3 driver-based budgeting tips for CFOs

The life of finance teams is very demanding – and becomes even more so during budget season.

Creating departmental budgets on multiple spreadsheets can be frustrating and time consuming. CFOs are often delivering presentations and discussing figures with data that is out of date by the time they stand before key stakeholders. Static budgeting processes, such as excel sheets, simply cannot keep up with today’s fast-paced economic environment.

Clear Plan, a dedicated partner of Adaptive Insights, deliver customised cloud-based budgeting, planning and reporting solutions. These driver-based budget solutions

  • allocate resources based on past performance,
  • enable CFOs to help drive business priorities,
  • respond quicker to changes in the marketplace,

They create a dynamic, data-driven process, rather than in countless static Excel workbooks. This in turn enables active and continuous budget planning, rather than annual and fixed planning that culminates in hundreds of unread pages.

Our end-to-end personalised solutions allow CFOs to create a dynamic and agile process that helps stakeholders make informed decisions tied to operational goals. This enables CFOs to focus more on being strategic leaders, aligning forecasts and projections with external as well as internal drivers, rather than generating irrelevant reports and budgets that no one reads.

Based on our experience we’ve developed three tips for CFOs to implement driver-based budgeting.

Eliminate data silos

In many organisations the financial legacy systems force CFOs to collect data from multiple sources. Departments allocate budgets without any idea on how their performance ties to organisational goals. Data silo budgets disconnect departments from each-other and the overall goal of the company, keeping stakeholders in the dark about the impact of revenue and cost forecasts downstream.

Take this story of an Alternative Futures Group non-profit organisation. Producing their annual budget in Excel,  more than 100 individuals contributed to this process, and budgeting for different staff roles and conditions created a lot of confusion. Furthermore, it was challenging to conduct scenario modelling and understand the impact of changes to assumptions on balance sheet and cash flow. Clear Plan helped manage costs and project future funding streams through our solutions, reducing the time it takes to make a change in an assumption and applying that change across the model from days to minutes.

Regardless of company size or industry, CFOs can improve collaboration and eliminate budget silos by developing a unified source of data creating a centralised and accessible planning resource. Upstream data integration helps departments view budgets in a larger context and makes it easier to line up support from key stakeholders. Ultimately, eliminating silos create a dynamic budget process that drives rather than reacts to business performance.

 “Working with Clear Plan was a good choice for our organisation. They got us exactly what we needed within our required time frame. Now the system does exactly what we want and helps us manage services for approximately 900 service users.”- David Smith Head of Financial Management and Performance

Identify KPIs that drive finance and tie to the operational plan

KPIs are operating activities that encompass everything from customers to implementations to distributions to transactions. CFOs might track different KPIs but sometimes organisations develop KPIs that are not actually relevant for measuring the intended goals.

In the case of one healthcare organisation, disagreement about KPIs nearly destroyed the budget process. Tasked with tracking patient-specific revenue, the budget committee initially identified quality of care metrics as a revenue KPI. This was based on the assumption that satisfied patients would return to the facility for care, which in turn would increase revenue. It turned out that those KPIs had no relevance on revenue and eventually the budget committee concluded that indicators like patient age, location, income, race, health status, and utilisation histories were more effective. This materially changed the budget and aligned it more closely to organisational goals.

Integrating KPIs into the budget process empowers CFOs to make course corrections and measure overall business performance, while creating buy-in throughout the organisation.

Differentiate forecasts from targets

When implementing driver-based budgeting, CFOs need to differentiate between forecasts and targets. “Forecasts” is where the organisation is headed, and should be based on previous performance, whereas “targets” is where the organisation hopes to go, and should be tied to aspirational goals (expansions, new product launches, etc.). Separating targets and forecasts, allows CFOs to create robust budget processes that continually course-corrects and adapts to market factors.

An example would be investors in a new production facility needing the finance team to present scenarios based on when the facility would be online, potential construction delays, and other unknown variables. A driver-based budget-oriented CFO would ask questions such as: Do we have a hiring plan in place? What happens if the product components increase? Additionally, best, worst, and likely scenarios would be developed against which results would be measured. Targets, on the other hand, relate to where the organisation hopes to go. In the case of a new facility, the revenue target might be 100% production-ready by Q3.

Today’s CFOs are expected to navigate complexity through standardisation, automation, and the streamlining of processes, systems, and data. Driver-based budgeting helps support growth initiatives, drive margin expansion, and manage business performance through better analytics and reporting. Clear Plans customised solutions are designed using your organisations structure, chart of accounts, dimensions/attributes and assumptions enabling you to realise the value of your investment in the shortest timescales.

Best practices for planning, budgeting and forecasting

Clear Plan can help you save time and improve accuracy in your budgeting, planning and forecasting through market leading technology solutions. If you would like to manage business performance through better analytics and reporting contact us for a personalised demo. See how we can help your business respond quicker to changes in the marketplace, and create a dynamic, data-driven process from within your organisation.