The Budgeting Nightmare.

Implementing a strategic budgeting system can save managers time and headaches

We've survived Y2K with few glitches, implemented powerful Enterprise Resource Planning (ERP) systems, and have become one of the most wired countries worldwide. Despite reaching these substantial technology milestones, the majority of Canadian companies today continue to use the most cumbersome and uncollaborative tool for enterprise budgeting -- the commercial spreadsheet.

As enterprises today continue to move towards integrated financial systems and reporting, the need for enterprise applications designed for the budgeting process becomes increasingly critical to maintaining a competitive advantage in today's marketplace.

Using spreadsheets as the primary budgeting system does not sufficiently address the need for integration of financial and reporting systems. The budgeting process tends to become very cumbersome and error-prone because of the limited integration of corporate data. In fact, relying on spreadsheets for the budgeting process can result in an organizational nightmare with corporate operational and management control systems built around financial measures and processes that bear little relation to achieving long-term strategic objectives.

Implementing a strategic budgeting process can seem like an enormous challenge when an organization needs to incorporate the strategic plan from the top of the organization while aligning it with the data collection process at the lower levels. After all, each level and department of the organization has a different vision of what the corporate budget should accomplish. While a CFO may need a budgeting process that will predict revenue, expense, and profits, a CEO may require an ongoing analysis of the company's strengths. On the other hand, a budget administrator needs a tight integration of budgeting with financial and production data for the system to be more proactive than reactive.

The following are seven features to look for when shopping for a budgeting system. These features incorporate tools for both top and bottom level management to make the budgeting process more strategic and truly collaborative.

Seven tips for selecting strategic enterprise planning tools:

1. Dynamic and Collaborative Process. Budgeting is not a static process and should not be treated as an annual accounting exercise. Whether an organization is large or small, its budgets undergo constant revisions and require input from all levels. Organizations should look for a budgeting tool that encourages collaboration across the enterprise and ensures this is an ongoing process, not an annual event.

Look for a budgeting system with workflow capabilities that allow for automatic distribution and consolidation of budget plans. This will reduce confusion and ensure that budget submissions from multiple departments have the maximum integrity. For example, an e-mail notification feature can serve as a control mechanism to inform managers that their subordinates have completed their budgets and are ready for review.

2. Integration and Closed-loop Modeling. The most important feature of a budgeting application is integration with all corporate data sources. A common assumption when planning budgets is that only financial and general ledger data is relevant. In reality, over half of the data are derived from other ERP sources such as human resources and payroll, inventory management, customer relationship management (CRM), fixed asset, and production systems. For an enterprise to effectively plan, all the software applications must integrate directly with transaction data. Incorporating data from all areas of the organization and making this data accessible will ensure that all users take ownership of the process.

Look for a planning tool that supports closed loop modeling so that the enterprise data may be directly integrated with the planning and analysis environment and vice-versa. Using a closed loop system will enable all changes in the planning environment to be reflected in both the analysis components and forecasting.

A budgeting system should also offer a minimal set-up to integrate the corporate data sources, and be compatible or integrate easily with the organization's existing technology infrastructure.

3. A Single Database. A central database is critical to an efficient budgeting process. By creating a single source to company-wide information, all areas -- from the planning process to the key drivers and the financial information - are linked. An organization can also improve accessibility to critical data and dramatically reduce the time spent on coordination, distribution and collection of data. This time saved can be better spent on analyzing rather than trying to link spreadsheets and re-keying information.

4. Advanced Analysis. Budget applications are important management tools because they enable all levels of management to get an overview - from a snapshot of the company to a product line. Being able to view the performance and make projections for the future is a tool that all levels of management should be able to access. The budgeting application should include a roll-up feature that can provide these types of snapshots and forecasting. At the same time, a CEO may want to drill down to look at more detailed information to analyze the performance of a specific product, department, or sales region.

Look for a feature with advanced analytical tools such as online analytical processing (OLAP), a category of software tools that provides analysis of data stored in a database. As well, this level of query will eliminate redundant reporting and empower managers with various combinations and intersections of results.

5. Multiple Versions and Security.

Incorporating change and sudden market forces into a conventional budgeting system can often turn into an organizational nightmare. However, these challenges are a reality and must be addressed. Corporate budgets should be able to quickly and easily adapt to these changes.

Look for a budgeting system that can retain more than one version of the budget to help management compare versions and see the results of organizational change on the bottom line. Ensure there is a centralized control over budget revisions. Also, look for a budgeting system that provides security and control within the process with the option to provide different levels of access. Users should be only able to view and access planning controls for their relevant organization.

6. Remote Connectivity. If your managers are working from remote locations, budget deadlines still must be met, and key people must have access to plan sheets to enter and manipulate the data. Real time access to the data source via an Internet Web-enabled interface will ensure this. Web enablement of corporate budgeting and planning systems will also help reduce the technology deployment cost to your organization.

7. Keep it simple. Often organizations realize the budgeting system is too complex and requires a high degree of technical knowledge to use after it is already in place. Look for a budgeting application with an interface that is familiar and easy to use. The user-friendly "look" of the application will reduce or even eliminate the learning curve for end users.

Today's technology can help organizations build a strategic budgeting tool. The benefits of a budgeting process with tight integration and automation involving all levels of the organization - from the top down to lower levels - is a management tool that will save organizations valuable time and resources. As long as organizations update it regularly and treat the process as an integral part of their operations, it can serve as a strategic management tool and provide that competitive advantage so very crucial in today's dynamic marketplace.

Craig Fearon is based in Burlington, Ontario and is the manager of sales development with Best Software Limited.

Budgeting Blowout

International Data Corporation (IDC) reported that the market for purpose-built budget management systems will grow at a compounded annual growth rate of more that 50% While budgeting management sates were $85.9 million worldwide in 1995, they are expected to reach almost $700 million this year.