Video(Editor's note: On October 24, several top employees of Hendrick Motorsports, including members of the Hendrick family, were killed in a plane crash. Hendrick CFO Scott Lampe was interviewed for this article before the accident. He subsequently told us that despite the tragedy. it might be helpful if we still included Hendrick Motorsports in our story.)
In two short decades, Hendrick Motorsports has zoomed to the top of one of the world's most competitive businesses: the NASCAR racing circuit. Hendrick drivers like Jeff Gordon, Terry Labonte, and Jimmie Johnson have racked up victory after victory, resulting in five Nextel Cup season championships. The Charlotte, North Carolina-based company's enviable record is due in large part to the application of professional management techniques to all parts of the organization — not just race-track operations but also less glamorous functions like research and development, and even finance yawners like budgeting and planning.
Budgeting and planning? "Being better as an organization leads to success on the track," says Scott Lampe, Hendrick's CFO. "And that's all connected to forecasting and planning."
In earlier years, Hendrick's forecasting-and-planning process could only be described as, well, marginal. Lampe would print out the current month's financial results, and then pencil in the margin what he figured the company would spend that same month the following year. But a push by Hendrick's management to get racing teams to share more information got him thinking. Determined to bring engine guys, chassis guys, and crew chiefs into the budgeting process, Lampe ditched a Microsoft Excel spreadsheet in 2003 in favor of Forecaster, a Web-based, dedicated B&P program from FRx Software. "With a spreadsheet, you can build the model the way you want it," he notes. "The problem is, only you understand that model. Then you have to explain it to everyone, one at a time."
Other finance executives know the drill. While most companies have modernized, digitized, and otherwise Webified their transactional systems, the B&P process remains frozen in time. Business advisory firm The Hackett Group says that world-class companies finish their budgeting in 80 days. The process tends to drag out longer for less enlightened businesses, however. One consultant who specializes in financial-process reengineering says it's not uncommon for companies to take six to seven months to finalize a budget.
A lot of that time is spent rekeying data — drudgery often necessitated by spreadsheet formats and formulas getting modified downstream. Flexibility, once a selling point for Excel, has become a real liability. "You've got people customizing and formatting spreadsheets for the majority of the day," says Cody Chenault, finance practice leader at Hackett, "rather than providing insight into business performance."
Such fiddling often leads to different versions of a budget lurking in the system at the same time. Hijinks generally ensue. Indeed, in a Ventana Research survey of U.S. companies with 1,000 or more employees, half of the respondents thought their budgets were inaccurate or very inaccurate. Worse, spreadsheets do not play well with other spreadsheets. This disconnect squashes input from operational heads, line managers, and sales personnel — the folks who actually have a sense of future sales and the cost of those sales. Without news from the front, budgeting is little more than wishful thinking. Says Lampe: "You can't forecast in a vacuum."
Deprogramming
Apparently, a lot of finance managers agree. The Ventana study found that 71 percent of the respondents intend to make significant changes in their budgeting and planning in the next two years. For many, those changes will involve deploying dedicated Web-based B&P systems from such vendors as Hyperion, Cognos, FRx, Geac, and SAS Institute — and deep-sixing spreadsheets.
Finance workers at Providence-based Gilbane Building Co. are now in their third budgeting season using a B&P program from Cartesis Software. With the company's old B&P tools (Lotus 1-2-3 and Access), finance-department workers had to rekey data from an expense spreadsheet into the financial-forecast spreadsheet. Using multiple spreadsheets left little time to analyze data, and did not allow easy tracking of variances from forecasts. Says assistant corporate controller Lori Enos, "To have data in one source and to be able to do comparisons to prior forecasts without having to dig through old spreadsheets has been a plus."
Convincing staffers to give up their beloved spreadsheets can prove tricky, however. Lotus 1-2-3 was a godsend to finance-department employees when it was first released in 1983 — and finance managers have gotten mighty comfortable with their rows and cells in the past two decades. Their comfort level has been reinforced by the perception that budgeting, no matter how laborious, is pretty much the same everywhere. That perception isn't far off, either: about two-thirds of U.S. businesses still rely on spreadsheets (mostly Excel) for B&P. "Since a lot of companies go through the annual budgeting exercise the same way," observes Ventana vice president and research director Robert Kugel, "nobody seems to be at an obvious disadvantage."
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