With the number of enterprise budgeting packages growing, it’s not surprising that some are targeting specialized areas.

For example, a package from ClosedLoop Solutions Inc. (www.closedloopsolutions.com) targets so-called high-velocity companies— or firms whose business plans change so quickly that the standard annual budgeting cycle doesn’t help.

“The companies that ClosedLoop is targeting don’t have a lot of use for the budgeting process,” says Paul Hamerman, analyst with the Giga Information Group. For these companies, budgeting has to be much more collaborative, and much more event-driven, sometimes on an almost daily basis, rather than calendar driven. “These high-velocity companies need a continuous forecasting process, more often than on a quarterly time frame. They feel the annual budgeting process is irrelevant for these high-velocity companies.”

The problem with the traditional budgeting process is the mismatch between top-down and bottom-up results. Corporate spending and revenue goals are set at the top, and then the departmental budgets are computed from the bottom, often on spreadsheets, in a process that can take several weeks. If the departmental budgets don’t meet top management goals after they’ve been merged, then arbitrary adjustments sometimes have to be made.

In fact, especially in the current economic environment, a budget can be obsolete almost as soon as it’s completed. Many companies have to deal with changes to partners, suppliers, customers, and competitors, creating a climate where corporate direction has to change rapidly.

Traditional budget process provides no simple method for realigning the departmental budgets when the corporate strategy changes abruptly. If expenses have to be cut, for example, there’s no simple way to adjust all the line items except with a meat-axe approach of across-the-board cuts. There’s also no way to guarantee that the imposed cutbacks will be realized. Fine-tuning will have to wait until the next budget cycle begins, perhaps months down the line.

Network Appliance Inc. (www.netapp.com) of Sunnyvale, Calif., is a company facing exactly those pressures. The company competes with EMC Corp., the industry leader in disk drives and storage networks. Network Appliance, which had over $1 billion in sales last year, has to react not only to changes in the stock market, but also to the ups and downs of PC and server sales, as well as to announcements from its very aggressive competition.

That’s why the company decided to implement ClosedLoop’s SpendCap Manager in January for its budgeting process, according to Leslie Paulides, VP finance for the company. “ClosedLoop is not a mature company, but they have a good vision for how budgeting should be done,” she says.

Instead of licensing the software, they use ClosedLoop as an ASP, which has responsibility for hosting both the software and the data. All functions of the software are handled through an ordinary browser, so no client software is required, and little training is required for users. “I pay a monthly fee to use it,” says Paulides. “I have no sunk cost if the product doesn’t work out.”

The product has been rolled out to about 150 of the company’s 500 cost centers, with the remaining managers scheduled to be put online by the end of the year. In the meantime, the financial analyst group is budgeting for the other cost centers.

Paulides explained how the budgeting process has become more interactive and collaborative with the new software. “Suppose I see that I’m spending $25 million worldwide on consulting, and I want to cut back to $15 million, and I want to be convinced that each cost center is committed to their number,” she says. “I tell each cost center to cut costs and show me the new numbers by tomorrow.” Each cost center manager enters new spending forecasts, and Paulides can roll up the modified budgets within 24 hours.

It’s a cultural thing whether a company can use a product like ClosedLoop’s, according to Giga’s Hamerman. “Even the traditional budget process has a collaborative element, even though it’s centrally controlled,” he says. “But ClosedLoop is pursuing a much more interactive process. The whole thing is to engage the front-line managers and business managers throughout the company. Being fully collaborative is more a cultural style.”

ClosedLoop’s software comes in three modules: SpendCap Manager maintains expense, capital, and headcount plans in real time, and enforces top-down spending guidance. TopLine Manager captures actual data and provides forecasts measured against budgets. The third, BizPlan Manager produces pro forma financial statements that help business owners decide when to grow and when to slow the business.

One-time license fees for each of these modules range from $100,000 to $250,000, depending on company size. ClosedLoop has eight customers so far, and all of them are using its ASP service, which is typically priced from $40,000 to $50,000 per month, according to Doug Barton, ClosedLoop’s VP marketing.

(Send John Xenakis your questions and comments for Xenakis on Technology (XOT) to [email protected].)