Best practices: Forecasting

Task 1: Validate actuals

In Spend Management, ensure that the actuals are correctly loaded into January 2018, February 2018, and March 2018. For more information, see Import and publish actuals.

Task 2 (optional): Update targets in the baseline budget

Targets provide the ability to store a year-end OpEx, CapEx, and Headcount target for each Department. KPIs and graphs throughout the application provide convenient comparisons to targets. Because targets are copied forward into new plans, storing the approved budget amounts as targets in the baseline budget provides an easy way to carry those forward into future forecast plans. See Set financial targets.

Task 3: Create a forecast plan

When creating a forecast, note the following and see also Create a plan or forecast:

1. Forecast Start Period - Specifies the first month of the forecast that does not contain actuals. Because the Q2 Forecast has actuals for January, February, and March, in this case, set the forecast's start period to April.
2. Baseline - Specifies which plan from which to copy plan data. All data (for example,Contracts,Assets,Labor,Targets,Other Expenses, and so on), except financial amounts for actuals months, will be copied from the specified plan into the new plan. Because this is the first forecast of FY2018, use the FY2018 Budget for the baseline.
3. Summarize actuals down to the following dimensions and/or attributes - Only columns that are checked will be pulled through from Spend Management into the new forecast. It is recommended that you check most or all of these values to maximize the granularity of actuals data in the new forecast. The following example shows how selecting various options to summarize impacts the granularity of the actuals data in the new forecast:
4. Rolling forecasts - If a rolling forecast was used, creating a two- or three-year plan to ensure that the forecast contains 4-6 future quarters.
5. Reference data usage - The new forecast will use the latest published version of all Reference data dimensions, so:
   • Actuals pulled into the forecast will use the latest Reference data regardless of the version being used in Spend Management.
   • Plan data pulled into the forecast from the baseline plan will use the latest Reference data regardless of the version in the baseline plan.

Task 4: Enable plan features for the forecast

Configure Variance Drivers on the forecast with the following options:

• Compare Plan - The original budget, FY2018 Budget
• Comparison Period - Because this is the first forecast of the year, choose Q1 FY18

When editing line items, use the Compare Shortcuts feature to add a comparison to the FY2018 Budget so that users can see a comparison to the original budget.

Task 5 (optional): Update labor, contracts, and assets

It might be more efficient to make some broad-based forecast updates before opening the plan to all budget owners.

1. Labor updates
   • Updates for new hires:
     1. Add the new hires to the Expenses > Labor > Existing tab.
     2. Remove the filled open headcount from the Expenses > Labor > Planned tab.
   • Updates for delayed hires - Update the open headcount Start Date on the Expenses > Labor > Planned tab.
   • Updates for canceled hiring - Update the open headcount Quantity to 0 on the Expenses > Labor > Planned tab.
   • Updates for employee departures - Update the employee End Date to the termination date on the Expenses > Labor > Existing tab.
2. Assets updates
   • Updates for new purchases:
     1. Add the actual purchase to the Expenses > Assets > Existing tab.
     2. Remove the planned purchase from the Expenses > Assets > Planned tab.
   • Updates for delayed purchases:
     1. Update the planned Purchase Date (and In Service Date, if appropriate) with the future date on the Expenses > Assets > Existing tab.
   • Updates for canceled purchases - Update the planned purchase Quantity to 0 on the Expenses > Assets > Existing tab.
3. Contracts updates
   • Updates for delayed contracts:
     1. If the contract start date was delayed, update the planned contract Start Date on the Expenses > Contracts tab.
     2. If the contract started on time, but amortization/invoicing was delayed, update the existing contract Amortization Start Offset on the Expenses > Contracts tab.
   • Updates for canceled contracts - Update the planned contract Amount to 0 on the Expenses > Contracts tab.

Budget owners are also able to make any of these updates when the plan is opened.

Task 6: Enable budget owners to make updates

After you open the forecast, budget owners can make updates to the future periods of the plan, but not to actuals periods, which are read-only.

Use the Compare feature against the original FY19 Budget to ensure alignment with the budget for each department, account, or cost pool, and so forth, when reviewing and approving changes from the users.

Create subsequent forecasts for the year

Eventually, it will be time to create the second major quarterly forecast of the year. Actuals will be loaded for April, May, and June, thereby enabling the creation of the Q3 Forecast.

The tasks are the same as with the first forecast of year above, except for the choice of the baseline plan.

To ensure that you include updates made in the Q2 Forecast, use the Q2 Forecast as the baseline for the Q3 Forecast. This means that all data (except for actuals financial amounts, which are loaded from Spend Management) will be copied from the Q2 Forecast into the new Q3 Forecast.

Budget variance analysis strategies

There are two common approaches (and several variations) for performing variance analysis on forecasts throughout the year.

1. Variance analysis to previous forecast
   • Compare plan - Q2 Forecast.
   • Compare period - Q2, since those new actuals are being compared to the forecast updates that were made in the Q2 Forecast.
   • Evaluate year-end totals vs. the baseline budget - Specify a Compare Shortcut of the FY2018 Budget.
2. Variance analysis to original budget
   • Compare plan - FY2018 Budget.
   • Compare period - YTD (Q1-Q2) because the cumulative effect of all actuals is being compared to the original budget.
   • Evaluate year-end totals vs. the baseline budget - Specify a Compare Shortcut of the FY2018 Budget.

Run monthly reviews

Many organizations perform forecasts on a monthly frequency. Organizations that perform forecasts on a quarterly frequency can benefit from a monthly review as soon as actuals are available. You can do this by following the previous forecast creation steps, skipping tasks as appropriate, and then not opening the plan.