Budgeting for Success

Moving away from the annual budget process and into one that is more frequent is a core topic in  the recent eBook from CFO.com. The rationale behind it - business changes so frequently that the annualized budget gets out of date pretty quickly. The fact that employees’ performance, and often compensation, is based on this annual plan makes things worse as the battle for the budget usually ends up with a much more conservative, thus achievable, plan. This pretty much makes it out of date out of the gate.

 

What to do? Moving to a more frequent budgeting cycle is an important step. Having quarterly, rolling budgets would allow organizations to react to changing conditions and appropriate resources accordingly. It would allow for more accurate forecasts, and identify potential issues early on.

 

So what’s the hold up?

The eBook brings a number of things to light around process and corporate culture. One key hurdle is the amount of time it takes organizations to go through the budget cycle. Many are still using Excel spreadsheets, which can take weeks or more to put together. Managing and consolidating spreadsheets from around the organization up to a single ‘spreadsheet of truth’  just takes too much time and is too error prone.

I’d like to add that even in organizations that have a dedicated system, limited functionality slows the process down to the point that prevents more frequent budgeting.  You can’t ask for the same level of detail in a monthly or quarterly reforecast as you can in an annual plan.  It needs to be more streamlined and take (much) less time otherwise it fall on its face as the planners will rebel against the additional burden that is being placed on them.

In addition to full budget creation functionality, a continuous budgeting cycle requires a system to support:

  • Supporting Narrative, Documents, and Data - having supporting data that drives the budget in one software speeds up the process and eliminates data ‘gaps’ that can lead to errors.  Being able to add annotations at any level (from the report all the way down to the cell) are essential to shortening the iterations of the process by having the documentation and justifications right in the plan.
  • Scenarios - quickly developing multiple scenarios to drive a more frequent process is key in a forward looking system and the ability to do top-down adjustments and driver-based planning are essential to this kind of scenario modeling.
  • Accounting intelligence - collecting information from operations in local currency and having, currency impact, intercompany transactions, and Balance Sheet and Cash Flow impact reflected as the budget rolls up speeds up the process and improves accuracy.  Double-entry logic provides Finance the accounting intelligence they need without the end user needing to understand accounting rules.  Planners can build their budget the way their business operates (units, prices, discounts, headcount etc.) and the financial impact is automatically calculated.


As your organization moves to a more frequent and forward looking budgeting, you will realize a stronger ROI from the process. As you contemplate the solutions you need to support this shift make sure you look beyond the standard ‘bells & whistles” and ensure the system you select has the functional depth, accounting intelligence and ease of use needed to ease the transition and maximize your potential return.

What are your thoughts? Has your organization considered moving to a more frequent budgeting cycle?  What barriers have you faced or (for those already there) what benefits have you achieved?

 

Tagetik unified budgeting, planning and forecasting

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