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David Carter's guide to forecasting and budgeting software

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17th Sep 2008
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Long-time AccountingWEB contributor David Carter has compiled a guide to forecasting and budgeting and related software for the ICAEW IT Faculty. Here is an introductory extract.

From the accountant's perspective, forecasting and budgeting mean something different than for everybody else - and there are no standard rules on how to put together a forecast.

F&B Packages reviewed

Sage WinForecast Professional Consolidation Since forecasting is a collaborative effort, Sage 50 Forecasting (£200 single user) can handle the budgeting side, but is not up to the task of sharing forecast data. The £750 Sage WinForecast Professional Consolidation is more suited to this task.

Rugged Logic If you like using Excel but need to overcome its limitations, then you should investigate Rugged Logic. Single site licence cost <£10,000.

Inca Planning Very flexible and easy-to-use system well suited to medium-size companies, particularly those with budget-holders at multiple sites. From £10,000 for 12-user system.

Microsoft PerformancePoint Server A fine environment and set of tools for forecasting. But until third parties offer complete solutions and templates, you and your IT department will have to develop much of it yourselves. Cost: £15,000 for 10-user system.

IBM Cognos TM-1 TM-1 is an OLAP engine that gives you a BI solution as well as a forecasting system. The cost of implementation is high, but TM-1 is a superb product.

COA Solutions Collaborative Planning Attractive web-based package that gets the whole budgeting process under control. £15k-£20k (cashflow costs extra).

For most people, "putting together a forecast" means typing some variables and assumptions about the future into a spread sheet and coming up with some projected figures. For them, forecasting and budgeting is entirely about prediction. But when accountants talk about putting together a forecast, they are usually doing it for the whole company and taking everyone else's predictions and combining them into a single forecast. This specialist task is more concerned with data collection and is an area where Microsoft Excel - the most commonly used tool - is inadequate for forecasting and budgeting.

It doesn't help that there are no formal rules for forecasting. A profit and loss report for the past is built on the principles of double entry. But a P&L for the future can be put together in any way you want.

Past totals, past transactions and business drivers can all be used as the basis for forecasts, but if the forecast is not derived from past or present data, it is simply a guess.

Different elements of forecasting seem to be mutually contradictory. Forecasting is the process of speculatively reviewing the financial effects of any number of possible future business scenarios; budgeting is the process of determining and subsequently reviewing expected income and costs over a period of time, based on the particular business scenario that has been adopted by the management of a business as being most in accordance with its actual expectations for that period.

It is important to bear in mind that the purposes of these processes are very different, even thought they both use the same basic tools.

To develop a forecasting model requires software that is broad brush and totally flexible. Yet for repeated use this forecasting model needs to be clearly structure with assmptions, logic and outputs separately identified. Is it possible for a single software package to do this?

The Forecasting and Budgeting Software guide considers the merits of six applications (see box right). Cash flow forecasting is a particularly important technique which is usually derived from the overall company forecast - by applying a set of Excel formulae to another set of embedded formulae. Realistically Excel is only good for forecasting cash at the simplest level, for example by applying an average of debtor and creditor days to total sales and costs. Anything more refined starts to get very messy. Third party packages aimed at accountants invariably come with a strong pre-written cash flow modelling capability.

The 36-page IT Faculty guide, Forecasting and Budgeting Software is priced at £45, or free to members. The faculty is currently running a special £28 membership offer to sign up until the end 2008, which would entitle members to download David Carter's report and other IT Faculty publications for free. More details here.

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By carnmores
23rd Sep 2008 17:38

Winforecast
used this for years before sage bought it - it was and is a great program - fortunately no real need to update as know most work rounds

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