How to add value with a well-built forecast
How to add value with a well-built forecast
Chief Financial Officers (CFOs) - or Chief Value Officers (CVOs) - have an important role to play in driving value in an organisation. A well-built forecast is crucial to adding value, however, this goes beyond reporting budget or forecasting variances.
CFOs or CVOs have the opportunity to truly immerse themselves in the operations of the business. Having a thorough understanding of the organisation and how each of the departments within your organisation operate and work together is essential to adding to the value chain of your organisation.
Continuing our CVO content series - which explores the key findings of BDO and ACCA’s ‘Chief Value Officer – The Important Evolution of the CFO’ report - we recently hosted a webinar with our CFO advisory and digital, data analytics and artificial intelligence (AI), experts to discuss:
- The importance of forecasting and how it can add value to your organisation
- How your organisation can use forecasting as a tool to help you understand its future state
- How forecasting can assist your organisation to achieve its objectives.
The webinar recording is available to view on our YouTube channel.
Budgeting vs. forecasting
Typically set at the beginning of the year, a budget outlines the financial targets for revenue and expenses for an organisation over the course of the year. It will often have a layer of governance, generally being approved by a board. Once a budget is approved it is not easily changed.
A forecast on the other hand is more dynamic, involving a predictive model based on current data to estimate future outcomes. It provides a short-term view of where an organisation is expected to land financially and is essential to making informed decisions when considering each stage of the value chain.
While budgeting and forecasting are distinct processes, they are closely linked and can help the CFO to make informed decisions about the organisation’s future state.
With that said, it’s important CFOs ensure they employ dynamic and flexible forecasting. It should be a dynamic process adapting to changing circumstances and used as a tool to enable proactive financial management and informed decision-making.
Our experts explore the key components of a dynamic and well-built forecast below.
Key components of a well-built forecast
Governance and flexibility
Governance is crucial. Proper governance is essential in both budgeting and forecasting processes. It ensures that forecasts are reliable, and that the organisation can adapt to changes without compromising on governance standards.
The CFO has a unique role where they can really get involved at a granular level. As you grow, organisational leaders need to start implementing governance and management layers to your organisation’s structure.
This is important in terms of your organisation’s growth and forecasting. Does your forecasting take into consideration your organisation’s growth? And how are you doing so? Have you implemented a management layer between yourself and the senior executives? And how are you going to grow that layer out?
Proactive financial management
Finance professionals should ensure they are taking a proactive role in driving value within the organisation. This involves engaging with other business units, understanding their needs, and facilitating informed decision-making.
CFOs need to look at how the spending outcomes are lining up with the organisation’s needs. Whether that relates to a strategic decision about growth, an operational decision about efficiency and optimisation of processes, or a commercial decision, to achieve the end goal of increasing profitability and value. Financial professionals have the ability to join the dots between different parts of the organisation and assist to enable these important conversations.
Moving away from a static budget to a more dynamic and proactive financial management environment ensures you can proactively look at the key business drivers (the factors unique to your organisation that influences its performance).
AI and forecasting
AI can be a powerful tool in forecasting and financial management by automating and streamlining various aspects of financial forecasting. By leveraging AI, CFOs can achieve more accurate prediction through modelling and data analytics, resulting in further informed decisions for their forecasts and further driving value through the value chain. However, it’s important to understand your organisation’s business drivers and use AI to enhance, not replace, human decision-making.
Human element, business understanding
A deep understanding of the business operations and unique selling points is crucial for building value-added forecasts. Engaging with different departments to gain insights and build trust can be a real advantage. One of the early observations our experts made at the beginning of the CVO series was, to actually become a CVO, you need to involve yourself and dive into each area of the organisation to really understand how the department works. From this, you will gain many insights and have the opportunity to have those rich conversations.
Informed decision-making requires considering multiple variables and scenarios. Collaboration between finance and other business units is essential to ensure that decisions are well-informed and aligned with the organisation's goals, ensuring you are involved in understanding how each department works together will assist in your forecasting process.
Driving value within your organisation
CFOs - or CVOs - have an important role to play in driving value in the organisation, by immersing themselves within the operations of the organisation and truly understanding the requirements and objectives of different departments. Integrating governance, flexibility, proactive management, AI and a deep understanding of the business will provide a comprehensive understanding of how to build a value-added forecast and the important role of finance professionals in driving value within an organisation.
CFOs play a central role in driving value within an organisation by being proactive, engaging with other business units, leveraging AI, and ensuring informed decision-making through dynamic and flexible forecasting.
To find out more about the evolution of the CFO, read the report and explore the rest of our CVO content series. Discover how our CFO advisory team can help you build resilience and adapt to today’s ever-changing business landscape - contact us today.
Chief Value Officer: The Important Evolution of the CFO copyright © 2023 by the Association of Chartered Certified Accountants (ACCA). All rights reserved. Used with permission of ACCA. Contact insights@accaglobal.com for permission to reproduce, store or transmit, or to make other similar uses of this document.