From chore to change agent: 4 ways to transform the planning, budgeting and forecasting process

The pandemic has made it obvious that business-as-usual planning, budgeting and forecasting processes don’t work well in highly volatile environments. As evidence, moving into last year’s annual budgeting cycle, 43% of CFOs surveyed by McKinsey and Company cited the need to “streamline their overall budgeting processes to react more quickly and efficiently.”

This is great news for the banks that made advances in streamlining their overall budget processes, because moving forward it is going to take more agility than ever to manage performance given all the external factors financial institutions are dealing with. These include the lingering effects of the pandemic, pending federal policies and legislation, rate and inflation uncertainty, excess liquidity, poor loan demand, shrinking NIMs and major weather events.

Over the years, the Deluxe® Banker's Dashboard team has been privy to the planning, budgeting and forecasting (PBF) processes of hundreds of financial institutions. We’ve seen all kinds of approaches and strategies for creating annual budgets, ranging from proactive and streamlined to clunky and cumbersome, and from highly digital to a forest’s worth of spreadsheets.

Based on our experience, here are four recommendations for CFOs as they tackle next year’s PBF:

1. Increase inclusion and collaboration

The PBF process is unique in that it touches every part of the business. That’s why you need to involve the other moving parts of the business to ensure that information, processes and people are aligned behind the business objectives. A top-down view of the PBF process won’t give you the detail or the transparency that the board and stakeholders expect.

While finance generally owns the PBF process, finance should be seeking input and information from line managers, head of retail, branch and regional managers, lending, and so on. In other words, the people closest to what is really happening in the branches. You need this information from the front line to discover things like whether you should budget for a product update because the existing one isn’t meeting customer needs.

Involving more people can also ignite ambition and accountability, and spur innovation. It’s great to see charged-up managers rallying their teams to meet goals. Or branches involved in healthy competition to meet their numbers. You just don’t get this when you hand down numbers from the top. Instead, people are left feeling undervalued. They aren’t invested in goals imposed on them.

2. Foster a performance banking culture

Involving others is one of the key steps toward creating a performance-based banking culture where all employees have the mindset, skillset and tools to help drive the success of the institution. It is the responsibility of the CFO to lead this culture shift.

Wondering how to turn the concept of performance management in banking into reality at your institution? Here are seven concrete steps CFOs can take to be performance banking leaders.

3. Obtain and share high-quality financial data

In this digital, on-demand world, everybody expects easy, anytime access to data. Your managers want point-and-click functionality. They want to be able to dig deeper into their numbers.

If you’re the CFO or the controller and you’re keeping tight control over performance-management data, you could be creating frustrating bottlenecks when branch or line managers need key information to budget, forecast or actively manage performance.

Access to high-quality daily performance data and analytics reveals revenue and cost-saving opportunities that you can react to in real time. These daily discoveries—even those that amount to a few hundred dollars at a time—can add up by year end.

For your internal performance data, you want GL data directly from the core. Preferably it would be refreshed at the end of each business day and available to you through performance-management software (like Banker’s Dashboard & Credit Union Dashboard).

You should be able to access daily internal data to review:

• Historical performance
• Actual vs. budget
• Loan production and yields
• Key balance changes
• Loans/deposits
• Deposit mix
• Cost of funds
• Peer group comparisons
• and more.

For external data, it is helpful to access:

• Interest rate forecasts from a reputable source
• Peer bank comparisons
• Demographic data on your market(s)
• Population and business growth trends for your market area

4. Adopt a rolling forecast

Market conditions, risk profiles, the regulatory environment—all change very quickly. The typical budget locks everyone into an annual cycle, which just isn’t practical given the speed of the banking business. As a result, a budget becomes outdated practically the moment it is finalized. Maybe even before.

A good budgeting protocol should be based on rolling or dynamic forecasts that consider the most up-to-date financial and market information. (Note: The rolling forecast is intended to complement the annual budget, not replace it.)

Switching from an annual budget to a rolling forecast can be transformative for your institution. Not only will performance improve, but it also tends to improve executive credibility, financial transparency and organizational accountability—all while garnering respect from auditors, regulators, board members and other stakeholders. It’s no surprise, then, that McKinsey and Company found that 65% of CFOs anticipated more use of rolling forecasts in the years to come.

A final note

Agility is going to be critical for next year and beyond. Business-as-usual financial-management approaches may not be fit for the task. Please don’t hesitate to contact our Dashboard team for assistance as you lead your planning, budgeting and forecasting process. We’re here to help.