1. Laggards – The organization has some process in place but they are inadequate in that there are many gaps which affect the day to day running of the organization.
2. Proactive Process – The organization has in place process practices that are adequate in supporting the business under stable circumstances, and enable it to develop but will not be sufficient in challenging times.
3. Strategic Process – The organization has in place professional practices which enable it to cope effectively in challenging times and will identify some opportunities to improve its performance.
4. Best-in-class Process – The organization has processes and practices that are leading edge and allow it to anticipate both challenges and key opportunities, in order to optimize its performance.

The Stages in Cash Forecasting Maturity Model

Now, let’s understand how the process of cash forecasting is done across organizations.

Approach:
1. Laggards – Based on opinions, judgements, experiences from the past. You take last year’s data, apply basic metrics and use for this year
2. Proactive – A group of collaborative deal between many managers/partners of company, could use data coming from local controllers to build forecasts
3. Strategic – Top-down forecasting approach, taking in FP&A data, building distribution rules and building forecasts
4. Best-in-class – Building forecasts bottoms-up from a granular level, costly from a data acquisition and effort perspective to gather the proper rules

Pillar 1: Approach

Data Gathering:
1. Laggards – Have a very manual process. Often just utilizing what happened last year, and using it as a basis of forecast for this year
2. Proactive – Using the similar process like Laggards, but adding forward looking information, and using this information to make adjustments to incorporate the changes in trajectory of operations of the company (current data)
3. Strategic – Proactive + Using RPA to automate gathering of data from multiple sources.
4. Best-in-class – Utilizing API for connectivity between systems so that it stays up-to-date with the current data available and also using forward-looking information from FP&A, Sales, ERP. No manual effort involved.

Pillar 2: Data Gathering

Modeling:
1. Laggards – Excel-based global approach for all categories, last year’s actuals is used
2. Proactive – Averaging-based approach for all categories, past data representing different periods (1 year, 1 month, etc) is used
3. Strategic – Models of some categories such as AR and AP are based on due dates which might be adjusted, for which ERP and bank data is used
4. Best-in-class – Uses AI for complex categories such as AP and AR, current and past data is used for forecasts

Pillar 3: Modeling

Variance Analysis:
1. Laggards – No/very little variance analysis
2. Proactive – Performed at global level only, and only done for single duration, difficult to do multi-duration analysis
3. Strategic – Performed at entity and cash flow category-level, for single duration only
4. Best-in-class – Performed at entity, region and cash ow category-level, for multiple durations (today’s actual vs forecast done 1 month/3 months/6 months ago)

Pillar 4: Variance Analysis