Nature of Planning and forecasting
In Contrast to the exact booking of past transactions in
the Accounting, Forecasting and Planning are much more a
kind of Art-form. This is due to the fact that Planning and
forecasting are in advance view of future activities.
The difficulty lies in the fact that Planning and
forecasting have to follow the "model of the Accounting"
hence they have to treat activities in essentially the same
manner and on the other side it has to be made in a
much more aggregated manner then the actual Accounting
bookings.
So in a way Planning and forecasting has to be kept
simple, yet it must in essence come to the same result as
the accounting booking of the underlying activities once
they happen.
Many systems and ERP solutions have been developed and in
deed they ensure in a way consistency, but then again the
statement "keep it simple" does not apply to them.
Planning and Forecasting activities
Planning essentially concentrates on the establishment of
a future fiscal period model that reflects closest the
operational reality and the prevailing Accounting treatment.
Forecasting mainly concentrates on a revision of once
planned items taking into account the already realized
activities during a fiscal period
Planning and Forecasting structures
It is often the case that the reporting structure is
changing. Product hierarchies change, responsibility areas
change and the like. It is therefore important to
reflect this in the Planning and Forecasting systems.
While planning a future fiscal period in a new product
structure does seemingly only bring the challenge of
comparability with the past, there is a much deeper and more
difficult element hidden in it.
P&L items are accumulated Year to date and have as such
(except for comparability with the past) no real dependency
on the past. However Balance sheet items and ultimately Cash
flow calculations depend on the existence of Beginning and
Ending balances in the same structure.
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Here it becomes apparent that for example the latest Year
end Forecast of the current year's balance is the opening
balance of the new fiscal period which is reflected in the
Planning.
To be able to cope with this the Planning and
forecasting system used, one must be able to "translate"
instantaneously one structure into the other (at least of
the ending/opening balance pairs).
However most ERP solutions lack the ability to plan
in different "product structures" which poses the problem
that another compensating mechanism needs to be in place.
Conclusion
Planning and
Forecasting is absolutely essential
for any serious operational
activity. Yet the support in drawing
up budgets are not always
sufficiently met by ERP or other
planning systems.
It needs to
be recognized that planning is as
individual as your business is and
the means and tool use to plan and
forecast have to fit to your
operational reality. If not then
budgeting and forecasting will
always be seen as a painful duty
rather then a helpful tool for
monitoring and recognizing
corrective needs.
To achieve
acceptance, it sometimes only needs
a "different" way of using the given
planning tools in place or using
given tools like Excel or Access in
more inventive ways.
Due to
its essential nature it is a must to
have a look at the planning and
forecasting reality in your
operation. In almost all cases there
is frustration in place which should
be a clear sign for taking the topic
serious.
Reshaping the
planning process / planning tools is
an often highly complex activity
which should by all means be
accompanied by an external coach to
avoid operational interruptions and
to guarantee an truly improved
system.
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