Budgeting, Forecasting and Planning In Uncertain Times

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PREDICT AND OPTIMISE PLANNING MODELS

Planning is primarily concerned with future performance, and in particular, managing the difference between what could be achieved and what is likely. This requires organisations to understand the impact of business momentum and to challenge whether the current business processes are adequate to reach desired goals.

PREDICTING THE FUTURE

In most surveys on performance, the ability to accurately forecast the future is nearly always at the top of a manager’s wish list. This is because knowing what the future may bring enables them to focus their resources to best effect. For example, if it is known that a product is going to sell 1,000 units a month, then production and raw material purchases can be geared to this level. This in turn reduces working capital requirements by minimising stock levels and eliminates wasted resources that would otherwise go unused. Similarly, if it is known that an investment is not going to deliver the perceived level of return, then a decision can be made earlier to cancel that investment and transfer assigned resources onto projects that are better able to deliver.

However, forecasting is notoriously difficult to do. Not only because of the unknowable and uncontrollable business world that shapes the impact of what we do in the market, but also because the very act of contemplating the future can lead us to do things differently that itself generates a different future from the one we would have obtained.

Believe ...