Create a Telescopic Lens for Your Finance Function

Within any department there may be dozens of plans and forecasts, and they’re usually kept on desktop spreadsheets that don’t match up with one another. Our research finds that the connections between these various forward-looking activities are limited. Although companies are not completely uncoordinated, gaps routinely occur. (“Manufacturing never knows what promotions marketing is planning until it’s too late” is one common complaint.) The impacts rarely are disastrous, but the lapses create wasteful costs and diminish effectiveness. For companies seeking improvement, we advise two basic courses of action:

  1. Increase the integration of the various plans and forecasts that exist in the company. Our research shows that a large majority of companies have limited abilities to integrate their financial budgeting, sales forecasting, operations planning, and demand planning functions. Moreover, although there usually is some alignment between the budget and the other forward-looking processes at the time the annual budget is put together, the operational forecasts and plans are more dynamic than the financial budget. In fact, they often are updated weekly or monthly, whereas budgets typically are done annually with much less detailed reforecasts done quarterly (although some companies do this monthly). In addition, we find that the exchange of information between business units outside the annual budgeting process is hit-or-miss. For example, even when companies institute a formal sales and operations planning process, they rarely involve all of the key managers and executives.
  2. Assess the financial implications of different proposed courses of action, thereby increasing the degree to which your company attempts to optimize the long-term, bottom-line impacts of its sales and operations decisions. This is far from simple because the complex interactions between operational elements — sales, distribution, production, capital investments, and tax planning, to name a few — almost always make it difficult to manage to a common set of goals across the enterprise. Our research shows that most companies concentrate on solving only one or two problems, such as sales performance, capital planning, or budgeting. Often, implementing these operational strategies becomes inefficient and prone to errors because managers lack the ability to understand the consequences that each possible decision imposes on others. As a result, they routinely make tactical decisions that have negative effects on the enterprise’s strategic financial goals and objectives.
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