APQC, IBM Study: Organizations Focused on Planning, Budgeting and Forecasting Significantly Outperform Those Focused on Accounting, Control and Cost Management.

HOUSTON -- A recent APQC and IBM Global Business Services survey of 400 participants within the finance organization, internal controls, revenue accounting and profit and cost management areas, finds that organizations that focus on planning, budgeting and forecasting as a business strategy are higher performers in all areas than those that focus on cost accounting, control and cost management. Additionally, the report found significant correlations between performance and how fast it takes to complete forecasting schedules.

The report, By The Numbers: Finance, recently released by APQC - a global resource for process and performance improvement Co found that high performing organizations spend $0.29 per $1,000 in revenue on the process of planning, budgeting and forecasting; $0.25 per $1,000 in revenue on cost accounting, control and cost management and $0.24 per $1,000 on evaluating and managing financial performance.

Conversely, low performing organizations spend their time and dollars very differently and are focused on cost accounting and control. The largest spend within low performers was $2.47 per $1,000 in revenue in cost accounting and control, followed by $2.08 per $1,000 revenue on evaluating and managing financial performance process. Additionally, $1.81 per $1,000 of revenue was for planning, budgeting and forecasting.

"APQC research demonstrates that comprehensive and integrated planning, budgeting and forecasting (PBF) processes are key business drivers for effectively converting strategy into action," said Lisa Higgins, chief operating officer for APQC. "Many organizations have found that effectively linking planning and strategy to budgeting and forecasting provides ways to continuously update action plans and adapt to changing conditions."

"While finance organizations may believe that they excel in their basic requirements of reporting and control, to move to the next level Co that of providing strategic forward-looking insight to help ignite growth Co they need to drastically reform their operations. This reform comes largely in the form of common, simplified processes and enhanced performance measurement standards to address the organization's inherent structural complexity," said Stephen Rogers, IBM Institute for Business Value.

The study also found that there is a significant gap between high and low performers in the number of days to complete the annual budgeting cycle. High performing finance organizations complete forecasting cycles three times faster than low performers. It takes low performing organizations 90 days to complete the annual budget compared to 30 days in high performing organizations. The use of rolling forecasts within the budget and forecast process were a key practice found in high performing organizations. By The Numbers: Finance is designed for finance executives and managers who want to understand meaningful measures to identify and evaluate benchmarks for performance. IBM Business Consulting provided thought leadership and underwriting of the data collection efforts reflected throughout By The Numbers: Finance.

The information includes standard measures used regardless of industry or geography and identifies gaps among poor, average, and excellent performance in the overall finance function as well as within the three key finance processes:

1. Planning, Budgeting and Forecasting

2. Internal Controls

3. Order to Cash (Revenue Accounting)

Other key study findings include:

Internal Controls

* Organizations that perform risk assessment more frequently only take nine days to report, investigate and implement steps to remediate control violations. Those that perform assessment annually typically take 23 days.

* Nearly 52 percent of organizations participating in the study perform formal risk assessment only once a year. These organizations had reported less number of violations per 1,000 employees compared to organizations performing more frequent formal risk assessments.

* In terms of cycle time for remediation of control violations, there is a variance of 34 days among high performers and low performers from identification and reporting to remediation. Organizations that operate in a centralized structure and use technology to enable the process are more apt to clearly define accountability for the controls processes and have a significantly reduced cycle time in remediation of violations.

* While the APQC study found that the presence of a formal risk assessment process in the organization helps to reduce the cycle time to report, investigate and remediate control violations, it is surprising to note that 42 percent of the survey participants indicate no formal controls processes in place.

Order to Cash (Revenue Accounting)

A wide variance was found in revenue accounting in both cost and productivity.

* It costs $0.07 to process receivables per $1,000 revenue in top performing organizations compared to $0.99 in low performing organizations.

* One of the key drivers was productivity. APQC found that high performers process 19 times more invoices per FTE than low performers.

APQC research also assessed technology use in terms of where it is used, what is specifically used and its impact on the process performance in terms of process cost, efficiency and effectiveness:

* ERP and other vendor solutions are widely utilized throughout finance and accounting.

* Specialized and custom applications are most used in managing cash, with MS Office applications being the most used within planning, budgeting and forecasting and standard vendor packages are widely utilized in accounts payable, payroll, general accounting and fixed asset accounting

Benchmarking, a widely embraced improvement methodology, is the systematic process of searching for best practices, innovative ideas and highly productive operating methods that lead to pre-eminent performance. Once understood, benchmarking provides the ability to compare to others in such a way that results in understanding successfully demonstrated practices, the factors that enable high performance and how to adapt and deploy results in rapid improvement. As a result of this belief, APQC houses and maintains one of the world's largest and most inclusive benchmarking metrics and best practices databases, the OSBC database.

By The Numbers: Finance is available for purchase at APQC's online bookstore at www.apqc.org/fm, in hard copy or CD-ROM.

Methodology

Represented in this research are the data sets and findings from 400 survey participants within the finance organization, internal controls, revenue accounting and profit and cost management benchmarking areas. Participating organizations were predominantly based in North America representing over 90 percent of total participants. Participants represented the aerospace, automotive, distribution/transportation, banking, utility, pharmaceutical, insurance, agriculture, consumer products/packaged goods, electronics, public sector, telecom, retail/wholesale and petroleum/chemical industries. 41 percent of participating organizations had revenue greater than $1 billion; 37 percent had between $100 million and $1 billion and 22 percent had less than $100 million in revenue.

About APQC

A global resource for process and performance improvement, APQC helps organizations build better ways to work, adapt to change and succeed in the marketplace. APQC discovers improvement methods, identifies benchmarks and best practices, disseminates findings and connects individuals. Founded in 1977, the member-based nonprofit serves more than 500 organizations in all sectors of business, education and government. For more information, visit www.apqc.org or call 800.776.9676 or 1.713.681.4020 or send an email to [e-mail].