The Budget, Actual, Forecast disconnect



Ashish Yadav


06 Nov 2014




How adopting the FAST standard has overcome one of the enduring challenges within the Finance function.

A perfect world

In a perfect world the financial and management reporting of a business or group is based on a detailed and consistent format for:

1) the preparation of the budget and longer range forecasts,

2) the presentation of actuals; and

3) outturns to the budget and forecast.

In reality however the complexity of this challenge and the limitation of reporting systems means that this ideal solution is often forsaken for the benefit of expediency.

The data relating to actuals is usually quite detailed and extracted directly from an underlying ledger.  This lends itself to be processed and reported relatively easily through a spreadsheet model.

Gazing into the crystal ball

When it comes to budget and forecast, finance functions need to gaze into the crystal ball and attempt to predict the future with a suitable level of accuracy.  The skill with which these reports are constructed has a significant impact on the relevance and usefulness of the management information that they contain, and on whether decisions can be confidently made off the back of this data.

For a budget or forecast to be of any use it has to capture the key dynamics of the underlying business.

The budget and forecast are usually prepared over a number of months well in advance of the period that it covers, so management generally have sufficient time to construct this thoughtfully.  That is why many companies usually achieve a consistent reporting system that compares actual and budget throughout a year as each month passes by.

The start of the disconnect

Where a disconnect starts to often appear is when the outturns of the budget and forecast start to come into play.  In business as much as life in general, things rarely go to plan and so it is valuable for an organisation to be able to reassess the budget and forecast and then determine what impact that will have.

The problem is that this needs to be performed in reasonably short order if it is to be presented in a timely fashion and to be of use for decision making.  Management do not have the luxury of time associated with the original preparation of the budget and forecast and revisions to them both are often shortcut and prepared on an inconsistent basis to the original versions and sometimes in a completely different format.

For example it is not uncommon to see rolling forecast cashflows presented in a totally different format to that of budget and actual and furthermore for a short term forecast (say 12 weeks, week-by-week) to be entirely different in structure and not reconcile to a long term forecast (say 1 year, month by month).

Closing the disconnect

F1F9 builds reporting models for clients that are based on the FAST standard, which was recently recognised by the ICAEW as the only current spreadsheet standard compliant with their published best practices for spreadsheet modelling.  This means that the logic and calculations for the budget and forecast are built up in a consistent, transparent step-by-step process allowing the dynamics of the business and the relationships between the detailed lines to be captured accurately.

As a result of this, the reporting for Budget, Actual and Forecast is identical, is on a consistent, continuous timeline and any updates that need to be executed can be accurately applied.  Outturns can happen quickly and shortcuts are no longer required.

It closes the disconnect and empowers our clients to make better decisions more quickly.

Ashish Yadav
Ashish Yadav joined F1F9 in April 2012 and is now part of the leadership team in F1F9's India office. He has worked on a wide range of modelling assignments across many sectors including real estate, recruitment services, power and financial services. He specialises in designing and creating Excel based solutions for optimising the performance of corporate finance functions.