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How dynamic is your Forecasting process?

July 28th, 2008

     Recently I commented on contingencies in the forecasting process and having not only your Plan B…but your Plan C and Plan D.  However, some of the follow-up converstations I’ve had on this topic is the burden in putting together additional forecasts and the time it takes to change embedded assumptions and degree to which forecsating models can be manipulated.  For the majority of my colleagues, Excel seems to be the most prevalent modeling and offline analysis tool.  In my discussions, I posed the question of how the model would reflect changes on the income statement, by functional area, if there was a simple shift or reduction in headcount and the collection of benefits expenses associated with those positions. A very difficult dilemma for each one of them in an Excel-based format.

     One of the tools we used at a previous company was Hypierion Pillar. We used this for all our budgeting and forecasting needs. Although it’s being phased out by Hyperion, along with available support, there are similar tools with the same functionality. It was an incredibly dynamic tool that allowed for an easy categorization of headcount, expenses, and variable benefits by functional area.  If we were to move a handful of individuals from one functional area to another, all the expenses associated with those folks moved with them. If we were to see a change in our workman’s compensation expense we could easily change the assumptions and it would flow through the entire model. Through the use of global calculations we had an incredibly dynamic tool that allowed multiple scenarios with ease. 

     With solid Excel skills, some of these same assumptions can be built in but you end up having a VERY complicated model that can be highly prone to error without the appropriate cross checks built in. Within the Hyperion platform it was very easy to audit for errors, run checks on cost centers that shouldn’t be used, or for inactive cost centers that have inappropriately had costs booked against them. Which leads me to the next point, there’s the ability to combine actual and forecasted data in a very easy to use and TIME EFFICIENT format.  In the end, it’s all about having the ability to produce accurate, timely, and dynamic forecasts that eliminate guesswork & allow for intelligent decision making.

Thanks for reading . . . .

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