Variance analysis is a quantitative tool for determining the gap between budget estimates and actuals. The difference between forecast and actual for a given accounting period is referred to as variance in cash forecasting. Variance analysis helps in identifying potential risks to mitigate them, and taking proactive decisions against the changes required in business strategies.
Here are some traditional methods of variance analysis:
Enterprises typically have a lot of cash flow data, which makes it challenging for treasurers to create low-variance forecasts, especially with manual methods like spreadsheets. The disadvantage of manual variance reduction approaches is that they frequently produce a variance between 20-25% and require a significant amount of time, effort, and money.
Here are some bottlenecks of the traditional variance analysis:
Here are the following best practices for variance analysis:
To spot, report, and fix the reasons for forecast variances, cash flow forecasting software drills down into forecast variances across complicated cash flow categories like A/R and A/P, regional, and company level. Additionally, AI further revises the forecast by evaluating historical and current forecasts and the high variance categories across various horizons such as monthly, quarterly, and yearly to raise the accuracy of the cash forecast by 90-95%.
Benefits of utilizing cash flow forecasting software:
Schedule a demo with HighRadius today to reduce your variance and create highly accurate forecasts utilizing cash forecasting automation.
The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.