Predictive Accounting: Driver-Based Budgeting and Rolling Financial Forecasts

Author: Gary Cokins

This course involves the shift from historical reporting to predictive costing such as capacity-sensitive driver-based 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. It can be done through driver-based expense projections also useful for decision analysis.

The annual budget is often perceived as a fiscal exercise done by the accountants that is: (1) disconnected from the executive team's strategy, and (2) does not adequately reflect future volume drivers. The budget exercise is often scorned as being obsolete soon after it is produced, and biased toward politically muscled managers who know how to overstate and "pad" their budget request. To complicate matters, traditional budgets are typically incremented or decremented by a small percent change from each cost center's prior year's spending level. This "use it or lose it" behavior by managers in the last few months of the fiscal year unnecessarily pumps up their prior year's costs and consequently confuses analysis of who really needs how much budget in the coming year.

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. This course provides a solution to poor budgeting and rolling financial forecast methods.

Publication Date: February 2024

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

• A basic primer on costing on EPM (enterprise performance management)
• What is broken with budgeting?
• The shift to rolling financial forecasts
• Dealing with resource capacity planning
• Getting buy-in to overcome resistance

Learning Objectives

• Identify the deficiencies with the traditional annual budget
• Recognize how to apply unit-level consumption rates with forecasts to project operational expenses
• Identify strategic and risk mitigation projects in expense projections
• Recognize how to 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

Level
Overview

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
None

Advance Preparation
None