What is financial forecasting? How does it differ from budgeting? And what should you be considering when looking for a financial forecasting software to help automate your financial forecasting process.
Financial forecasting and budgeting are often used interchangeably when talking about business planning processes. They are both used to align organizations and help executives to make key decisions about the business. The assumptions and types of planning may be very similar between the two processes.
What is budgeting?
The budgeting process is typically done at a point in time, for a fiscal year and once finalized becomes a benchmark to gauge company performance throughout the year. The final budget is set in stone and compared against actuals throughout the year.
What is financial forecasting?
One of the basic differences between financial forecasting and budgeting is forecasting is done more frequently or on a continuous basis. A financial forecast is monitored and updated on a frequent basis (quarterly, monthly, weekly or even in real-time).
3 Considerations for selecting the right financial forecasting software
1. Will you be doing Budgets or Forecasts
When you are looking for financial forecasting software it’s important to know if your company will be doing a budgeting (annual, static planning) or forecasting (rolling, continuous) process (or both!). Most corporate performance management software can handle annual budgeting processes but if you plan to do forecasting you need to make sure you that your financial forecasting software can handle the additional requirements that continuous planning requires.
In your requests, outline your forecasting requirements and have the financial forecasting software representatives show you how they will meet your requirements.
2. Cloud vs. On-Premise
When selecting financial forecasting software, one of the most critical factors in your decision will be whether you choose to deploy it on-premise or in the cloud. Cloud-based options are more common than ever and most vendors offer some type of cloud deployment option. Some vendors ONLY offer a cloud option. Knowing if your company prefers either a cloud or on-premise solution will help narrow your choices for your new financial forecasting software.
Some things to consider when evaluating cloud vs. on-premise for your financial forecasting software include
- Price (Cloud is typically priced under a monthly subscription model, On-premise is typically a one-time perpetual license fee model)
- Cost (on-premise systems are generally considered a capital expenditure, one large investment upfront. Cloud-based systems, on the other hand, are typically considered an operating expenditure, an additional overhead cost the organization will continue to pay)
- Security (since cloud vendors will be trusted to host and secure valuable company data you need to comfortable with their ability to keep it safe. Reputable cloud vendors have strict standards in place to keep data safe. To further ease concerns, prospective buyers can seek a third-party security audit of a vendor they’re considering. This can be especially useful if the vendor is less well-known.
- Customization (In general on-premise financial forecasting software is easier to modify for your specific requirements. This can be very helpful with the additional requirements forecasting processes require. If your company wants a cloud financial forecasting software and is planning to do forecasting validate in the sales cycle that the financial forecasting software will meet your needs.
3. Requirements for Planning vs. Reporting or BI tools
Most companies that are evaluating software are looking at tools that can help with Modeling (business modeling), Planning (templates for collaboration) and Financial Reporting (results distribution).
But your company may also require traditional BI capabilities which are not included in most financial forecasting software capabilities. Some examples of these capabilities include:
- Highly formatted reporting
- Ability to burst reports
- Ability to include data that is not in your forecasting process in reporting and analysis
- Visualizations and Dashboarding
If your company has requirements for both financial forecasting software and a BI tool, you may want to evaluate vendors that have full analytic suite’s that can cover both these needs. Using one vendor for both capabilities typically will save you money in the long term and you will get the added benefit of tighter integration created by using a single vendor.
There is a lot to consider when looking at financial forecasting software. Be sure that you are considering the current requirements but also any potential future needs your company may have. Engaging with an expert to assist with your evaluation can be helpful. Every client has unique needs. Selecting the right financial forecasting software will set you up for future success with your forecasting process.