The Essential CFO: A Corporate Finance Playbook

Chapter Seventeen

Providing Planning and Analysis

CFOs CAN ALSO DRIVE BUSINESS performance through the planning and analysis functions that are provided by the financial organization, including budgets and forecasts, which usually are the primary management tools that the CEO and business leaders use to set direction and monitor performance.

In addition, CFOs typically define and monitor performance metrics, measure business performance, and provide business analysis.

BUDGETS

The company's strategic objectives and long-term financial model provide the framework for crafting the annual budget. The CFO is charged with translating this framework into the detailed preparation of each of the line items in the annual budget, including their distribution among manifold profit and cost centers.

It is typically a time-consuming and laborious job, but well worth the effort. It is fundamental to the CFO's playbook, providing direction for the company and serving as an indispensable tool for making tough choices among competing priorities.

Bottoms-Up, Iterative Process

In most companies, the budget is primarily developed through a bottoms-up approach, with the profit and cost centers responsible for preparing their initial estimates for the coming fiscal year. They typically start with a forecast for the current year—which usually has several months to go—consider recent trends, and estimate a “business-as-usual” run rate for the next year.

The next step is to overlay their plans for strategic ...