Overview

Faced with exceptionally difficult business conditions, organisations must quickly change their business activities to reflect the new reality of the market and of changing customer needs. This requires a forward looking and flexible forecasting system to anticipate changes, determine their potential impact and review alternative responses.

Monthly management accounts reveal what has already happened, so it is too late to take any action. The annual budget is a powerful tool that gives an early indication of the predicted business performance in the next year, allocates resources and controls fixed costs. However, it can be a bureaucratic exercise that brings little benefit for the amount of management time it consumes. The business environment often changes before the beginning of the year, so budgets are often obsolete before their year starts.

Several forecasts can be prepared during the course of the year based on actual performance to date and the latest information on trends to predict future performance. They are expressed as a series of profit & loss accounts, balance sheets and cash flows. However, gathering and processing all the information can be quite time consuming.

A budgeting and forecasting system automates this process, allowing budgets to be prepared quickly. More importantly, it allows accurate updated forecasts to be produced at regular intervals throughout the year.

By quantifying the financial impact of changes in the business environment, a forecasting system allows an organisation to evaluate different possible scenarios and conduct "What if?" analyses safely, without affecting the important data underlying the forecast. Being able to anticipate a range of possible outcomes helps to manage future uncertainties.

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