Cascione also expects that the new system will make it easier to run various budget scenarios. "For example," she says, "if Blue Cross says they want to negotiate new rates, we could input them and see what the impact is throughout the organization."

Indeed, the ability to reforecast and run alternative scenarios remains of far more interest to CFOs than any improvement to compliance. "CFOs see this economic volatility staying around a while, so they need adaptability," says de Moll.

Updating the Forecast
Brian Reilly, CFO of building-materials distributor Allied Building Products Corp., uses a Cognos system installed in June to speed up the company's routine evaluations of its approximately 120 distribution branches. "We take a pretty hard look a couple of times a year to see if we should get rid of underperformers," he says. The system lets Reilly model the effects of eliminating a branch location and transferring assets and inventory to other locations.

Likewise, Huntsman Corp. relies on Applix iTM1 budgeting and forecasting software to meet the constant demands of auditors, investors, and lenders for various snapshots of the future. "We are always generating five-year forecasts for different scenarios," says Jim Bell, Huntsman's director of corporate finance. "We have to answer every question they can imagine." Many of the scenarios deal with different pricing assumptions about the chemical company's raw materials, such as ethylene and crude oil, a front-page issue today. "If we do indeed go to war [with Iraq], it would necessitate immediate reforecasting," says Bell. "We'd see movements in the market right away."

There are also more mundane reasons for reforecasting. In addition to five-year forecasts, Huntsman uses rolling monthly forecasts to recalibrate results for the balance of the year. "The way the economy has been lately, the most recent three months often aren't what you thought they'd be four months ago," says Bell.

Of course, says Buttonwood's Serven, companies must be careful not to get carried away by modeling capabilities. "Companies that go overboard in modeling completely lose any sense of responsibility for making the numbers," he warns. "You can use forecasting tools as a reality check, but they shouldn't let people off the hook for delivering the revenue figures they promised. That's the difference between crystal-ball forecasting and planning management."

At Allied, for example, branch managers are compensated for staying a certain percentage over a threshold rate of return. With purchasing of materials handled by a central office whenever possible, that gives managers incentive to keep a tight grip on costs. "Anything they can do to drive out costs is very effective," says Reilly. "If they save a dollar, it's a dollar straight down."

What the Future Holds
According to CFOs surveyed by CFO Research/Cap Gemini Ernst & Young, the finance department's ability to predict future performance is poised for dramatic improvement. While only 14 percent of CFOs report having dynamic budgeting and forecasting based on operational drivers today, 52 percent expect to have such capabilities within three years. To get there, of course, they'll need the support of senior management — and, once again, the Sarbanes-Oxley Act plays an indirect role.

"Audit committee members [now] are going to want to understand the financial system architecture," predicts de Moll, and, of course, CEOs must now certify the financial results that come out of the company's financial systems. "If the CFO puts together a business case for integrated business processes that include budgeting and planning," says de Moll, "I think Sarbanes-Oxley should move senior management to support it." In other words, even as vendors use new legislation to sell CFOs on the importance of financial systems, CFOs themselves may be selling CEOs on the very same thing.

Tim Reason is a staff writer at CFO.

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