What really matters in the budget preparation and analysis process and why it should be implemented
I was just reading an article on TechTarget.com by Barry Wilderman of Wilderman Associates, titled: The Benefits of using CPM (Corporate Performance Management) analytical tools for budgeting. Here the author walks the readers through the benefits of using CPM data and specific analytical tools throughout the budget preparation process and during the entire budget period where the budget data is compared to the actual performance of the company as communicated by its accounting system reporting data.
The author also emphasizes the importance of using a central database where all of the organization’s business entities (divisions, departments, revenue centers, cost centers, etc.) have their individual budgets which consolidate to the corporate budget but with the ability to process each individual budget separately, arrive at individual approvals for the entity level budgets and then roll up to the corporate budget. This recommendation implies that there are software applications written specifically to handle these budget requirements and using a relational database as the storage medium for all the data.
I particularly like Mr. Wilderman’s assessment that there is great value in storing all data in a multi-dimensional structure, in addition to the implied row and column format that each relational database table provides. Additional data dimensions can be geographical territories, product lines, customer classes and others. The advantage of doing that, and assuming the budgeting application allows additional data dimensions, is that analysis of data can be more meaningful and lends itself to greater visibility and clarity of data and reports, when communicated to senior management.
Another important feature according to the author is the ability to employ drivers within the budgeting solution, as well as availability of financial modeling were KPIs (Key performance Indicators) can be created in the planning process, based on actual, historical data, as well as desired forecasted data.
Finally, Mr. Wilderman mentions the importance of data visualization, where CPM data can be visually displayed, using both actual and forecasted data, and communicated in a manner that is simple to read and understand by managers and those in charge of the organization (CEO, CFO, etc.).
While I was reading this article, I was thinking to myself that these important points are what really matters in a planning, budgeting and analysis environment, where senior management must be given exactly the data they need to make informed decisions. This data must be communicated periodically and timely, so these decisions can be made in response to actual accounting data compared with anticipated results (represented by the budget) plus all relevant economic and market changes as they unfold during the budget period. The formatting and appearance of this data must be such that management can easily see and understand the data.
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