Budgeting and planning solutions for the mid-sized enterprise

The ever-greater importance of financial budgeting and tracking

Creating a fiscal year budget and tracking progress against it has been a standard operating procedure for generations, but today’s business environment puts even greater emphasis on accurate and responsible financial management and reporting. Executives need to know where they stand, not just to run the business effectively, but to satisfy the considerable (and justifiable) interest of lenders, creditors, existing and potential investors, and in some cases, regulators. At the operational planning level, division heads need to know how each area of their business is contributing to overall results, and line managers need to continually adjust what they do and how they do it based on clear and accurate data.

To meet these many management planning and control needs, financial managers must build or buy a budgeting and consolidation solution. The default solution has been to use spreadsheets, the bread and butter tool of financial analysis. Spreadsheets are a logical starting point as financial managers use them so frequently for other tasks. But spreadsheets pose as many problems as they solve, especially in mid- to large-scale businesses where budgeting data comes from several, dozens or hundreds of distinct work groups or business units. For instance, the spreadsheet that’s perfect for the manufacturing unit will not work for the sales organization and vice versa. Consolidating a budget in an even mildly complex organization can become a frustrating game of creating, tracing and fixing links and macros. Determining how changes in one corner of the business affects the bottom line ranges from difficult to impossible in the spreadsheet-based budget. Because of these constraints, spreadsheet budgets can become obsolete or inaccurate almost as soon as they are created.

Budgeting and planning software

Fortunately, the need for better budgeting, planning and reporting solutions has been recognized and addressed by a number of software providers. Now many organizations have added budget and planning solutions to their suite of financial applications, running side-by-side with the general ledger and other packages. These internet- or server-based budgeting systems allow organizations to collect, consolidate, track and analyze budget data from all segments of the organization and produce a full range of reports. Some packages allow complex top-down or bottom-up forecasting, what-if analysis, easy importing of data to and from the G/L system and other advanced functions that are beyond the realm of spreadsheets.

What to look for in a budgeting and planning solution

As budgeting, reporting and financial analysis are critical functions in every business; the choice of a software solution deserves careful research. Here are a few of the most important capabilities to look for.

Reporting. Perhaps the most powerful aspect of budgeting and planning solutions is their reporting capabilities, because ultimately the purpose of these systems is to spend less time creating the budget and more time analyzing and fine-tuning performance. Most systems allow not just the essential financial reports, including income statement, balance sheet and statement of cash flows, but extensive custom reporting. These custom reports let executives and managers look at their business from every angle, drilling down to the detail behind the bottom line and enabling better-informed decisions. The most flexible packages allow custom reports to be built on the fly and generated instantly with just a few mouse clicks, enabling immediate comparisons between departments, locations, time periods and other parameters. With other packages, internal or vendor programmers may be needed to create the desired reports.

Consolidation. Creating a budget for a single department is one thing. Rolling up the consolidated budget of a large or diverse company is another matter. The best solutions are equally capable of both. This feature makes the CFO’s job easier in several ways. First, it eliminates the need to manually move or link from numerous departmental budget spreadsheets to a single consolidated format. Secondly, it greatly speeds the plan development timeframe, freeing valuable time for analysis.

Ease-of-use. While every budgeting system will be described by its vendor as easy to use, it’s important to test those claims. Will the system be easy to use only by experienced financial managers and accountants, or will non-financial line managers be able to use it? Is extensive training necessary? These questions are key, because no matter how elegant the tool, it’s value is minimal if it’s not used. A CFO who implements a difficult to use system may trade one headache – getting managers to submit budget data on time – for another headache – prodding managers to use the new budgeting package. The best budgeting and consolidation solutions deliver great value by using natural-language prompts for data input, so financial expertise is not a prerequisite for effective use. Given the importance of ease-of-use, live testing of the system before implementation is very important.

What-if. How will changes in price, demand, gross margin, and pay scales, manufacturing cost or other factors affect the bottom line? These are the questions and answers that executives and managers must wrestle with everyday as they steer the company forward. What-if analysis greatly simplifies the decision-making process. Some packages allow limitless adjustment of variables in real-time; others have more limited capabilities. This is an area where more is definitely better.

Worth researching and testing

A good budgeting application will pay for itself in months through improved productivity and better decisions. On the other hand, implementing the wrong system will require costly training and customization, and result in credibility problems for the financial team. It will be worth the time to find the system with the right features. Much can be learned by reviewing features on vendor web sites, however a test drive is essential before a final decision can be made. There’s no substitute for using a system in evaluating its effectiveness.