Making an impact on future performance

IN THE face of growing internal and external complexity, what could be more important than an understanding of where we are today, where we want to be tomorrow, and the steps we need to take to get there? The method that many organisations use in understanding the contribution of the ongoing activities to its future strategy is the Planning, Budgeting and Forecasting (PBF) process.

 

What is the PBF process?

The PBF is a method for allocating scarce resources in line with the strategic intent of the business and for planning actions to help it meet its strategic goals in response to changing circumstances. Deloitte carried out an in-depth survey of senior finance professionals from around the world and from a wide range of industries to examine the challenges in utilising the PBF process. The results of the survey show that the reasons behind frustrations with the PBF are almost equally distributed in the areas of business process, technology, and organisation and people. 

 

Challenges in the PBF process

Deloitte’s survey has highlighted key challenges on various aspects. From the aspect of business process, many organisations still struggle to drive real value from their PBF processes. From the technology aspect, even though organisations already utilise the PBF tool, many organisations feel the tool does not cater to their needs. From the organisation and people aspect, cultural inertia acts as a barrier to change when the processes touch a significant number of people right across an organisation. 

 

Improving techniques

From the survey results, we suggest three critical areas to focus on in order to improve the current PBF process and to better align with a leading practice per?formance management framework:

1. Integrate the PBF process and use forecast properly:

Review data structures and requirements to ensure that the PBF process is built around aligned data.

Assign clear accountability for data across the enterprise and remove functional silo-based data ownership. 

Incorporate external data where appropriate – external data such as consumer demand, supplier information, government or economic |data, and competitor information. This information should be included in the PBF process to drive accuracy, reliability and flexible scenario modelling.

Apply rolling forecasts – monthly rolling forecasts give a better understanding of enterprise performance against strategic targets. This will enable quicker decision-making and resource reallocation where forecast deviates from target.

2. Select the right technology

Be familiar with the evolving PBF technology market where tangible benefits can be delivered. 

Understand that technology is an enabler, not a fix. Technology enables a lot of benefits. However, in order for technology to improve the process, data integrity and underlying process issues must be clearly addressed.

Be clear on technological investment – organisations need to know what type of technology they are investing in, for example, maximising resource utilisation through better allocation or automation enabling cost reduction.

3. Create the right organisational culture and ways of working 

Focus on top down and bottom up – the chief financial officer must continuously work across the enterprise to ensure senior executives do not discuss the budget process or agree on figures autocratically.

Be clear on decision-making authorities and their roles – this will help avoid duplication and ensure appropriate relevant stakeholder buy-in.

Form business integration – the PBF process must be owned by the business and supported by Finance to ensure integration and a genuine sense of ownership across the enterprise.

Create proper incentives – executives should be incentivised for |performance against targets that have already included external |and internal changes. 

In summary, the PBF is a key component of how information is generated and processed, how decisions are made and how responses are formulated to steer the organisation and impact future performance. The process involved is tightly linked to many others. Establishing the right organisation culture, including appropriate leadership tone at the top, is essential for the PBF processes to flourish.

The PBF process is one of the few enterprise activities that touches every part of the organisation. It connects information, processes and people across the business and if executed properly; it is essential to drive better business decisions that can create a competitive advantage and deliver sustainable long-term business value. 

 

Torsak Mungkornwate is director of consulting services, Deloitte Thailand