How to set up a cash forecasting process: a practical guide

28 September 2018

Designing and rolling out any new reporting process in a large organization can be challenging. In any multinational company, a new process will inevitably require input from many people across multiple locations. In addition, the number of departments that need to be coordinated (IT, finance, treasury, etc.) can make collaboration difficult.

Finally, depending on levels of support for the project, results after implementation may be put under intense scrutiny. All this can have the effect of making the task at hand seem more than slightly daunting.

Fortunately, for those considering setting up a new cash forecasting process, CashAnalytics has written a practical guide which breaks the project down into its constituent parts and offers advice on each. The guide can be downloaded from CashAnalytics’ website here.

Keys to success

As discussed in the guide, the keys to success are found in the planning and preparation. Setting clear business objectives from the outset not only helps build the business case and encourage buy-in from the c-suite, it also provides focus on which elements need the most time and attention.

This is not a one-size-fits-all approach. The objectives of the new process should correspond to the specific needs of the business. For treasury to continue its journey as a strategic business partner, the new cash forecasting process must consider the strategic objectives of the business.

Selecting the right time horizon

Once the objectives have been set, the cash forecasting model needs to be designed. Depending on the business objective, the forecast horizon may vary. For example, if the output of the process is to be used for short-term liquidity planning, the forecast horizon should not exceed 10 business days, and have a granularity of reporting no greater than daily. If forecasts are to be used for liquidity risk management, a forecast horizon of six months with a weekly reporting granularity would be more appropriate.

Ultimately, the time horizon(s) and reporting granularities need to be able to produce the range of forecasts that meet the business objectives defined at the outset.

A process of iteration

The guide also describes the importance of thoroughly testing the process as it is being built. The goal of this testing phase is to ensure that the forecasting model designed, and the assumptions underpinning it, make practical sense.

The breadth of testing should be sufficient to cover all components and workflows, albeit on a much smaller scale. For example, if a process is being rolled out to 50 or more entities, a testing process modelling scenarios with five entities should give sufficient coverage.

While the testing phase identifies neccesary amendments and alterations before the launch of the new process, it is important to note that maintaining best practice means following a process of iteration, continuing after go-live. As more data is run through the process, more biases can be identified and rectified. A process of iteration therefore leads to continual improvement.

About the authors

CashAnalytics has written the guide to serve as a resource for anyone intending to set up a new cash forecasting process. The guide is built on the experience CashAnalytics has in helping large, multinational organizations to automate their forecasting processes.

As a specialized software company, CashAnalytics has helped companies across a wide variety of industries and has developed a thorough yet efficient set-up process that enables quick and easy integration. To download the pdf guide please click here.

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