14 July 2015

ACCA: Systemic underinvestment is dragging down business’ finance functions

According to the findings of new research by KPMG and the ACCA, the average business' planning, budgeting and forecasting processes are failing to meet the strategic and operational needs which they are designed to support.

The Planning, Budgeting and Forecasting report surveyed 900 finance professionals globally about the effectiveness of their planning, budgeting and forecasting procedures.

The study found that current processes are seen as antiquated and are not aligned to support strategic or operational processes of the business.

Jamie Lyon, Head of Corporate Sector at ACCA said: 'The starting point for great planning, budgeting and forecasting processes is having the right enterprise culture. Tone at the top and visible support is critical in integrating and effectively delivering these activities into the business. It has to be a real partnership approach between finance and the wider organisation in ensuring that strategic alignment.'

Two-thirds of respondents said urgent change was needed to make financial planning a joint effort between operations and finance.  65% said their finance team spent the most time on planning and forecasting, with only 7% of operations teams playing a similar role.

The research also found that respondents were very cynical about the relevance and reliability of the budgeting process. Almost one in two (46%) said it was a politically agreed number, generated from the top of the business, and not linked to operational reality.

62% said budgets simply reflected a point in time and quickly ceased to be relevant as the financial year went on.

John O’Mahony, Head of KPMG’s Enterprise Performance Management team, said: 'Using antiquated processes and systems which aren't helping the business to make informed decisions risks damaging the credibility of the organisation. The board don’t want a static set of historic figures, but future looking metrics which can help them to track progress against their strategic objectives and realign resource/effort accordingly.

'However, while there is tacit acknowledgement that the historic budget process is broken, we are not seeing the use of better processes supported by new, real time, systems. Over one third of respondents said that they were still not using rolling forecasts, which better reflect changing market conditions and thus stay relevant for longer.'

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