What Responses Revealed About Budgeting Headaches

NATICK, Mass., Dec. 4, 2007 – The two most common headaches experienced by CFOs and finance executives when budgeting and forecasting are gaining buy-in from other managers in the company and using Microsoft Excel® spreadsheets, according to a study of budgeting trends and issues conducted by Centage Corp., and the Institute of Management & Administration (IOMA), Centage Vice President of Sales and Marketing Jim Nauen said today. Despite frustrations with spreadsheets, they remain the most common tool for budgeting and forecasting, used by an average of 81 percent of companies either alone or in combination with a General Ledger (G/L) or Enterprise Resource Planning (ERP) system.

“The survey was intended to determine what issues around budgeting, planning, forecasting and reporting keep CFOs up at night, and to help them benchmark their budgeting process, tools and attitudes against their peers. The findings show the challenges companies in the $500 million range have with budgeting, and how small to mid-sized businesses (SMBs) struggle with some of the same issues,” said Nauen. “Interestingly, more than half the financial executives at both large and small organizations trust their own compensation and their companies’ projected cash flow to budgets they feel are, at best, only somewhat accurate.”

Budgeting trends identified by the confidential survey include:

• Most finance executives are not totally confident in the accuracy of their budgets. The majority, about 45 percent, are only somewhat confident in their budgets in the areas of bookings, revenue, expenses, cash flow, and collections and disbursement. About 12 percent are not very confident or not at all confident in all budget areas except revenue, while about 42 percent are very to extremely confident in all areas.
• The most common acceptable tolerance level for variances from budget to plan is plus or minus 5-10 percent, for revenue, expenses, EBIT and cash flow. Larger companies are more inclined to restrict variances to plus or minus 5 percent.
• The consequences for exceeding acceptable tolerances are usually minor, but can include compensation impacts, formal reprimands or job loss at 28 percent of the companies surveyed.
• The overall trend is to link compensation and goal achievement, even at small companies (55 percent of companies with annual revenue under $10 million), although the trend is most prevalent at larger companies (82 percent at those with revenue of $500 million and above).
• The majority of companies with up to $500 million in revenue put 10-20 percent of compensation in this at-risk category, while at the largest companies, 20 percent or more is most common.
• Executives at 46 percent of the companies surveyed view their budgets as extremely or very important cash flow management tools, and 38 percent as somewhat important. The budget’s cash flow management aspect is most important at companies with annual revenue less than $10 million.
• The most common Key Performance Indicators (KPI) are Net Income/Loss, Gross Profit, Operating Expenses as a Percentage of Sales, and EBIT.

Management Issues
Write-in comments most frequently highlighted management issues as the number-one budgeting issue faced by finance executives, specifically: managers not taking ownership or being accountable for their piece of the budget, not fully cooperating or participating in budget development, lack of understanding of the process or what’s required, not meeting deadlines, and padding budgets or providing unrealistic numbers.

Spreadsheets
The second most common “pain point” cited was working with spreadsheets or other technology-related issues. Four out of five of these replies expressed frustration specifically with budgeting in Excel spreadsheets, including: the manual and time-consuming process, frequency of errors, difficulties generating reports and rolling up numbers, and the inability to drill down into the numbers or create what-if scenarios.

About the Survey
The Centage/IOMA 2007 Budgeting Survey: Benchmarks & Trends was conducted in spring 2007. More than 200 C-level finance executives at companies representing more than 20 industries, with annual revenue ranging from less than $10 million to more than $500 million, participated.