How Blockchain Can Improve Planning — (Part 13)
One business function that every entity should carry out on a regular basis is forecasting and budgeting. Any business that needs to manage a large amount of resources (i.e people, assets, transactions, partners, etc.) needs to assess its budgets and forecasting for the future this takes a large amount of planing and time.
In the current state of business forecasting and budgeting usually comprises of a large planning system or a set of overly complex spreadsheets. These use forecasting metric and levers to assess what the future could possibly look like.
Once the enterprise is working, there is a need to analyse the results of the business and adjust the budgets and plans for the future. One major problem here is that the data which feeds the actuals, forecasts, and budgets is taken from many different systems and sources, these will not always be correct.
Blockchain And Analysis
As we know the data taken from any Blockchain has been verified and validated as it was entered onto the Blockchain. This means that, statistically it will be of better quality than data which has been entered into a database without any previous validation. The analysis of data takes vast amounts of time, not just computing power but also humans who need to be able to understand the data and look for trends and patterns and the actions that can be taken from this.
Some of the common problems that can be ran into when using a traditional database and validation process are
- Many different data sources and lack of validity of this data
- Many different assumptions and no validation of these
- Various people were involved, with different version numbers
- Data has been sent at different times, and was a ‘view’ of the raw data at that time
Blockchains Transformation of Forecasting and Planning
As it stands currently we do have many excellent planning and forecasting tools, which have now replaced the likes of Excel spreadsheets which once used to be king. These new systems take the fundamentals of spreadsheets and automate the points listed above.
However the use cases for Blockchain to take these forecasting systems to the next level and are extremely promising. Adopting the principles of Blockchain technology in forecasting and reposting would mean many changes. A few are:
- A shared ledger of the forecasts would ensure the same version of the forecast is seen by all parties at once. Even with the tools now such as google sheets, there can still be an issue with version control.
- Validation of the data as it enters the Blockchain will ensure that the analysis is completed with accurate and timely data — this ensures the forecasts and analysis from this data held on the Blockchain is more accurate and current.
So using Blockchain technology on top of the current forecasting and planning tools give that extra level of accuracy and efficiency and enable the entity to be even more efficient with their planning and analysis.
Exploring a use case : Intercompany
A use case that relates to all company entities occurs around intercompany transactions, so the transactions that occur between different legal entities, divisions, groups etc.
These transactions make up around 65% of global transactions. This scale is outrageously massive, These transactions are normally referred to as a ‘wooden dollar’ as they should not affect the overall profit or cash position of that entity some of the uses for them are
- Transfer pricing
- Asset transfer
- Cost Transfer
The issue with these transactions is that they current need to be reconciled and each side needs to agree to the amount, this is where Blockchain comes in. As we know trust is a key component of Blockchain and trust does not exist between all entities within a group.
In turn this lack of trust leads to significant inefficiencies and time spend reconciling and arguing about the amount of intercompany balance.
Blockchain is a critical solution to the intercompany issue as it will automate most of the intercompany processes and eradicate the need for intercompany reconciliations, ensuring that any balances and issues are surfaced quickly and dealt within efficiently. Some of the key benefits are:
- Eliminate reconciliations and manual errors
- Headcount efficiency
- Liquidity management
- Tax regulations
- Acquisitions and mergers.
Moving forward as more permissioned Blockchains are developed under robust systems the expansion into businesses such as intercompany transactions will be able to scale massively. The current issue that stands is transaction rate, if the Blockchain is to deal with 65% of transactions the verification process will need to be incredibly fast, we are not currently at this point. I will leave you with a question to respond to. What type of system will need to the developed in order to be able to handle that amount of verification?
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