CFOs Unhappy with Budget Process
Only 37 percent of CFOs and finance leaders say their organization’s approach to annual budgeting is valuable, and, of those, all of them think it needs be improved, according to a new report.
The report from Grant Thornton LLP and the American Productivity and Quality Center, “Financial Planning and Analysis: Influencing Corporate Performance with Stellar Processes, People and Technology,” found that an additional 25 percent of the CFOs and finance leaders who were polled about the budgeting process said it is somewhat valuable, but the annual budget quickly becomes obsolete.
Seventeen percent of finance leaders say the annual budgeting process is very valuable, but, of those, none use the budget as an absolute baseline measure.
This widespread dissatisfaction among finance leaders could be due to the fact that nearly 70 percent of finance leaders use a “last year plus percentage” budgeting technique, which is based on prior-year figures, plus a percentage to take into account planned business growth and/or inflation. However, this method does not necessarily account for fast-moving business risks.
“With more and more finance resources dedicated to regulatory compliance, too many companies fail to supplement the annual budgeting process with planning activities that could make performance more agile,” said Grant Thornton Business Advisory Services principal Graham Tasman in a statement. “The finance function must break away from over-emphasis on managing historical data and move to enterprise-wide solutions that enable forward-looking analysis and free up talent for higher-value activities.”
While 40 percent of finance leaders rated their current financial planning and analysis, or FP&A, capabilities as effective, 62 percent said their staff is too buried in basic financial management duties to improve FP&A. In addition, 16 percent of the respondents said they have a limited budget for talent development and 14 percent said their organization’s approach to talent recruitment and development is ineffective.
The report also revealed that companies are slow to adopt technology that enables more effective FP&A. Finance leaders primarily use data to report on what happened in the past: Sixty percent report on simple aggregation of exposures and losses, while 57 percent conduct basic cause-and-effect analysis. Only 24 percent of finance leaders report using predictive analytics techniques.
A 56 percent majority of finance leaders said they report using a combination of spreadsheets and dedicated software for FP&A and internal reporting, while nearly 39 percent use spreadsheets alone. In addition, one-quarter of finance leaders said that some work is currently enabled by cloud technology and 22 percent say their finance team is considering or planning a move to the cloud. However, one-third (33 percent) of finance leaders said they have no plans to move to the cloud.