Budgeting And Forecasting - Today's Trends

Paul Feltman, Chief Financial Officer, Casino Del Sol Resort

Paul Feltman, Chief Financial Officer, Casino Del Sol Resort

Each year organizations take on the task of doing their annual budgets or forecasts. Some even go through the process of doing a reforecast five or six months into the year. These are important exercises for the organization to go through for a few reasons. First, it ensures all of the key players are on the same page with the direction of the organization and the direction of their individual departments. Secondly, it allows the key decision makers to make decisions within the organization based on data.

Annual budgets usually start several months before the budget year begins. The finance or budgeting department will send out spreadsheets to the individuals responsible for the department’s budget and ask them to fill out. This will include a section for revenue (if applicable) with a cost of goods section, payroll, benefits, and other operating expenses. The departments would send it back to finance, and finance would take the data and input or copy it into the master file of the budget. If any questions came up or something needed to be adjusted, the finance or budget team would copy the department’s spreadsheet and send them back out to the department and would ask them to update or make corrections. This process could happen several times. Once the budget is completed and approved, the finance or budget department would send each department their approved budget spreadsheet (hard copy), and the departments would use those on a monthly basis to manage their departments.

The reforecast process is similar to that of the budget process with the exception that the process usually starts around halfway through the current year, and the spreadsheets that are sent out to departments will have the first five or six months of actuals and will ask the department to project or forecast the remainder of the year. Once this process is completed, the finance and budgeting department has an idea of how the current year will end and uses that as a baseline for the upcoming budget. This budget and forecast process is probably still used in several organizations,

however, some of the trends that have emerged over the last several years in the area of budgeting and forecasting having to do with self-service reporting, data management, and forecast accuracy have helped improve this process greatly.

When it comes to self-service reporting, a way to engage departments without all of the emails and cutting and pasting of data is to have the templates available on a dashboard for the end user. This allows the end user to make changes or updates to their budget or forecast. They would be able to do this up until a certain point, at which time, the finance or budgeting department would lock editing. The finance and budgeting department can review and ask questions throughout the process, and the departments can see and edit the most current information. Another trend is to be able to lock down areas that the department would not be able to change, but those areas of the budget or forecast would be driven by other inputs. For instance, the benefits section of payroll could be locked by finance or budgeting, and as the department keys payroll information in, the benefits section automatically updates. For a restaurant, they could have the cost of goods locked, and as revenues are forecasted the cost of goods would automatically update with what the organization feels is the correct number based on the preset percentage.

It ensures all of the key players are on the same page with the direction of the organization and the direction of their individual departments

With the self-service reporting, this allows all of the data to be saved in one place, and the individual departments would only have access to their specific area. Having the data in one place is a huge difference from the prior trends as the number one issue you find with having to move data around is the potential for errors. This could cost several hours in researching any variances from one budget location to another. Another trend that has emerged is the use of non-financial data in budgets and forecasts. This data can consist of the number of covers for a restaurant operation to weather data for amusement parks. New budgeting and forecasting software allows this information to be added, which allows for more analysis and more decision making. Let us look at a restaurant operation that did one thousand covers last year in a particular month, with an average revenue of ten dollars per cover. If that information is added to the budget as statistical data, and this year for the same month, the operations has not made any price changes and assumes roughly the same dollar per cover and only a few more covers, it is easy to compare all of the data to ensure the assumption and the ultimate financial number are aligned. In this year, you would assume a slight revenue increase based on the statistical information, and if the financial budget information reflects that, the assumption would be the budget is accurate.

Using the above scenario regarding statistical data and making the assumption the budget is accurate brings me to my last point. Budgets and forecasts need to be accurate and are a baseline to hold departments accountable, but they do not need to be perfect. If the above information is accurate, but not perfect, the executives or owners can make decisions concerning the company and operations. If the data above is accurate, I can assume I do not need more staff than last year, I can assume I can spend a certain amount of money on capital expenditures, and I can assume I do not need a larger space than I did last year to operate out of. All of this can be assumed if the information is accurate and not perfect. Budgets and forecasts are a tool for organizations to use to make decisions, not to take to the bank.