is no longer a simple financial
forecasting exercise; instead, it has evolved into a more
integrated financial and operational planning activity that
touches the entire organization. And given today’s dynamic
business environment, these plans are constantly
changing. To stay competitive, organizations must be
nimble and flexible, re-evaluating plans on an on-going
basis to address emerging opportunities and threats.
Finance leaders, in particular, are under more pressure
than ever to find better ways to support their core
businesses by managing uncertainty, volatility and risk.
In this shifting paradigm, it isn’t surprising that so many
organizations struggle with strategy execution – the
process of translating strategy into actionable and
measurable operational initiatives. Finance teams must
shift time away from tedious data aggregation functions
and spend more of it delivering value-added analysis,
Improve and Shorten Your Planning Cycle
identifying trends and using analytics to advise business
decisions that impact profitability. The volume and
complexity of the financial and operational data that
Finance must manage contributes to the increasing
sophistication of models needed for strategic planning.
So, how should we spend our time? According to a number
of studies, the average finance professional today spends
40 percent of their time collecting and compiling data, 25
percent maintaining spreadsheets, 20 percent creating
reports and 15 percent doing analysis and other activities.
The best organizations look very different. They spend 10
percent of their time collecting data, and 30 percent doing
analysis – yes only 30 percent. High-performing finance
organizations move from analysis to a rich interaction with
decision-makers, discussing what the analysis means.
“What are the alternate scenarios we should focus on?”
“What are the tradeoffs?” The best finance professionals
tend to spend a great deal of time with the people and
functions they’re supporting – as much as 40 percent. They
truly become a trusted advisor facilitating the decisions that
the organization should be making – focusing on
operational information combined with financial data.
Realizing the Benefits of Performance Management
For many finance professionals, the annual budgeting
process is an all-consuming process that is often outdated
within months (if not weeks) of being finalized. There are few
who relish the experience, as it is often characterized by
long hours and vast differences between what executive
management wants and line management can deliver in
terms of future financial performance. In 2012, we asked
100 Finance personnel across the country a series of
questions about their planning process. One of them, “How
long does it take?” yielded a surprising result: more than
88% of respondents take at least one full business quarter
to plan their budget for the upcoming year.
While there is no question that budgeting & forecasting will
remain a core function of finance, it is critical to integrate
the process to broader organizational initiatives in a more
flexible and seamless manner. Budgeting should be
considered an ongoing and key component of a broad
performance management process within the organization.
The performance management process consists of the
repeatable steps that are necessary to strategize, plan,
This paper is designed to give you actionable insight to
overcome some of the biggest hurdles to implementing an
effective planning process whether it be long-range
strategic planning, an annual budget or a rolling forecast
(below). The end goal is to not only implement a best
practice planning solution, but also to help you succeed as
a trusted advisor to the entire organization in order to drive
improved performance.
Proven Methodologies That Work
Best practices are often advertised as “silver bullets”. As
Finance teams look to re-engineer inefficient and ineffective
budgeting and planning methodologies and tools, they
realize that one approach can’t be right for every
organization. In reality, a ‘best practice’ planning
methodology can’t really be hard-wired, and an optimal
process is often a function of an organization's culture or
even the competitiveness of their market. However, from
our work partnering with clients, partners and industry
thought leaders over the past 20+ years, there are certainly
some common methodologies that have repeatedly
emerged as critical for enabling a modern, flexible and
efficient budgeting and forecasting process.
monitor and analyze such that business professionals can
both plan and execute in accordance with company goals.
Unsuccessful performance management projects can often
be linked to a failure to document the process inclusive of
its deliverables. When departments are aligned and the
desired process is understood, technology can be applied
to complete the picture.
Align rolling forecasts, multi-year plans, and detailed budgets
Improve and Shorten Your Planning Cycle
Here are 6 budgeting best practices that we believe are
applicable to the majority of medium to large sized
organizations across industries:
Adopt a Driver-Based Planning Approach – driverbased and history-driven logic can help to seed the
plan mathematically in alignment with corporate goals
(e.g. growth factors) greatly reducing the amount of
input required by a planner and ultimately helping to
automate and shorten annual budgeting cycles.
Embrace ‘What-If’ Scenario Modeling – adopting a
scenario-based approach to planning can greatly
enhance the business management process for most
organizations - whether conducting sensitivity analysis
focusing on a key driver of the business or building
more advanced, multivariate or initiative-based
Tie Operational Reporting to Strategic Objectives –
effective financial performance reporting should be
role-based giving each decision maker visibility into
KPIs and metrics in context of their individual domains.
Scorecards and interactive dashboards that provide
automated alerts and notifications as well as a
feedback loop to capture explanations and
commentary helps ensure all stakeholders have
visibility and accountability. The ability to perform
efficient ‘drill-through’ analysis to underlying details
can guide and direct corrective action.
Optimize the Planning Process:
6 Proven Techniques
Forecast on a “Rolling” Basis – many leading edge
companies are moving to a rolling forecast model with
flexible budgets and event-driven planning. Actual and
monthly projections for “rolling” 12-18 month periods
provide a trended view of performance, typically
represented at an entity level. The model helps assess
current realities that will influence longer-range (multiyear) projections, as well as detailed operational plans.
4. Deploy Initiative Based Planning & Tracking – establish
owners, milestones, budgets and achievement goals
for critical initiatives. Streamline the process of
identifying, reviewing and approving new initiatives
1. Adopt a Driver-Based Planning Approach
2. Embrace "What-If" Scenario Modeling
3. Forecast on a "Rolling" Basis
4. Deploy Initiative Based Planning & Tracking
Streamline and Automate Data Collection
6. Tie Operational Reporting to Strategic Objectives
and ensure project owners and contributors identify
budget variances, highlight benefit achievement, and
capture comments at any level. With workflow
integrated in to the process, key stakeholders across
management levels have complete visibility into the
performance of various initiatives, improving
organizational alignment.
5. Streamline and Automate Data Collection – improve
the integration of both financial and operational
information by automating data feeds, including
manual data collection activities into a single data
store so that all planning and reporting is based on the
same metadata and ETL process enabling the delivery
of consistent, trusted information.
Improve and Shorten Your Planning Cycle
Now, let's take a look at each of these areas in more depth.
1. Adopt a Driver-Based Planning Approach
For some time thought leaders in the performance
management domain have been espousing the virtues of
building financial models that incorporate operational data
or drivers. Financials, as we know, are outcomes. And while
they are certainly of vital importance – the ultimate score, if
you will –they are by nature lagging indicators focusing on
past performance. The activities or drivers that generate
financial outcomes must be identified in order to
understand and model the enterprise. They are, in modeling
terms, the independent or predictor variables – the main
causal factors that should be highlighted and leveraged in
planning models.
This assumption was recently validated by a survey we
conducted with the FP&A departments of 100+
organizations where >60% of respondents cited
operational drivers as a key component to their model. We
have encouraged our own customers to import data
sources beyond the general ledger into the Axiom EPM
platform and to work with us to construct models that link
operational data with financials. In healthcare, that typically
means including all in-patient and out-patient statistics –
healthcare revenue and numerous expense line items are
directly tied to these statistics. In banking, interest income
is really a function of balances and yields. Yields are a
function of the general level of interest rates, spreads to
those rates and the relationship between what is being paid
down from prior periods and what is being originated in the
current and forecast periods. Even simple unit pricing and
unit volume statistics can be useful for modeling revenue
4 key benefits of operational drivers
The benefits of incorporating operational drivers are
1. They enable organizations to design models that focus
on the leading versus lagging indicators. Too often
budget systems are constructed by keying in financial
outcomes with no real insight into how those outcomes
will be achieved.
2. They provide much greater insight into what’s actually
going on in the organization. “Revenue was below plan
due to lower sales volumes and deeper discounting
than expected.” In this example, the plan had
assumptions about sales volumes and avg. discount.
All plan/actual reports can and should include not only
financial variances, but operational variances as well.
3. They enable planners to evaluate alternative scenarios.
No one knows the future, but a well-constructed driverbased model enables planners to understand and
model the sensitivity to key assumptions. Our
recommendation to clients: don’t take a single set of
numbers to your executives and board. Present several
scenarios (perhaps anchored around a base case),
educating the executive team and the board about the
sensitivity to key assumptions. It is one of the great
value-added services you can provide to your
4. They will increase the predictive accuracy of your
forecasts and models. Once drivers are collected and
incorporated into the business logic of your budget or
forecast, one can back-test and tune the logic based
on actual experience, improving the predictive quality
of your planning model through time.
Establishing the proper statistical relationships to adjust
drivers to “flex” volume, workload, revenue and
departmental plans is essential to efficient planning.
Assumptions related to global volumes, reimbursement
rates, inflation factors, labor rates and efficiency targets
should all cascade down to “flex” revenue and expense
plans. Driver-based and history-driven logic can help to
seed the plan mathematically in alignment with
corporate goals (e.g. growth factors) greatly reducing
the amount of input required by a planner and
ultimately helping to automate and shorten annual
budgeting cycles.
2. Embrace 'What-If' Scenario Modeling
The shifting sand underneath our feet is particularly
problematic for planners. All too often organizations budget
or forecast with one economic scenario in mind. Finance
organizations often feel a great sense of accomplishment in
Improve and Shorten Your Planning Cycle
completing “the budget” or “the forecast” without realizing
they have focused all their attention on one potential
Logic Layer
Inputs and
scenario. The concept of scenario testing is not new, yet it
is surprising how few organizations actually implement it. In
research we conducted earlier in the year, only 8% of the
e.g. (Price * Volume – (Regional Discount Factor*
Volume) * Shipping Fee) – Return % = Net Sales
entities surveyed said they simulated alternative scenarios
regularly. When we probed further with these 100+
organizations, to understand why so few were doing regular
scenario analysis, we learned the following:
Our model was never
properly set up
We don’t have a good
handle on our drivers
Our budgeting is zero based
It is encouraging to see that finance teams don’t view
management as the impediment to performing scenario
analysis. This makes intuitive sense, as management teams
have a strong appetite for understanding sensitivities to
their business. Ideally, finance teams should present not
one forecast but several, highlighting expected
performance under different operating assumptions. There
are externally oriented scenarios that organizations can run
focusing on changes like future customer demand, GDP,
interest rates, housing starts, competitive price changes disruptive competitor offerings, etc., and there are
internally oriented scenarios that might focus on new
product offerings, pricing assumptions, changes in
productivity, workforce growth/decline expectations,
channel expansion, etc.
However, to succeed finance teams must first overcome
the most common hurdles. One of these is the false
perception that it takes too much time. This can be a selffulfilling prophecy. In reality, scenario modeling does not
need to be a time drain. Well-designed technology that’s
coupled with the right data and modeling logic results in a
great deal of process automation. Altering a driver
assumption and processing a new scenario should take
minutes, not hours or days. Most commonly it is
deficiencies in technology, data and business logic that
makes processing scenarios so time consuming. Get these
pieces right and scenario modeling should be a fast and
efficient process.
We don’t have enough time
Management hasn’t
shown interest
Improve and Shorten Your Planning Cycle
1. Driver Assumptions: Well-constructed scenario
planning models have identified the key drivers to the
business (internal or external). Unlike spreadsheet
models, these variables should be extracted from the
business logic and stored independently so that they
can be viewed and easily modified. The ability to clone
and alter driver assumptions as versions is also critical.
2. Business Logic Layer: The interplay between driver
variables and financial outcomes is the heart of any
scenario planning model. The goal of the business
layer is to define algorithms that best emulate the
dynamics of the organization. It should be transparent
so planners have easy access for the purpose of
tuning their models.
3. Collaboration and Inputs: The results of any driverbased process typically require the ability of subject
matter experts to review and make additional
subjective judgments regarding expected results. The
best scenario planning model enables robust
computations but also allows users to make
adjustments, giving stakeholders access and allowing
them input to their respective domains.
4. Scenario Storage: After stakeholders have given their
input, scenarios need to be efficiently stored in the
model repository. Naming, storing, and retrieving
scenarios should be straightforward for planners to
manage. It is important that all data, metadata, user
input, and calculations are stored for each scenario.
5. Scenario Presentation: The creation and efficient
storage of numerous scenarios requires an equally
competent approach to presenting the results.
Whether in reports or dashboards, it is vital that side-
by-side comparisons can be easily constructed
including the key drivers along with the financial
information, as well as narrative providing quick
hitting detail.
In order to get started and prove value quickly, we often
recommend a single variable sensitivity analysis – the
process of changing one variable at a time while holding
others constant and quantifying the impact of that singular
change. These types of scenarios are the easiest to process
and represent a great starting place for the organization.
3. Forecast on a "Rolling" Basis
Rolling forecasts are gaining in popularity and in some
extreme cases are even replacing the annual budget
process. Steve Player, North American program director at
the Beyond Budgeting Roundtable and an expert on
budgeting and planning, comments "In the old days, the
CFO sat in the back of the ship recording what
happened ... now, the CFO stands on the bridge looking
forward and adjusting for variables." There are multiple
factors driving this shift:
Time Considerations: For many finance professionals,
the annual budgeting process is an all-consuming
process that often takes at least one full business
quarter to plan their budget for the upcoming year. As
result, many finance teams essentially lose 1/4th of the
year on managing the annual budget process vs. other
value added analysis that can impact decision making.
Rapid Change: Often the assumptions on which budgets
are based change even in relatively stable environments
and are outdated within months (if not weeks) of being
finalized. This makes most budget targets obsolete
shortly after they are prepared.
Many CFOs want to spend more time managing the future
instead of dwelling on the past, and adaptive organizations
are using rolling forecasts to inform better decision making
and organizational behavior focused on optimizing top and
bottom line revenue on an ongoing basis. It is important to
remember that the ultimate purpose of forecasting is to
get the most realistic picture possible of the future for as
far out as a company’s management can see. The
business forecast should link short-term operational plans
with medium-term strategic goals.
Our recommendation for companies is to have a strategic,
long-range forecast that spans at minimum 3-5 years. This
long-range forecast should be updated at least annually.
However, when forecasting for the next 12-18 months, it is a
best practice to update or “roll” the forecast for future
quarters after the close of each period. This approach
requires a unique set of design considerations from both a
process and technology perspective. Actual and monthly
projections for 18 months provide a trended view of
performance, typically represented at an entity level. The
model helps assess current realities that will influence
longer-range (multi-year) projections, as well as detailed
operational plans.
Organizational Behavior: Traditional budgets are often
tied directly to individual department goals and employee
performance evaluation and incentive processes. The
result is a budget that is heavily negotiated to the lowest
acceptable target. This can result in leaving more
aspirational growth potential untapped (and unplanned
for) and can also encourage inappropriate spending and
discourage appropriate investment.
Improve and Shorten Your Planning Cycle
4. Deploy Initiative Based Planning & Tracking
Initiatives provide the ‘linkage’ to translate high-level
strategy into actionable operational plans. A well designed
initiative planning and tracking process achieves two key
objectives: it establishes owners, milestones, budgets and
achievement goals for each initiative and also serves as a
mechanism for automating progress reporting across all
stakeholders. Organizations should streamline the process
of identifying, reviewing and approving new strategic
initiatives. Users should be able to collaborate with
configurable templates that guide contributors through
required inputs that highlight the business issue, quantify
any human and capital resources needed, and provide a
forward-looking view of expected business benefits.
Evaluating and Approving Projects: Centralizing a
repository of all capital projects benefits the evaluation
teams who can then more effectively review and
compare capital requests based on strategic ‘fit’, need
and priority. This helps leaders achieve their goal of
balancing their portfolio of approved projects across
Consistent Method for Tracking and Reporting Project
Progress: Another improvement initiative is to provide
more consistent reviews of actual spend against
approved spend for each major capital project. This
monitoring function is supported by transaction-level
financial reporting and, where appropriate, could include
commentary to highlight milestone achievements on
major projects by named project sponsors.
Here are a set of key methodologies that enable successful
initiative planning and tracking:
Common Elements in Each Request: Standardizing the
input form(s) associated with all new initiatives and
capital requests brings structure and consistency to
how proposed projects will be evaluated across
financial and non-financial measures. Initiators provide
data in their requests to define the core elements of the
project in a consistent manner - project owner and
sponsor, spend category (i.e., construction, IT,
acquisition etc.), justification, capital needs (current and
future years), timeline and strategic goal alignment.
Performance reviews should be initiated at regular intervals
and technology can help to ensure project owners and
contributors identify budget variances, highlight benefit
achievement, and capture comments at any level. With
workflow integrated into the process, key stakeholders
across management levels have complete visibility into the
performance of various initiatives, improving organizational
alignment. Additionally, separately-modeled initiatives
allow organizations to evaluate how directed efforts related
to growth, cost containment or process improvement will
(or should) impact functional departments.
Workflow for Reviewing Submissions: All submissions
should follow the same workflow and can be
conditional, allowing for the automation of alerts and
notifications to downstream approvers. As an example,
large IT projects might need to go to IT and legal for
evaluation before finalizing. In doing so, these ‘expert’
reviews ensure that each project is complete and
accurate before committee review.
What is the impact of various growth and cost
containment initiatives
Base Case
Given current trends, what is our financial
outlook 3-10 years?
Volume and Service Line Mix
Re-Design ER to Improve Patient Flow Thru
Payor Mix and Net Revenue
Expand Cardiac Cath Lab
Labor and Cost Rates
Expand OP Urgent Care
Improve and Shorten Your Planning Cycle
To evaluate go-forward plans, what is the financial
impact of different strategies?
Income Statement
Cash Flow
Balance Sheet
Key Ratios
5. Streamline and Automate Data Collection
Architects of performance management solutions must
make a series of fundamental decisions regarding data
acquisition, storage and management. These decisions will
have a major impact on an organization’s ability to
efficiently and flexibly complete the budgeting process.
Additionally, data collection methodologies can impact the
level of trust that decision makers will have in downstream
An optimized performance management process is best
served by having a single database structure that is tuned to
perform well for all performance management data types
and activities, such as strategy development, planning
(financial, staff, capital and sales), reporting, detailed
variance analysis, profitability measurement, ad hoc
analysis, and more. Using a simple example, this helps to
ensure that employee data (relational payroll data source)
and summary salary and benefits information (general ledger
data source) can easily be brought together in a single
A well-designed data model should include:
Support for string (text) and/or date fields – These nonnumeric data types are vital for modeling purposes. For
example, this is evident in payroll modeling (hire date,
job code, review date, employee name) and in capital
planning (depreciation method and service date). The
inability of cubes to store such data types is a clear
hindrance to building a robust business model where
these data types play an important role
Support for large data sets – Hospitals may want to
analyze patient data, banks may want to generate
cash flows for millions of loan records, and retailers or
consumer goods organizations may want to plan at
the SKU level. Well-constructed data architectures
can accommodate these large data sets.
Scalability & performance –performance management
architectures should provide near real-time response
to any query. Cube-based systems are seldom near
real time, given the need to “rebuild the cube” once
leaf-level data is modified. The addition of new rollup
structures, as well as historical data, tends to degrade
performance of cube systems but has zero impact on
On-the-fly dimension updating – There are several use
cases where on-demand dimension updating is
required. The list of plan codes or dimension elements
is not always completely predefined up front. For
example, a planner might create a new strategic
initiative that’s never existed before and has no prior
identification or place in the database. There are many
end-user scenarios where the data model needs to
evolve “on-the-fly.” Performance management
architectures should support the real-time insertion of
new dimension members by end-users.
Managing data in a single, powerful and flexible repository
ensures it can be leveraged consistently across functions
(aka, applications) in a trusted manner. This simplifies
system administration tasks and promotes greater
management buy-in as metrics and measures easily flow
between systems (i.e. labor targets are consistent across
plans and bi-weekly productivity reporting). While this
sounds simple, certain types of planning use cases can
prove challenging to back end databases and underlying
data structures. Leading-edge companies make a
concerted effort to design a back end data architecture
that fully supports virtually ALL planning requirements.
We recommend that report authors have at least two of
these attributes in each published report. These capabilities
are not separate or distinct, but rather must be integrated
into the same process, based on the same data and –
ideally – managed within the same technology platform. All
of these plans must be kept in sync using the same
assumptions to provide a holistic outlook in both the short
and long term to support informed decisions. Ultimately,
insight is only as good as the decisions that result. A finance
professional’s job is not done upon delivery of a report, or
even an analysis. It’s done when smart decisions are
consciously made. The impact of effective operational
reporting is a more sophisticated, holistic and dynamic view
of the organization’s financial performance and strategy
execution. Rather than simply reporting “the numbers”
based on historic data, Finance begins to play a more
strategic role offering deeper insights into the “drivers” of
performance and profitability.
well-designed relational architectures.
Improve and Shorten Your Planning Cycle
6. Tie Operational Reporting to Strategic Objectives
Add Intelligence to Your Reporting
Below are seven attributes that enhance reporting intelligence:
In well-run organizations everyone has a sense of the overall
mission and how their respective role, however small, fits
within the big picture. This is termed “vertical alignment” –
the notion or idea that from the shop floor to the top floor,
and every level in between, there is clarity regarding the
goals and objectives of the organization and all the activities
that surround it. Finance can be a key enabler of
organizational alignment – as the custodian of the long
range plan or the set of corporate KPIs and metrics.
Finance also has an important role to play in translating the
big picture into digestible initiatives, target metrics and
plans to be consumed and enacted upon by the masses.
Shared ownership and execution is critical. Too often the
strategic plan’s final resting place is in shelved 3 ring
binders or stale PowerPoint presentations; when in fact its
fingerprints should be present in every operational plan and
metric for the coming year.
Reporting is more effective when outlier variances have an
explanation or action plan associated with it. This improved
feedback loop promotes greater accountability and visibility
across all levels of the organization.
1. Relevance – Are the metrics, ratios and measures truly
pertinent to the business and the report recipient?
2. Trends – Trends are real, budgets and forecasts are not.
Trends deliver insight about what’s happening
3. Tolerance – Decide ahead of time what the thresholds
are for when a particular trend should become an area
of focus.
4. Early Alerts – Set the limits in advance so the system
can automatically do the monitoring for you. One of the
most valuable things performance management
systems can deliver is time for decision-making; early
alerts can help you do that.
5. Calls to Action – Allow decision-makers to focus on areas
that require immediate attention.
6. Forecast Impact – Provide guidance as to the likely
outcome if a particular trend is allowed to persist.
7. Additional context – Provide information on why a
particular situation might be happening. For example,
patient care may be dropping because of the greaterthan-expected use of contract labor.
Improve and Shorten Your Planning Cycle
About the Author
We've presented best practices for various forms of
Tony Ard is Director of Solutions Engineering at Axiom
EPM. Tony has 20 years in the Enterprise Performance
Management industry and is widely recognized for
delivering innovative solutions with a focus on client
satisfaction. Tony is involved in key software industry
processes including development, solution management,
field enablement, thought leadership, technical sales,
partner management, and implementation consulting. He
has delivered software systems for enterprise performance
management processes from budgeting, strategic planning,
capital planning, forecasting, and profitability management
and has also developed business intelligence and business
analytic solutions.
planning such as the annual budget, rolling forecast and
long-range plan, to not only help financial professionals be
more successful in their role, but to facilitate the transition
from the more traditional number cruncher role to trusted
advisor guiding data-driven decision making. And finance
teams that embrace this new strategic role require a
technology foundation that is agile and flexible to support
rapidly changing assumptions and business models, as well
as providing a unified platform encompassing not only the
budgeting, forecasting and reporting functions detailed in
this paper, but related activities such as strategy
management, capital planning, consolidations, profitability
and cost management. Adopting these best practice
methodologies can help you to improve and shorten your
budgeting process and will also enable better decision
making and organizational alignment that will help you to
optimize performance.
About Axiom EPM
Founded by industry leaders with over two decades of
experience in enterprise planning and reporting, Axiom EPM
delivers performance management solutions for mid-sized
and large organizations around the world. Solutions for
budgeting and forecasting, reporting and analytics, strategy
management, capital planning, profitability and cost
management are delivered on a single unified platform.
Axiom EPM embraces and extends familiar Microsoft
Excel® functionality, allowing finance professionals to
manage data in a familiar environment — while providing
unmatched modeling flexibility and enterprise performance.
Axiom EPM offerings include:
• Budgeting & Forecasting
• Reporting & Analytics
• Strategy Management
• Capital Planning & Tracking
• Profitability & Cost Management
• Consolidations
Axiom EPM corporate office
10260 SW Greenburg Rd., Suite 710
Portland, OR 97223
toll free: 877.691.9969 | fax: 503.961.1176
sales: 503.977.0234 x115
email: [email protected]
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