Perry D. Wiggins
4 min read
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Delayed financial forecasts jeopardize timely decision-making. When external shocks and disruptions strike, the ability of leaders to act quickly based on reliable information can determine whether an organization moves ahead or falls behind.
When forecasts signal impending demand growth or losses, organizational leaders need as much lead time as possible to make course corrections. Overly detailed or labor-intensive forecasts waste precious time that could be spent managing growth or preventing further setbacks. By producing reliable forecasts fast, finance managers can improve business performance and position the organization for success.
With stakes this high, tracking the finance team’s cycle time to prepare financial forecasts and looking for ways to increase efficiency — all while maintaining quality — are important activities that usually prove to be worth the effort.
Cross-industry benchmarking data from nearly 3,900 companies collected by the American Productivity and Quality Center show that high-performing companies produce financial forecasts in eight days on average, compared with bottom performers, which take twice as long. Median cycle time is 11 days. These numbers generally reflect a quarterly forecasting process, including updating the rolling profit-and-loss forecast.
In the eight-day gap between the top and bottom performers, geopolitical conditions can change completely. A week can make the difference between a prompt response to reduce staffing or scale back production and the need to execute mass layoffs or incur additional debt. Over a year, the slower group will need an extra month to prepare forecasts compared to the fastest group.
Cycle time to prepare the financial forecast is a significant indicator of management effectiveness. It affects various aspects of the business, including cost control, internal process efficiency and staff productivity, as well as providing the basis for strategic agility. Balancing speed with accuracy allows CFOs to act more quickly to support the strategic goals of their organizations.
For companies at the lower end of the spectrum on this metric, there are several proven strategies for improving performance. Which approach is right for your organization depends on the specific context, including organization size, complexity, industry and market variability.
Importantly, simply forecasting more hastily or demanding that employees work faster risks producing lower-quality deliverables and omitting critical variables. Here’s how CFOs can meaningfully increase efficiency to reduce cycle time in forecasting.
