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Ledger Domain
In theory, budgeting-and-planning (B&P) software is a good way to draw managers more deeply into the process. Often browser or portal-based, the programs enable users to analyze current and historical corporate data and create business models based on different scenarios. Once clunky and difficult to navigate, the applications (from vendors like Microsoft, Hyperion, Cognos, SAS, and others) have gotten more powerful and easier to use in recent years.
That's a winning combination, but apparently not one that has won many converts outside of company finance departments. While many companies have purchased licenses allowing nonfinance managers to use B&P software, our survey found that those licenses are largely going unused. In fact, according to the survey, 40 percent of nonfinance users never logged in to their employers' B&P systems during the past year.
Part of that reluctance may come from a fear of technology. It may also stem, in part, from the gap between what finance needs and what operations wants. Like the budgeting process itself, most B&P systems mirror the CFO's view of the company: an Excel-like grid with general-ledger items running down one side. "It's accountants who buy these tools, so it's not surprising that the software resembles the spreadsheets they like," says Serven. In fact, in recent years vendors have worked to make their programs look and feel more like Excel (a potentially worrisome trend, given that many managers aren't adept at Excel; see "Wanted: A Better Front End" at the end of this article).
EMCOR has neatly prevented that problem by adopting B&P software (BudgetPak from XLerant) that lets operations executives enter costs and revenues in terms that make sense to them: by project. Instead of the spreadsheet grid, the program asks a user a series of questions (akin to how TurboTax and other consumer-oriented financial programs work). The application then takes those numbers and rearranges them into the general-ledger codes that finance needs.
Training can also help managers appreciate the budgeting process. UMB Financial Corp. in Kansas City, Missouri, reports success with one-day budget-training sessions run jointly by the CFO, CEO, and COO. The idea, according to CFO Michael Hagedorn, is to help managers see their own budgets in the broader corporate context.
The connection is important. Once its established, managers tend to feel less put upon when asked to spend long hours cobbling together forecasts for corporate. In fact, the number-one reason why managers don't create their own budgets, according to the survey of CFO readers, is that they don't want to spend time on it.
Cops and Robbers
It's the bonus-to-budget connection that really skews the process. "In budgeting, the guy who wins is the one who is best at gaming the system," contends Steve Player, program director for the Beyond Budgeting Roundtable. "Finance is supposed to be a helper of the line, but budgeting turns us into corporate cops."
Player's prescription is radical: do away with the annual budget. In its place, he advocates using a continual-planning model, under which a company might use rolling forecasts and a regularly updated plan. This leaves managers more flexibility in responding to opportunities as they crop up. He also recommends decoupling incentive pay from budgeted targets. Instead, he says, companies should reward managers for true value creation. For example, bonuses might depend partly on sales growth relative to peer companies.
"In most cases, we pay maximum bonuses for poor performance," says Player. "If we planned to have a 10 percent sales increase, but the market grew 20 percent, we've eroded market share."
Of course, few managers are prepared to ditch the annual budget just yet (although some major companies, including American Express, have recently done just that). But most CFOs would probably agree with Player's broader point that budgeting as it's practiced today does a poor job of improving business results.
It doesn't have to be that way, argues Serven. "We tend to think of budgeting and planning as a necessary evil, like filling out tax returns," he says. "But if we treat it as a management exercise, it can be enormously valuable, both to the company and to the individual budget holders."
Don Durfee is research editor of CFO.
Wanted: A Better Front End
Executives eager to get midlevel managers to use budgeting-and-planning software are often exhorted to follow one simple rule: make sure the program looks like Excel. The thinking? Despite many well-documented drawbacks, spreadsheets are familiar. And when it comes to getting employees to tackle new software, vendors say familiarity breeds content(ment).
Possibly, but results from a recent CFO poll would seem to undercut that argument. According to the survey, which queried 150 finance executives, very few operational managers actually use B&P software — whether the programs look like Excel, Lotus 1-2-3, or a point-and-click abacus. What's more, employees who work in departments other than finance aren't nearly as adept with spreadsheets as many vendors would have you believe. Indeed, our survey listed four common (and essential) tasks in Excel and asked respondents what proportion of nonfinance managers would be able to do them without error (see "Not Excel-ing" at the end of this article).
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