By David De Laine, GM, ANZ, Oracle NetSuite
Most businesses budget and plan for their next fiscal period at a set time every year – whether it’s at the start of the calendar year or in the lead up to the new financial year, which for the majority of businesses, starts at the beginning of July.
However, some businesses prefer a more focused quarterly approach which allows their teams greater control of how they allocate, manage and optimise their resources. Whatever the approach, budgeting needs to be based on real-time insights: continuous, always-on assessment and optimisation of spend. Whilst it may sound challenging, doing so is key and easier than most may think.
Predict the future, or provide for the present?
In the past, businesses have tended to set budgets for the year and work towards successful outcomes. However, constant changes to business objectives are likely to impact the cost of doing business and financial planning. As a result, setting budgets to cater for future needs andmeet current demands has become vital for every business.
Today’s dynamic market conditions and fast changing consumer behaviour is placing increased pressure on businesses to respond quickly to remain relevant. Even applying Big Data and analytics to the task can support forecasting only to a certain extent – many other factors like emerging competition, shifts in demand, or delays in production can severely impact predictions.
Instead of trying to predict the future, budget-setters can now take a more flexible and adaptive approach. Rather than setting a single rigid budget at the start of the financial year or quarter, businesses can track their spend in real-time to address trends and emerging customer needs. This enables them to reallocate funds as necessary and assess the effectiveness of these on-the-fly. This does not mean that long-term budgeting is something of the past. Annual or quarterly budgets still provide a solid base for the business to not only manage its finances, but also clearly define its priorities and allocate support where most needed.
What makes a real-time budget succeed?
Continuous real-time budgeting gives businesses much more flexibility to diversify into new opportunities or reclaim funds from less profitable business endeavours. It also greatly reduces the challenges associated with – what can be called “shadow budgeting” – the unrecorded reallocation of funds at any time, to different projects or business units which, while allowing for greater flexibility, may be responsible for compliance and accounting risks in the longer term.
Shadow-budgeting is a fluid approach to budget-setting and may bring with it the risk of distraction. Businesses could find that as their budget priorities shift, it may result in a loss of focus on the activities that drive business growth. To minimise this risk, it is imperative that the key financial stakeholders like the CFO, join forces with their technology counterparts to adopt and implement new processes that not only track financial spend, but also guide them in real-time to the key areas that require funding.
And for real-time budgeting to succeed, decision-makers need access to software that gives them immediate access to financial data, analytics and other critical business information.provide a snapshot of the business’ overall current state, it also allows key decision makers to adjust spend according to the current operational reality.
In particular, applying analytics could build on financial data to offer a second layer of insight. This can provide insights to assess trends and also help forecast the impact of budgeting decisions, so that the business can assess and plan accordingly.
Ideally, and for best results, visibility of financial data and analytics should be unified within a single platform such as NetSuite’s integrated ERP system, giving CFOs and other business leaders a comprehensive overview of the entire operation, the opportunities, and obstacles in one glance.
Real-time budgeting calls for real-time decision-making – which may also require greater cross-team collaboration and alignment of KPIs. The performance management and operational analytics capabilities will only assist customers to deliver successful outcomes if budget-setters and their teams continuously communicate, coordinate, and sometimes compromise on where the budget goes and when.
It’s no secret that real-time budgeting forms a powerful strategy for driving operational improvements. It’s essential for those that set the budget to make their planning as flexible as possible to yield greater returns for the business in the long run.