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3 Keys to Better Budgeting: Process, Technology, and Data

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Working to implement an effective budgeting process sets CFOs up for a successful budgeting season.

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This article was published on in October 2023.

Annual budgeting is one of the most arduous tasks for CFOs. This time around presents unique challenges: the overall financial picture remains murky at best, with elevated interest rates and corresponding price hikes straining the budgets of individuals and businesses alike.

Add to this the fact that, amid increased hopes for a soft landing, the economy remains uncertain — with some even still tossing the word recession around. For a generation of CFOs experiencing these conditions for the first time, one of their toughest jobs just got tougher.

Therefore, CFOs need to get the right process in place. Part of applying the “right process” means implementing the technology and data analytics solution needed to not only address immediate budgeting needs but to provide a path forward for the continuous forecasting and analysis that are especially critical in a volatile economy. Here’s how:

1. Establish a “Real” Process

Why is something that CFOs do every year like clockwork so challenging? Primarily it’s because they don’t have the right process in place, which forces them to reinvent the wheel time and time again.

Everything about budgeting starts with a process, and there are plenty of approaches to choose from: dynamic models like value creation planning plus (VCP+), precedent-based budgeting that extrapolates from historical data, integrated business planning (IBP) that draws inputs from sales and operational leaders, and zero-based budgeting (ZBB) that requires starting from scratch on an annual basis, to name a few.

While you want to identify the most appropriate and risk-to-reward proportionate option, the approach you choose matters less than the process you build around it. Many CFOs can claim a methodology and create a budget, but the work itself is often haphazard, poorly managed, and usually falls behind schedule. To deploy a “real” process, CFOs must:

  • Start early. It’s never too early to apply a process, but as a bare minimum, CFOs should begin one quarter before the start of the fiscal year to ensure they get the reporting they need from across the business. Dynamic planning and forecasting can address this issue in some cases, but CFOs may be looking for additional data to leverage for the annual budget.
  • Know the steps. Knowing the steps of the process is essential for tracking progress. Having a schedule with key deadlines ensures that budgeting stays on course and meets timing needs for the business — and allows for private equity owners to apply to their financial communication and projections.
  • Avoid drowning in data. In an era where everything is measurable, having too much data is a very real obstacle. CFOS must focus only on what matters for the company and the private equity sponsor.

Addressing these fundamentals lays the groundwork for a good process that not only helps tackle the initial budget but also makes reforecasting based on changing conditions a much easier prospect.

2. Implement the Right Technology

Only after CFOs have established a solid budgeting process can they begin to build the right technology solution. Today’s technology systems (CPM/EPM platforms) are critical for CFOs to plan accurately for the future of the business, as integrated access to real-time financial, operational, and macroeconomic data — enabling enhanced scenario modeling — is a true game changer for CFOs to create actionable, intelligent budgets.

3. Leverage the Right Data 

The final piece of the puzzle, and quickly growing in importance, is data. As noted above, managing the oceans of data available can be a significant challenge to CFOs. And then there’s the work required to “clean” and organize data so that it is accessible and useful. This can be especially daunting for private equity-backed companies that may have acquired and integrated multiple businesses with different systems—resulting in data that is not standard or normalized.

The bottom line: budgeting, done right, isn’t a one-time exercise. It should give CFOs a path for ongoing forecasting and analysis, which is a heavy lift without the right process, technology, and data. Working to implement an effective budgeting process presents a tremendous opportunity to ensure a successful budgeting season.

3 Keys to Better Budgeting: Process, Technology, and Data

Budgeting, done right, isn’t a one-time exercise.

Meet the Author

Sanjeev Parlikar
Sanjeev Parlikar
Managing Director, Head of Strategic Finance

Sanjeev is a Managing Director and Head of Accordion’s Strategic Finance Practice with nearly two decades of experience in M&A, corporate, and operational finance. He focuses on the growth and development of our Strategic Finance Practice, managing client relationships, leading projects – and always on driving value creation for our clients. Sanjeev has also led numerous complex M&A and financing transactions for global corporations and private equity firms.  Read more

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