Predictive Accounting: Driver-Based Budgeting and Rolling Financial Forecasts (Currently Unavailable)

Author: Gary Cokins

This presentation involves the shift from historical reporting to predictive costing such as rolling financial forecasts, what-if analysis, and marginal cost analysis (e.g., pricing). The annual budgeting process is being criticized as obsolete soon after it is published, prone to gamesmanship, cumbersome to consolidate cost center spreadsheets, not being volume sensitive, and disconnected from the strategy. The challenge is how to resolve these deficiencies.

Today organizations are shifting to rolling financial forecasts, but these projections may include similarly flawed assumptions that produce the same sarcasm about the annual budgeting process. What is the solution to these poor budgeting and rolling financial forecast methods? Entrepreneurs know the age-old adage, “You need to spend money to make money.” Excessively tightening the belt on an organization’s spending can jeopardize its success. Rather than evaluating where costs can be cut, it is more prudent to change views and ask where and how the organization should wisely spend money to increase its long-term, sustained value. This involves planning for future expenses, but the annual budgeting and rolling financial forecast process has deficiencies. Four components of the enterprise performance management (EPM) framework can be drawn on to resolve these limitations.

Organizations with a formal strategy-execution process dramatically outperform organizations without formal processes. Building a core competency in strategy execution creates a competitive advantage for commercial organizations and increases value for constituents of public sector organizations. You can learn to manage strategy. It is important to include and protect planned spending for strategic and risk projects in budgets and rolling financial forecasts. Those projects lead to long-term, sustainable value creation.

Publication Date: August 2019

Designed For
CFOs, Financial officers and controllers, Managerial and cost accountants, Financial and business analysts, Budget managers, Strategic planners, Marketing and sales managers, Supply chain analysts, CIO and information technology staff.

Topics Covered

• The Three Key Questions
• A basic primer on costing and EPM
• What is broken with budgeting?
• The shift to rolling financial forecasts
• Dealing with resource capacity planning
• Getting buy-in to overcome resistance

Learning Objectives

• Recognize the deficiencies with the traditional annual budget
• Recognize and apply unit-level consumption rates with forecasts to project operational expenses
• Identify strategic and risk mitigation projects in expense projections
• Recognize and apply "predictive accounting" for driver- rolling financial forecasts, what-if analysis, and outsourcing decisions
• Recognize how to shift from bottom-up cost center consolidations to top down modeling
• Identify the integration of multiple methodologies with each embedded with business analytics to achieve the strategy and to make better decisions
• Identify the most recent era of costing maturity with respect to managerial accounting
• Identify benefit from ABC rapid prototyping
• Identify characteristics of activity-based planning
• Describe which process is included within the predictive continuum with respect to the costing continuum and levels of maturity
• Recognize which process in the intelligence hierarchy provides the highest ROI
• Identify what represents the oldest era of costing maturity
• Recognize the benefit of getting ROI from earlier insights and decisions as well as accelerated learning
• Describe expenses for the integrated budget for project-driven budget method
• Identify where activity-based planning starts
• Describe which cost relates to predictive accounting has adjustable capacity
• Identify the steps in predictive accounting information flow
• Identify the steps in resource capital planning and costing
• Recognize which process is included within the descriptive continuum with respect to the costing continuum and levels of maturity
• Recognize which process has the higher ROI than predictive modeling, regarding the intelligence hierarchy

Level
Overview

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
None

Advance Preparation
None