5 Key Visualizations for Improved Budgeting, Planning, and Forecasting

Wayne, PA, USA / Langenfeld, Germany – November 21, 2013 – Data visualization can have a significant impact on an organization's budgeting, planning and forecasting process, enabling planners to see the whole picture of their data at a glance, determine whether their plans are favorable or not, and understand where action needs to be taken. Especially important for departmental planners without finance backgrounds, charts and graphs focus their attention on the most important data and allow them to see when plans require adjustment without needing a deep understanding of planning terminology. Corporate performance management software provider arcplan suggests that finance teams consider adding the following visualizations to their companies' planning dashboards, rather than requiring planners to interpret and make decisions based on confusing spreadsheets of budget numbers.

1. Income or Cash Flow Analysis: Bridge or Waterfall Chart
A bridge or waterfall chart is a prime example of a storytelling visualization for planners. A bridge chart is useful for visualizing the cumulative effect on a cost center or budget as it goes through changes throughout the year. Though income statements make sense for formally trained finance professionals, other planning managers may benefit more from a bridge visualization. At a glance, a planner can understand how changes in items like revenue, cost of goods sold (COGS) and operating expenses (OPEX) throughout the year affect the net income. A bridge chart tells a visual story of the starting value, changes to that value, and the ending value for a set period. The example chart below shows that revenue moved in a positive (green) direction more than COGS and OPEX moved in a negative (red) direction, resulting in increased net income at the end of the period.

2. Budget Variance Analysis: Horizontal Bar Chart 
Simple yet effective, a horizontal bar chart is ideal for displaying variances within a budget statement because it is straightforward and eliminates confusion. This visualization makes it plain which departments or budget categories are doing poorly, i.e. are the most over budget, and which categories are doing well (under budget). Quick access to this information means that planners can reallocate funds from the most favorable categories and alleviate problems in less favorable categories. The horizontal variance bar chart helps finance leaders balance the budget by keeping cost centers in check.

3. Plan vs. Actual Spend: Stacked Bar Chart
A stacked bar chart is used to display comparative measures such as plan versus actual data. It is designed to deliver information in a clean, concise manner and provide context to the metrics by comparing them to each other. In the example below, the actual data (in yellow) is plotted against the plan data (in gray). It is easy to see that this department's expenses were understated in the plan from the beginning. Graphing a department's spending this way and delivering it to them early in the year makes it clear whether corrective action needs to be taken, especially for more visually-minded employees and non-finance team members.

4. Trend Analysis: Sparklines or Microcharts
A microchart or sparkline is a tiny line chart used to display the trend in a large volume of data. The value of these charts is that they emphasize the highs and lows, which would otherwise be lost in lengthy columns of data. Sparklines can be used to display the contribution margin for product lines, changes in product costs over time, or even historical sales reporting – all important to planners who want to identify patterns and make predictions about the future. Sparklines are a great way to condense information and deliver insight in a small space, bringing information to life in ways that lists do not.

5. Forecasted Revenue, Income, Etc.: Line Chart
Financial managers are all too aware that the plan begins to deteriorate as soon as it is created. For this reason, organizations with sophisticated planning usually do some form of forecasting or predicting future scenarios for revenue, gross margin, and net income based off data from prior years. Gut instinct may dictate that your budget should be increased by 5% every year, but why not see if that number is accurate? Applying regression analysis to current data plus 24 months of historical data can give you a more accurate number. By visualizing this information in a chart, it becomes easy for even non-finance professionals to understand. In the example line chart below, the grey line displays data from 2 years prior, the yellow line represents data from the previous year, and the green dotted line visualizes the predicted values based on a regression model. In arcplan, each line can be viewed individually for a clearer look at the predicted data points.

Finance leaders should rely on data visualizations to deliver business insights to planners throughout the organization. The right visualizations enable planners to consume large amounts of information while shortening the time from insight to action.

 "Especially for those used to a spreadsheet-heavy budgeting, planning and forecasting process, a planning dashboard can have a huge impact," explained Achim Röhe, arcplan's VP of Professional Services. "Visualizations bring data to life a way that financial statements and tables of numbers simply cannot. They make it more obvious where action needs to be taken, aligning every planner in the direction of improved corporate performance."

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