Striking a balance between agile forecasting and traditional budgetary practices.

Abstract

Abstract Budgeting is one of the most important, successfully utilised and useful tools which almost every major organisation relies on for the setting of strategic goals and the subsequent measurement against these goals. However, despite its success, rapid changes in the business environment within which many organisations operate necessitate the need for greater agility in financial planning which traditional budgets and forecasts are not necessarily geared for. The aim of this study was to explore alternatives to traditional budgeting approaches within South Africa with focus on the applicability of an agile approach, understanding the level of detail required from a forecasting perspective and determining whether there are agile substitutes for the level of detail required. The study also considers the accuracy of an agile forecasting approach and includes a component on forecasting free cash flow which is increasingly becoming an important measure of organisational performance. The study concludes with an identification of industry types that agile forecasting could be most suited to. A quantitative method was used in the study, making use of a survey questionnaire to gather data from 60 respondents. Most respondents indicated that trading profit within their organisations is influenced by a small number of critical business drivers, suggesting suitability for an agile forecasting approach. Respondents still indicated a requirement for detail to conduct performance evaluation but a slight opportunity to apply high level alternatives exists. The study found that despite the complexities and potential to not be perfectly accurate that respondents are largely open to the concept of an agile forecasted free cash flow. However, respondents expect a greater degree of accuracy in other forecast statements, deviating from a concept of agile forecasting, being the gain of insights as opposed to accurately predicting the future. The research concluded with the majority of respondents indicating that agile forecasting would be suitable to all industries with the specifically highlighted industries being manufacturing, FMCG, and banking respectively.