Common Pitfalls of Rolling Forecasts And How to Avoid Them

When companies only forecast to the end of the financial period, the focus of the process becomes performance, evaluation and commitment to pre-defined targets, instead of organizational direction, risk mitigation and the seizing of opportunities. To avoid this common pitfall and improve visibility across the business cycle, employing rolling forecasts would allow finance executives to better assess both financial and operational plans by projecting four to six quarters ahead.

Rolling Forecasts

Many leading companies use rolling forecasts to respond more quickly and efficiently to shifts in market conditions.  However, despite their obvious benefits, there are also some pitfalls, which we’ll help you to avoid:

Pitfall 1- Confusing Forecast with Targets

Many organizations misuse forecasts by blending both current trends and the anticipated results of action plans on a single forecast line obscuring the details of what actions actually need to occur.  Instead, project the current trend line separately and overlay explicit discussion of corrective action plans.

Pitfall 2- Demanding Forecast Accuracy in an Unpredictable World

Even the most sophisticated companies can’t precisely forecast the behavior of their key business variables – pricing, competitor actions, consumer sentiment, etc. The complexity of events makes it virtually impossible to accurately predict, much less control, for a specific outcome.  Nevertheless, the consistent use of rolling forecasts can provide essential information for decision-making and help shape outcomes, not to predict the future.

Pitfall 3- Reliance on Spreadsheets

Rolling forecasts require integrated cross-company communication and collaboration, iterations of budget assumptions, consolidation and security of financial data. These requirements make the use of spreadsheets, which can lead to excessive time demands and cumbersome validation processes, ill-suited for rolling forecasts. Indeed, a recent benchmark survey found companies that rely on spreadsheets typically take 30 days longer to complete budgets than those with integrated, open information systems that provide real-time, read-write budgeting, forecasts, planning and analytics, flexible modeling, and scalability.

For more information on the “Do’s and Don’ts of rolling forecasts, check out the white paper from IBM’s Innovation in Action Series: Managing through change: The power of rolling forecasts..

To learn how Meritus can help you successfully implement rolling forecasts, contact us at or 650.380.8515.

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How SMBs Can Leverage MS Access as a Data Management Tool

If you work with large volumes of data, but cannot afford a data warehouse solution, then read on…

Data warehouse implementation may be the best option for companies with deep pockets but, realistically, most SMBs (small and medium-sized businesses) cannot afford such expense. Our SMB clients often need a tool that can support massive amounts of operational and financial data, from multiple databases, without the expensive price tag attached to a data warehouse solution.

Microsoft Access is a highly affordable and effective system for meeting intermediary data management challenges until a more complete data warehouse becomes available. Access was developed for users working with significant amounts of data, who do not have (or want) the programming experience necessary to build an SQL database, but who need more flexibility than Excel would allow. While an Access database may take more time and thought to set up than an Excel file, the return on investment is significantly greater.

Key features of Access includes:

  • Compatibility with most SQL-based enterprise systems such as SAP and Oracle.
  • Scalable to almost any sized business (Excel has row limitations while Access can compute millions of records)
  • Easy on-going maintenance (meta metadata can be added without having to change formulas or create additional worksheets or files)
  • Easily auditable as there is a single system of record
  • Allows several users to enter data simultaneously
  • Add-on features such as Dashboard Builder provide a powerful way to track key business metrics

Meritus’ Client Successes with Access:

  • Software company uses Access to analyze utilization and capacity of more than 400 global professional services consultants using data from disparate HR, resource management and accounting systems;
  • Financial services company uses Access to analyze over 4 million transactions; and
  • Start-up company uses Access as a full-cycle accounting system!

To learn how Access can be a quick and inexpensive solution to your data management needs, contact us at or 650.587.5199.

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Five Tips To A Smoother Budget Season

For many companies budget season is right around the corner.  Summer is the best time to reflect on lessons learned from past budget cycles and explore ways to anticipate the upcoming season with less pain and more value add.  If the phrase “stale budget numbers” resonates in your organization, you may want to integrate these practices in your next budget cycle:

  1. Align top-down strategic objectives withbottom- up planning reflecting a true commitment to planning excellence.  The FP&A (Financial Planning & Analysis) group plays a leadership role in communicating corporate strategies to department managers and ensuring operational plans align with strategic goals.  By combining both practices companies can track performance against plan with meaningful data and metrics.
  2. Build your budget based on fundamental business drivers to ensure consistency across functions and promote planning coordination between functions. Focus on material content in budgeting so that managers can focus on the business drivers that significantly impact expenses, revenues, capital and cash flow.  World-class companies average 15 to 40 line items in their budgets.  Build your budget based on fundamental business drivers to ensure consistency across functions and promote planning coordination between functions.  A complex model might not have any more precision than a simpler model.   More detail and intricate calculations can lure managers into the trap of thinking their plan is more accurate but added value is often debatable.
  3. Assemble a detailed list of all proposed projects from departments with major expenditures such as IT and R&D.  Then categorize the projects, gauge dependency of each project and prioritize the projects.  While most projects are expected to increase sales or reduce costs, they may also require unexpected changes across company-wide processes and systems.  This exercise will help an organization assess the dependencies of each initiative and determine the impact of variation between variables.
  4. Create a waterfall schedule to track your forecast accuracy.  A waterfall creates an environment of accountability and allows executives to determine key trends.
  5. The most impactful shift in budget planning is not to budget at all!  Fast growing companies need to be as nimble as possible to face multiple market pressures.  Frequent re-forecasting and rolling forecasts will facilitate more informed decision-making in areas such as pricing changes, product line changes, capital allocations and organizational changes.  The forecast horizon should be a minimum of rolling four quarters and up to eight quarters.  Budget scan simply be a snapshot of a particular forecast version for standard setting purposes such as bonus or profit sharing pla nning in a fiscal year.

Implementing these best practices compels:

  • Senior management to support the budget      cycle because operational and strategic goals become aligned;
  • Department managers to meet these budgets      because they initially  created them and will be rewarded for meeting      them; and,
  • FP&A to drive further value through      productive and collaborative effort.

For more practical tips to a smoother budget season contact us at or 650.587.5199.

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Financial Planning & Analysis – The Next Frontier Of Business Process Outsourcing By: Deloitte LLP

Financial Planning & Analysis (FP&A) outsourcing is increasingly being used by leading global firms to provide a competitive advantage while others are using the opportunity to uncover additional savings by leveraging a wide range of service delivery options and process improvements to reduce costs and generate additional value.


In the past two decades, we have found that CFOs of large global companies have grown increasingly comfortable outsourcing transactional elements of their finance function; however, many remain apprehensive about outsourcing more complex, Financial Planning & Analysis (FP&A) processes. Nevertheless, some leading companies are exploring FP&A outsourcing as a means to develop a competitive advantage by reducing costs and increasing efficiency amongst a traditionally high cost, skill intensive set of finance activities.

While there are additional complexities associated with outsourcing FP&A, vendors have worked diligently to develop capabilities and tools to make FP&A outsourcing a viable option. FP&A typically requires more judgment and finance experience than other functions and, therefore can provide significant potential for savings from automation, centralization, standardization and outsourcing. Additionally, many of these processes are judgment based, requiring a close working relationship with business users and corporate leadership. Vendors are focusing on developed, highly educated offshore talent with significant functional knowledge and experience in FP&A to support these offerings with marquee clients.

FP&A outsourcing is becoming the next process to outsource for many companies on the leading edge. We expect that over the next few years, FP&A outsourcing will become an increasingly standard offering in the marketplace, as companies seek to achieve additional savings, improve capabilities and reduce cycle times.

This research is based on recent interviews conducted with leading FP&A Outsourcing vendors and Deloitte’s observations from supporting clients. We will explore current vendor offerings, profile two companies’ experi ences with FP&A outsourcing and highlight several important factors to consider when evaluating FP&A opportunities at your company.

The argument

Financial Planning & Analysis processes are commonly a level of complexity higher than the traditional, transac tional outsourcing candidate processes. Generally, FP&A activities can be broken down into four categories:

  • Planning: Finance is typically heavily involved in building company strategic plans due to its proximity to financial data that drive planning decisions. These activities typically include:
  • Budgeting: Financial Analysts are typically heavily involved in both building budgets for business units and support functions, as well as monitoring expen ditures on an ongoing basis.
  • Forecasting: Forecasting of future financial perfor mance based on external market variables (inflation, foreign exchange, economic growth, etc.). Business forecasts are critical inputs into both budgets and strategic plans.
  • Management Reporting: The creation and updating of management reports is one of the more time consuming and high touch tasks within the finance organization and is thus a key driver of cost.
  • Decision Support and Controls: While there is no list of activities that comprehensively defines decision support, it generally refers to financial analyses that are performed to provide guidance on business decisions (e.g. pricing analysis, M&A analysis, activity-based costing and ad-hoc financial modeling).
  • Specialized Experience: These activities commonly include specialized services such as actuarial analysis, risk management and specific classes of asset management, such as real estate.

While many FP&A activities are candidates for outsourcing, CFOs generally prefer to retain Strategic Planning, since they generally don’t want to lose a seat at the strategy table. Certain Decision Support activities that require customized analysis stemming from close proximity to, and knowledge of, the business are also strong retain candidates, such as Tax Policy and Acquisitions and Divestitures. However, budgeting, planning, and management reporting are seeing increased outsourcing activity which can often be centralized and standardized, using both process and technology solutions, while reducing traditionally high costs and resource-intensive, long cycle times.

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Good Financial Analysts Are Made, Not Born by David McCann

They probably won’t know what effective analysis looks like when they show up for work, so CFOs have to teach them. Here’s how.

CFOs who are looking to expand their roster of financial analysts, and not finding as many high-quality ones as they want, perhaps should assign some of the blame to themselves.
Rather than simply seek top talent, companies should also impose “rules of engagement” on those they hire that are likely to result in superior-quality analysis, according to the Corporate Executive Board (CEB), a membership-based research organization.
Many finance teams struggle to define the skills and behaviors that will deliver effective analytic support, CEB says. They often use generic descriptions of desired analyst skills, such as “thinks critically,” “influences business partners,” or “fosters innovation.” As a result, they may inadequately develop their financial-planning-and-analysis (FP&A) staffs.
The best companies, CEB says, describe more specific behaviors and techniques they want their analysts to demonstrate, such as “challenges conventional ideas in both group and one-on-one settings,” “proposes clear action steps,” and “focuses on cause-and-effect relationships between observable factors.”
“Financial analysts may come out of MBA or undergrad programs with good, finance-oriented analytical toolboxes, but they don’t necessarily have a good sense for how to produce analysis that’s easily consumable by senior executives and business partners,” says Tim Raiswell, a senior research director for the CEB Finance Leadership Council. “One thing that differentiates great organizations is having rules of engagement for what good analysis and a good analytic process look like.”
For example, CFOs could have a rule that they won’t even look at an analyst’s report unless it begins with the one thing they need to take away from the analysis or actions the company or business lines should take as a result of the analyst’s findings.
CEB came to its insights through qualitative research that consisted largely of extensive interviews with 70 corporate FP&A heads, as well as academics and consultants. Based on that research, it recommends a methodology for analysts to follow that it calls “insight as a process,” which consists of three key principles.
The first principle is that all analysis should include both inductive and deductive elements. Inductive analysis, also called pattern analysis, involves seeing patterns in data and inferring cause-and-effect relationships between different data points. Deductive analysis starts with an expectation based on previous experience, like “three months after housing sales start to increase, we see sales of our products increase,” and assesses whether that relationship might be changing and should be retested.
“If, say, you favor inductive analysis, so that you base every analysis on looking for new trends, you may miss something important by not using deductive tools that look at historical trends and rules that have helped in the past for the same type of analysis,” says Raiswell.
The second principle is that all analysis should start with a hypothesis. Without one, the analysis will lack focus, and it will take longer to arrive at a useful conclusion. A hypothesis would be, “The three-month sales lag relative to housing starts no longer applies because consumers have less access to credit now.” Whether the hypothesis is proven or not, something will be learned.
A good hypothesis, CEB says, has three characteristics. First, it is testable. If there is not strong-enough data to perform a test, the hypothesis is pointless. Second, it is fragile. If the hypothesis is a rock-solid theory of what you believe to be true already, you will never see beyond conventional wisdom, which is the point of most financial analysis. Third, a hypothesis should be clear. If it requires a PhD in finance to understand it, start over again, the council advises. “The clearer the hypothesis is, the clearer the final work will be,” says Raiswell.
Similarly, the third principle of the “insight as a process” scheme is to apply Occam’s razor, a philosophical tenet that holds that when there are competing theories, it is best to first examine the simplest one — the one that makes the fewest assumptions.
“If your hypothesis is testable, fragile, and clear, you’ll find out pretty quickly if the simplest theory is not the correct one,” Raiswell says. “Financial analysts tend to be enthralled by complex concepts. It’s easy to get caught up in an idea like ‘the reason customers aren’t buying isn’t because they can’t get credit but because of this crazy new reason I think I’ve uncovered.’ Analysts should be reminded to at least kick the tires on the simple explanation before going to higher levels of complexity. They should remember why they’re doing what they’re doing: someone will consume their analysis and potentially act on it.”

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Meritus Launches New 3-Point FP&A Business Success Service

Meritus Helps CEOs and CFOs align their business goals and processes to achieve greater results for their companies.

Meritus is introducing “3 Point FP&A Business Success Service” for growth companies, a three-point service that can be tailored up or down to fit the specific needs and budget of any growth company. The service helps you:

o Develop your Planning Maturity roadmap
o Unlock planning process bottlenecks
o Leverage low cost planning technology

The need for strategic planning with appropriate metrics and analysis is more important than ever. With renewed emphasis on global markets, innovation and human capital, growing companies can greatly benefit from business insights and actionable knowledge brought to them by a trusted third party financial advisor.

Meritus’ goal is to be top of mind when companies are preparing for a liquidity event, an M&A or an exit strategy, where maximum enterprise value can best be realized.

For more information visit or contact us by phone at 650.578.5199.

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7 Prerequisites for Best in Class Financial Planning by Patrick Tullemans

In these times of economic uncertainty, associated with changing business dynamics and increased volatility it is interesting to see how contemporary companies deal with the financial planning process. An extensive benchmark study was conducted of nearly 60 large companies in the Netherlands and Belgium to review budgeting and forecasting against best practices from leading organizations.

The benchmark study from EyeOn reveals that there still is room for improvement for many organizations. The study identified seven prerequisites for reaching a best in class financial planning process:

1. Clear scoping and management support

Particular attention should be paid to the fact that the purposes of forecasting and budgeting differ. The integration between the strategic plan and operations through the budget is key. Budgeting should induce management to manage strategy pro actively, and not focus on short-term fulfillment of budgetary numbers. Target setting itself should be disconnected from detailed budget preparations.

2. Commitment to the different elements of the financial planning process, at all levels

The financial planning process must be driver based and facilitate cross-function plan integration, whilst the required collaboration for this is formalized. In particular, forecasting often requires more and different attention than is currently the case. Reliable forecasting requires discipline and must be treated as a key organization-wide management process involving cross-functional alignment: forecasting provides a chance to better manage the business beyond the walls of Finance alone.

3. Change in attitude of the organization

In particular, the attitude should change towards valuing realistic information, most especially with respect to forecasting. Forecasting should not be about “bringing good news”, but about “providing a timely, realistic business outlook”. Senior management must emphasize that forecasting is a health check. Forecasts are a realistic outlook enabling the business to manage the gap between targets and estimated performance. Forecasting is not a process of resetting targets. With this perspective, behavior in the organization can start to change.

4. Significant reduction in workload and speed compared to the current forecast and budgeting processes

Leading companies prepare their financial forecast in under two weeks and are able to execute the budgeting cycle in a short, focused period and start with this as late as possible, minimizing “spare” months afterwards. They review fewer items more often, understanding more detail does not bring more accuracy. This enables them to develop more experience and knowledge enhancing the quality of the process’ output.

5. A process frequency and time horizon that is aligned with managerial decision making

Business dynamics should dictate the frequency and horizon of the financial planning processes. Limiting the forecast to year-end, for example, means that developments that take place beyond year-end will not be taken into account, even when known and relevant.

6. Capabilities to react to specific events

This enables an organization to react quickly to changing circumstances, such as a material change in business performance impacting only certain parts of the business.

7. Proper information systems

Proper tooling offers organizations more choice in the frequency, level of detail and scope of the financial planning processes. Something of key importance is that these supply the right information, not just more data. Integrated information and one version of the truth enable a single view of the organization and reduce efforts of duplicating data.

Note: This is an excerpt from afponline winter 2011 newsletter. To view full article, please click here

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