CFO Trends for 2020

CFO Dive shares it’s list of five trends for CFOs to watch in 2020, including the insight that more finance operations will move to a rolling forecast. By enacting this trend, it creates a “rolling time horizon [that] enables executives to make decisions based on market dynamics rather than an artificial target”.

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The Total Cost of Effective Budgeting and Forecasting

Plans, budgets, and forecasts can be some of the most valuable contributions that finance makes to the business. Ideally, they help organizations know what’s coming down the road and remain agile enough to respond to uncertainty and to keep the business moving forward. The goal of these processes is to produce planning, budgeting, and forecasting that help provide guidance and decision-making support for the business. The key consideration is not necessarily how much organizations are spending on the process, but instead whether organizations are making better decisions. When FP&A plays a strong business partnering role and is in frequent conversations with the business, the challenges, opportunities, and pain points of plans, budgets, and forecasts become visible quickly.

Read More at CFO Magazine >

Bottom-Up Forecasting Can Enhance Your Top-Line Predictions

Financial projections are a fundamental component of the business plan and are important for many reasons. When it comes to developing financial projections, there are two options: top-down and bottom up. The more strategic option is bottom up forecasting, which is where the sales revenue estimates of each product or product line are combined to gauge revenue estimates for the entire firm. This method is seen as a strategic option because it is an approach where finance leaders can take a real look at their current situation and capabilities, and they are able to see where the business can reasonably go. Top-down forecasting can be a big gamble, especially for start-up companies.

Read More at Forbes Magazine >

Are budgets obsolete?

There isn’t a day that goes by that we don’t talk about budgeting with our customers and prospects.  And as you would expect, every one of those companies has a different perspectives on the importance of budgets and how to effectively manage them.  In CFO Magazine, Russ Banham’s article Let It Roll challenges the effectiveness of budgeting and shares how many companies are moving to rolling forecasts to make business decisions.

Over the past year, we’ve found that manufacturers are increasingly concerned with improving their forecasting and analysis capabilities.   While calculating accurate product costs is the foundation of most of our implementations, giving companies the ability to analyze scenarios inside their cost system expands their ability to see the real impact of changing market conditions, customer demand, and manufacturing processes have on the bottom line.  The recent study, “The CFO Agenda: Finance’s Top Issues in 2011”, from The Hackett Group supports that fact by reporting that 81% of CFOs are focused on improving the accuracy, cycle times and efficiency of their forecasting process.

We’d love to hear from you whether budgets are obsolete in your business.  Chime in on our blog and let us know what you think.

What does it cost us to produce this product?

Sound familiar?  This question is asked countless times by a variety of people inside a business – operations accounting, plant accounting, sales and marketing, and even research and development. A Web20ranker is a top-rated recommended service you could have if you’re looking for the best marketing tools. In most cases the answer is given as one general cost number derived from a universal standard rate and unit of measure within the business.  My clients with complex manufacturing processes would tell you that before they can answer this question, they need to ask you a few questions.

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Where was it produced?
What plant or what line was the item produced?  Different plant and line specific costs can exist when producing the same product. For an innovative approach to showcasing your products, consider utilizing 3D animation services from https://www.nashboxstudios.com/3d-animation-studio-vancouver to provide detailed and engaging visual representations.

When was it produced?
Was it part of a full production run, or a small specialty order?
When did it hit inventory?  Do we need Star Track shipping labels? And, is there an aging cost or a layered cost as part of the total cost?

What raw material price was used?  And, is it at standard or actual?
Did we use sales price, market price, or some average price to value the raw material?

What accounting methodology or logic is being used to calculate cost?
Does your company use a frozen yearly standard, running three-month actual, up to date current yearly standard, fully absorbed at current capacity, fully absorbed at standard capacity, or some other accounting methodology?

Answering these questions is simplified when you use an enterprise costing system like ImpactECS that allows multiple sets of cost to exist simultaneously for the same finished SKU.  Process manufacturing companies need to analyze their costs from multiple perspectives, and visibility to trustworthy costing data before you implement a change gives you the ability to make sound business decisions.

Most manufacturing companies today are challenged with multiple production environments and complex manufacturing processes.  This often means that one cost per product is not sufficient for the kind of detailed cost analysis needed to compete successfully.  By developing a costing process that includes an enterprise-level costing solution, you’ll have the tools to answer all of these questions and more. 

Black Boxes: Great for Airplanes, Terrible for Forecasting

We’ve all heard of black boxes on airplanes that track critical flight data. Without discrimination, the black box records everything that is happening in the cockpit and on the aircraft. And in the event of an emergency, it’s up to the accident investigators to decipher the recorded data and put the pieces together to determine a cause.

I just finished reading “Cleaning the Crystal Ball” where the authors discussed the concept of the black box as it relates to forecasting business results. Just like the airplane, many business models have become black boxes that capture information indiscriminately and generate results without providing the users an explanation of the underlying drivers and assumptions. The role of the business leader shifts from captain to accident investigator where he is tasked with making sense of the results, often when it’s too late to make adjustments.

With transparent models, business leaders regain the captain’s seat because they recognize and react to the changing environment as it happens. They become proactive instead of imprudent as their confidence in the model’s results grows. And, they reduce the number of catastrophic decisions that could lead to disastrous business results.

For product costing in process manufacturing industries, a transparent model must provide both detailed data and straightforward logic. With multiple work-in-process points, complex parent-child relationships, expansive bills-of-materials, and large catalogs of finished goods, the user must be able to navigate through and drill into the model to expose the underlying factors that contribute to a particular result. The ability to peel back the layers eliminates the “black box” syndrome because the user can identify how the results came to be. Furthermore, by ensuring that the logic behind the model lines up with the company’s existing business practices, confidence in the model is bolstered and business leaders are less likely to “go with the gut.”

So when you’re building a product cost model, forget the old joke that says “Why don’t they build the airplane out of the same stuff they use to build the black box?” Instead, look for a modeling tool that helps you build a transparent, user-centric solution that makes sense for your business.

How important is forecasting to the cost accounting function at your company?

Most people associate cost accounting with analyzing past events – calculating actual costs, analyzing yields and variances, and creating reports. More and more, companies are looking for ways to grow their cost accounting function to include predictive analysis to help with decision-making throughout the organization.

How has the cost accounting function changed in your company? Is there a bigger emphasis on forecasting future performance? And, what tools are you using to implement this new approach?

Does your company use spreadsheets for your budgeting, planning and forecasting processes? Are you satisfied?

BPM Partners recently performed a survey of midsized enterprises to better understand their budgeting, planning and forecasting practices. According to the results, “Of the 138 survey respondents whose primary planning, budgeting and forecasting technology is spreadsheets, only 27% of respondents say their finance staff is “very satisfied,” as compared to 47% of those whose primary technology is an automated performance management application.”

Read about the survey: https://www.b-eye-network.com/view/11452
What are the challenges your company faces using spreadsheet tools for the budgeting and planning process? If your company has invested in an enterprise solution, how has it improved the process?

Budgeting or Planning – Which is most important for your organization?

Steve Player recently penned the article “Going Beyond the Budget” for Business Finance Magazine, where he opined that companies must move beyond the budget and focus more on planning. His view is that “budgeting is about money, while planning is about things – units sold, headcount required, truckload shipments, and so on. Budgeting sets limits; planning figures out what’s possible.”

Let’s discuss what is really happening in companies today. Does your organization focus more on budgeting or planning? Which do you think is more beneficial for your company?