7 Tips for Enhancing Budgeting and Forecasting Accuracy

There’s a reason most local newscasts today begin with the weather report.

People are hungry to know what lies ahead. By knowing the forecast, people can be prepared for everything from what to wear the next day to when to host a backyard barbecue.

The same holds true for business budgeting and forecasting. Accuracy is essential to help inform better decision-making, minimize risk, and drive growth.

Keeping with the weather analogy, budgeting closely mirrors an hourly forecast — with rare exceptions. What’s predicted typically aligns closely with what is happening in real life. Meanwhile, forecasting aligns with those longer-range weather outlooks. Forecasts are useful insight-driven guides that help with planning ahead, but it’s still probably best to keep an umbrella handy just in case.

And just as metrological advancements (e.g., radar) represent a quantum leap from the Farmer’s Almanac, artificial intelligence (AI) financial forecasting technology offers game-changing improvements. This technology omits the need to manually manage Excel spreadsheets and create static annual budgets.

Today, the key is to find ways to leverage that technology to deliver better accuracy more consistently. Here are seven tips for enhancing budgeting and forecasting accuracy.

1. Review Past Performance

With so many forward-looking tools available, finance is sometimes tempted to devote less energy to looking back. Doing so can be a mistake, however.

In the corporate budgeting process, reviewing past performance is an essential phase to improve accuracy. A comprehensive analysis of financial statements acts as a mirror to reflect the organization’s financial health and operational efficiency over previous periods. Ultimately, conducting this review using tools such AI and Sensible ML can identify patterns, trends, and anomalies that can inform future business budgeting decisions.

2. Adopt Finance-Led Integrated Business Planning

The more information and insights, the more accurate the budgeting and forecasting. Finance-led integrated business planning(IBP) provides a complete picture of the business by unifying business strategy with planning, budgeting, and forecasting activity. And IBP does it for all business lines and functions — providing one source of truth for the numbers.

IBP also creates a robust baseline for agile decision-making while encouraging teams to work collectively toward achieving the same corporate objectives. In addition, IBP helps teams stay focused on specific key performance indicators (KPIs).

3. Rely on Rolling Forecasts

Rolling forecasts help minimize the challenges of the traditional annual budget process, which isn’t built to keep pace with today’s fast-changing market conditions. Through such forecasts, finance can also address a range of other factors that can impact the bottom line or throw a curveball into growth plans. Rolling forecasts offer a pulse-check for both financial and operational performance.

Finance is also positioned to lead the charge in implementing agile budgeting, planning, and forecasting processes. In turn, those processes enable collaboration and effective decision-making between finance, sales, operations, and human resources (HR).

4. Step-Up Scenario Planning

Perhaps no AI advancement has made a bigger impact on finance than the vastly improved AI-powered scenario planning capabilities. With the improved planning, scenarios that would have historically taken weeks to fully assess can now be developed in a matter of minutes. Stronger scenario planning aids accuracy by generating the foundation for alternative plans should a scenario become reality, allowing for faster pivots backed by sound data.

5. Monitor Key Performance Indicators (KPIs)

Establishing and tracking KPIs (e.g., revenue growth, expense ratios, cash flow trends) helps ensure better budget accuracy and forecasts aligned with actual financial performance. Regularly reviewing these metrics allows for timely adjustments. With advanced dashboards, tracking KPIs is easier, and finance gains visibility to other business leaders throughout the organization.

6. Make the Most of Speed and Efficiency

Many of us remember the days in which the annual budget process was a months-long slog, only to result in outdated budgets shortly after they were completed. Today, AI-powered operational planning automates many manual tasks that are involved in traditional planning. That automation ultimately frees up more time to focus on greater accuracy, clearer insights, and strategic recommendations based on the results of AI-generated plans and scenarios.

7. Engage the Entire FP&A Team

Advancing AI technology is a game-changer, but doesn’t fully replace the talent and experience of the finance team. Gaining multiple perspectives from the team helps enhance budgeting and forecasting accuracy by identifying opportunities and flagging potential errors that could throw off the numbers.

Conclusion

The tips above show why budgeting and forecasting is just like forecasting the weather. When it comes to a weather forecast, the more accurate the information, the better prepared you are to endure the storms and make the most of those sunny days.

Applying that same concept to budgeting and forecasting will position your company to seize opportunities and more effectively navigate the risks you’ll inevitably face.

Want to learn more about how AI can benefit your organization? Check out our eBook, “The Future of Finance with SensibleAI™ Forecast.”