When it comes to projections and forecasts, accountants too often fall into the trap of formula heaven. We passionately believe that data-mining is the key. That somewhere buried in the numbers a magic trend will surface if we can just find the perfect formula, graphically present historical data or create the perfect program to sort data, all the problems of humankind will be solved. These tools can be valuable but do not replace good old fashion thinking. The trap is that we tend to over-rely on these tools as a substitute for interactive management.
Creating an interactive culture of projections must be a primary best practice within your organization. From this many benefits will be realized. Be careful of leaning too hard on historical trend analysis as a substitute for inclusive interactive planning. I am a firm believer in concise, tightly presented financial statements and financial dashboards that enable users to track the financial heart-beat of their organization and address sustainability. But these reports by themselves do not solve any equations. However, these reports can act as a starting point for interactive questioning, planning and projection-based forward thinking and problem-resolution.
Linking a culture of interactive projections with engaged staff and management will support and ensure a vibrant and progressive organization. There are three critical factors that need to be addressed that will help your organization to prepare and integrate projections.
- Design your core budget systems to support the non-financial manager, especially program and project managers.
- Ensure in your management practices that ownership and forward planning are never taken away from project managers and their staff and that they are encouraged to actively plan and problem solve not just based on short-term outcomes but considering longer term effects as well.
- Enhance interactive sharing of forward planning information among managers. Concentrate on answering how the “I Question” (how am I performing as a manager – departmental look) balances with the “We Question” (overall how are we performing as an organization which financially shows up on the bottom-line).
Designing these three factors into a practice of preparing regular rolling monthly projections will solve the riddle of effectively integrating projections into your management systems. Improved results are sure to follow.
In Part II to follow I will explore and consider each of these three factors and the important role they play.