When the automobile was invented, people put their horse carriage in the barn. When the personal computer came along, people put their typewriters in the closet. When the video recorder was invented, people put their Super 8 cameras away for good. Throughout history, the better tool replaces the more cumbersome one.
The same is true when it comes to budgeting. In today’s business world, companies can no longer afford to spend four or five months or more creating their budget with an obsolete tool, that is, through the cumbersome process of pulling together dozens and dozens of spreadsheets.
The reasons are clear:
1. Spreadsheets were never designed to process reams and reams of information quickly and easily.
2. Spreadsheets are cumbersome to change whenever there’s a budgeting revision, prolonging a protracted process even more.
3. Spreadsheets offer poor security, which compromises the integrity of the budgeting documents, enabling changes to the budget to be made surreptitiously and risking exposure of confidential information to outside parties.
4. Spreadsheets are error-prone, so their accuracy is constantly in question.
Forward-thinking companies give their front line managers the tools they need to create their own budgets. The result: budgeting accuracy improves.
G A I N I N G C O N T R O L
Ultimately, it all adds up to one thing: lack of control. Companies are seeking more control over the amount of time it takes to put the budget together, more control over how long it takes to make a change in the budget whenever it’s needed, more control over the accuracy of the data, and more control over who can access that data.
Fortunately, there’s a solution to these problems: budgeting and planning software applications. They enable you to:
1. Accelerate the budgeting cycle so you can complete it fast.
2. Increase confidence in the accuracy of the numbers.
3. Change budgeted numbers without undue delay or tedium.
4. Engage more users in the planning process.
5. Help users become more efficient and productive.
6. Gain dynamic control over business results.
7. See immediate ‘snapshots’ of where the company stands in relation to the budget.
8. Achieve implementation quickly and cost effectively.
Anyone who’s ever been saddled with the spreadsheet budgeting chore knows that it means long days and countless weeks of collecting information from different departments and business units, then checking the accuracy of each spreadsheet. Even simple changes to a spreadsheet result in a major undertaking.
Finance managers and budget analysts tend to spend as much time verifying that all of the spreadsheets are actually linked together properly or that formulas are pristine, as they do anything else in the budgeting process. That leaves little time for more value-added activities like analysing discrepancies, conducting what-if scenarios, and planning. With a budgeting application, finance managers are no longer bogged down with a morass of information that must be linked together. Those tasks are handled automatically. In addition, the amount of time spent checking and verifying the numbers is reduced substantially. That gives finance managers more time to assess what the numbers mean, gain greater visibility into the future health of the company, treat sore spots before they become major infections, and make strategic course corrections that keep the company focused on its goals.
D YN A M I C B U D G E T I N G
Forward-thinking companies give their front line managers the tools they need to create their own budgets. The result: budgeting accuracy improves. It becomes a flexible, dynamic process that can be adjusted when external conditions warrant a change in direction or emphasis. Instead of a once-a-year event, budgeting becomes an ongoing, dynamic process that establishes a tighter connection between corporate strategy and operational activity. Spreadsheets, on the other hand, are inherently inflexible, making them incapable of serving as a living document that moves in tune with the business.
Anyone who’s ever been saddled with the spreadsheet budgeting chore knows that it means long days and countless weeks of collecting information. Suppose you needed to overhaul your budget because your company was adding a new sales division, requiring the infusion of investment to support the effort.
Or, perhaps your company decided to open a series of non-budgeted new branch offices over the next several months? What if you faced an unplanned expenditure that required financial impact analysis? How would you fund those unforeseen projects using a static, calendar-based budget that’s already earmarked where all the money will go over the next 12 months?
A budgeting and planning application can accommodate such major adjustments to the budget within a matter of minutes. A spreadsheet approach might take weeks, leaving funding for these new projects in limbo and opportunities at risk. In addition, there’s the ever-present concern that spreadsheet-generated data may be wrong, whereas applications for budgeting and planning have built-in controls that insure accurate, reliable results. They also help identify anyone who attempts to “sandbag” budget numbers with misleading information, since the data is now so much more transparent. Managers gain the ability to control the bottom line as never before.
With real-time information at your fingertips, you gain access to that longer window of opportunity in which to act. That gives you more control over correcting variances.
B E T T E R , M O R E U P – T O – D A T E I N F O R M A T I O N
Budgeting applications provide the controls that produce more accurate and reliable information. For example, let’s say sales of $30 million were budgeted for the upcoming year, but external conditions such as the economy, shifts in customer behaviour, or unusually poor weather conspires against your company, causing you to fall short of that goal. How valuable would it be to have that information a month earlier rather than a month later? If you had one extra month to work on correcting the shortfall, it would give you a longer window in which to solve the problem, perhaps by hiring more salespeople or opening up a customer hot line. With real-time information at your fingertips, you gain access to that longer window of opportunity in which to act. That gives you more control over correcting variances.
Gaining a higher degree of certainty about activities like future sales can send a positive ripple throughout the company. The marketing department, for instance, might react to a decline in sales performance by initiating a more robust promotional program that focuses on the company’s most promising new products. Or, let’s consider the reverse scenario: sales that are expected to be higher than originally anticipated. Operations might respond by considering outsourcing more activities to handle the additional workload. The accounting department might respond by making preparations to handle a larger number of invoices. The advantage: you can respond with the right amount of resources at the right time in the right place.
OV E R C O M I N G I M P L E M E N TA T I O N I S S U E S
Anything as comprehensive as a budgeting application may cause you to wonder about the complexity and time required to implement such a tool. However, implementation frequently does not require an undue amount of time or effort. One reason is that some budgeting applications provide access to your existing chart of accounts, making it easier to create a structure for your budgeting system.
In addition, easier access to historical data can reduce the need for IT resources and involvement and get you going more quickly. Easier access to historical data can reduce the need for IT resources and involvement and get you going more quickly.
OT H E R W AY S T O S P E E D U P I M P L E M E N TA T I O N I N C L U D E :
• Hiring a consultant and conducting a planning session before starting the implementation. During this planning session, consultants can walk through the current process and determine what changes or improvements the company would like to implement, as well as the requirements of the application from an IT perspective, so IT has the information they need to ensure the environment is set up properly.
• Determining what works well in your existing budgeting process and changing what doesn’t work well.
• Implementing the budgeting application in phases. As an example, you might start with your operational budget, then add more budgeting capabilities within other parts of the organization, such as human resources, over time. In addition, software installation can be completed ia the Web, which reduces implementation costs and time.
• Appointing an internal champion. The champion typically has a comprehensive understanding of the internal process and who does what. Committees have the potential to slow implementation down.
• Training, available via traditional or virtual (Web) classroom. Quite often, managers can begin budgeting after a one-hour orientation.
R E C O U P I N G T H E C O S T O F Y O U R I N V E S T M E N T
Using a budgeting application doesn’t automatically mean abandoning the investment you may have made in spread sheets. Some budgeting applications are designed to work with Excel, giving you the best of both worlds: the control of an application to simplify and streamline budgeting, along with the freedom of Excel for input, manipulation and presentation. Perhaps most importantly, the budgeting application is a solution that has the ability to pay for itself over time.
H O W ?
• By automating many of the manual tasks, such as managing all the spreadsheets (creating, populating, distributing, gathering), consolidating the information, verifying formulas, formatting, adding accounts, and verifying and validating the data-the most time consuming chore of all.
• Eliminating human error. If managers forget to change one number in the spreadsheet, they have to communicate that error with the budget administrator and hope that the number gets changed. In a budgeting application, managers make their own changes.
• Reducing the amount of time spent in meetings by providing collaboration via e-mail memos, notes and attachments, so managers can understand he rationale behind important numbers and assumptions.
• Letting people do their own jobs, instead of letting budget chores pull them away from their jobs.
• Justifying use of the application throughout the year to facilitate better business execution, monitor business conditions and adjust plans, giving the organization the potential to take advantage of new business opportunities-opportunities that might have been missed using the old, traditional spreadsheet budgeting process.
• Increasing management’s ability to recognize inflated numbers and unrealistic assumptions.
• Giving users a simpler way to keep score of how they’re performing in relation to the budget, making the budgeting process more meaningful and relevant for them.
• Making it easier for more people to be involved in creating their own budgets and to understand the impact of other budgets on their own.
In short, what value do you put on a tool that gives your company the power to capitalize on more business opportunities than ever before?
Saving time and money, in many cases as much as 40% of the time it takes to do budgeting in a spreadsheet.
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This little gem of advice was given to me some years back up in the farthest reaches of Kalimantan (Borneo as we used to call it). I was PM on my first resources project, building new infrastructure on a brand new open cut coal mine.
If you were discussing a pay rise with the boss would you ask for a percentage increase or a dollar amount. When you organize your household budget do you ever use percentages?
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