What are the best benchmarking methods for budgeting and forecasting accuracy?

1 Internal Benchmarking

Internal benchmarking is the simplest and most accessible form of benchmarking, as it involves comparing your budgeting and forecasting results with your own historical data or different units within your organization. For example, you can compare your current year's budget and forecast with your previous year's actuals, or you can compare your sales forecast with your marketing budget. Internal benchmarking can help you identify trends, patterns, gaps, and opportunities for improvement within your own operations. However, it also has some limitations, such as being influenced by your own assumptions, biases, and methods, and not reflecting external factors or best practices.

2 External Benchmarking

External benchmarking is the process of comparing your budgeting and forecasting results with those of other organizations in your industry or sector, or with general benchmarks or standards. For example, you can compare your revenue growth, profitability, cash flow, or cost structure with your competitors, peers, or industry averages. External benchmarking can help you gain insights into how your organization performs relative to others, what are the drivers and challenges of your industry, and what are the best practices and innovations that you can adopt or adapt. However, external benchmarking also has some challenges, such as finding reliable and comparable data sources, adjusting for differences in size, scope, and context, and avoiding copying or mimicking others without understanding the underlying reasons.

3 Functional Benchmarking

Functional benchmarking is a more specific and focused form of benchmarking, as it involves comparing your budgeting and forecasting methods and processes with those of other organizations that excel in a particular function or area. For example, you can compare your sales forecasting method with that of a company that has a high accuracy rate, or you can compare your budgeting process with that of a company that has a high level of participation and alignment. Functional benchmarking can help you learn from the best practices and experiences of others, and identify the key factors and variables that affect your budgeting and forecasting accuracy. However, functional benchmarking also requires a deeper understanding of the context and culture of the other organizations, and a willingness to adapt and customize their methods to your own situation.

4 Gap Analysis

Gap analysis is a complementary method to benchmarking, as it involves measuring and analyzing the difference between your budgeting and forecasting results and your benchmarks. For example, you can calculate the variance between your actual and budgeted revenue, or between your forecasted and actual cash flow. Gap analysis can help you evaluate your budgeting and forecasting accuracy, identify the sources and causes of errors or deviations, and prioritize the areas and actions for improvement. However, gap analysis also requires a clear and realistic definition of your benchmarks, a consistent and timely collection and reporting of data, and a constructive and collaborative approach to problem-solving and decision-making.

5 Continuous Improvement

Continuous improvement is the ultimate goal and outcome of benchmarking, as it involves implementing and monitoring the changes and improvements that you have identified and planned based on your benchmarking and gap analysis. For example, you can revise your budgeting and forecasting methods, processes, or assumptions, or you can introduce new tools, techniques, or systems to enhance your accuracy. Continuous improvement can help you achieve and sustain your budgeting and forecasting accuracy, as well as improve your overall financial performance and competitiveness. However, continuous improvement also requires a commitment and support from your leadership and stakeholders, a culture and mindset of learning and innovation, and a regular and systematic evaluation and feedback of your results and actions.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?