Blog September 6, 2019

Budgeting & Forecasting: Short term management vs. long term strategy

By Andy Welkley

Budgeting and forecasting can be a long, painful process that hinges on an organization’s ability to make accurate assumptions in order to balance the long term planning and short term management of the business.

It’s possible to simplify this process, but like all good things, it will take some work! When dealing with such a complex process, it’s not enough to simply try to do everything faster. You’ve got to break down each level of your budgeting and forecasting and look at how to improve each moving piece, which will then affect the larger whole. Increasing efficiency and accuracy starts by evaluating how you make assumptions and continues by balancing your short term management vs. your long term strategy.

The need for assumptions

The first step of improving your budgeting and forecasting is asking yourself how you can start with better assumptions and end at more accurate budgets, forecasts or strategic models.

In many ways, the old adage about assumptions still rings true. After all, making assumptions revolves around guessing, and guessing is often risky. There are always going to be some gaps in your data, whether you’re simply trying to estimate future events and performance or if you’re simply not able to find certain concrete data.

Making more accurate assumptions

Improving your assumptions is all about testing to see what works and what doesn’t work. Before you get to short term and long term planning, you start only with what you know and what you don’t know. By grouping together what you know and what you don’t know, you can pull different levers and see how one outcome can affect the other.

For example, you can creating speculative leases. By assigning probabilities and adjusting lease terms, you can see how making adjustments to the things you don’t know might impact the things you do. What does your projected rent look like when adjusted against market rent? What kind of effect will tenant exposure have on tenant mix? By tooling around with these different metrics, you can get a better sense of what might work for your budget.

Short term management vs long term strategy

Management consultant and author, John Hagel, advocates an approach for tech companies called the zoom out, zoom in strategy. If you “zoom out” on your industry and think about the next 10 to 20 years, what do you see? Where are market trends leading you? How do you think the industry is going to change in that time horizon, and how do you want to fit into it all?

Now zoom In. Plan out your next 12-24 months by building budgets and crafting forecasts. What do your short term metrics look like? Are they pulling you towards or away from your long term goals?

How to align the short term and long term

How you manage your organization in the short term will inevitably have an effect on the long term strategy. To properly align the activities in the Zoom In/Zoom Out approach, you’ve got to make sure that the teams who are producing these two outputs (long term and short term) are consuming the same, reliable data. Furthermore, you’ve got to be thinking about these key questions:

1) Does the short term annual budget support the long term strategic plan?
2) Are we using the assumptions from the long term plan in the budget?
3) Does performance against the budget suggest altering the long term plan?

The two teams must be agile enough to respond to volatility while at the same time drive the business forward against a long term strategy. Establishing a single source for all your data, making that information available across all teams, and delivering relevant and personalized reporting can go a long way in enabling the two teams to join together.

Budgeting and forecasting is a grueling process for every organization, and the best way to simplify it is to improve every individual step of the greater whole. By taking a critical standpoint and committing the proper time and resources, you can get the full potential out of your budgeting and forecasting.

Learn more about how best to reinforce your budgeting and forecasting operations from subject experts in this webinar.

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