Strategy

Building Budgets on the Web

When companies are in a hurry, it can make sense to farm their budgeting process to an application service provider.
Joseph RadiganJuly 9, 2001

Nepco found itself in a bit of a bind last year. The company was getting ready for its annual budget review, and its whole budgeting process had all but gone up in smoke.

The firm, which builds power plants, planned to use a budgeting system that had been developed internally. But the employee who wrote the system had left the company.

“There was no way to support it,” says Kim Coates, a financial planning-and-reporting manager at the Bothell, Washington, company.

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Until last year, the company had typically used a manual budgeting process, sending out spreadsheets to the heads of each of its 25 or so departments in, Bothell, Denver, and Stokesley, U.K., its European headquarters. The department chiefs had three weeks to write their budget projections in on the spreadsheets and get them back to Coates who would type them into worksheets.

The typing would typically take another two weeks, and then the budgets were sent back out to the department heads who got a chance to review them before they were sent to the firm’s nine-member management committee. Before they got to that stage, there was the inevitable photocopying for each of the committee’s members. The management committee would ultimately review the budgets at least two or three times before it finalized them for the year ahead.

At any rate, that process had long since gotten out of hand, and Nepco was ready for something a little less cumbersome. But the absence of an alternative was, to say the least, a problem.

Here Coates was in early August 2000, with a budget deadline of mid-September looming just weeks away. Finally, she contacted her IT manager, and the search ultimately led her to eBudgets, a publisher of a Web-based system. In March, the company was acquired by FRx Software Corp., a subsidiary of Great Plains Software, which itself was recently bought by Microsoft.

Coates said she participated in a Web-based training session last August 3 and within a couple of weeks, she had downloaded the budgeting records from the company’s SAP enterprise resource planning system on the mainframe and entered them into eBudgets’ Web-based application, which is delivered on an application service provider (ASP) model.

Under an ASP model, the applications and files are hosted on eBudgets’ server. The total cost is approximately $2,000 to $2,500 for a monthly license, plus a $3,000 installation fee. Coates said Nepco renewed for another six-month contract in February.

Budgeting is crucial for any firm, but for Nepco, some of the particulars can be especially thorny. Coates says the 2,300-employee firm is currently building two 2,200-megawatt power plants, one in Arizona and a second in Arkansas. It s also working on several smaller projects. The budgets for larger projects can easily run $800 million to $900 million, and Nepco needs to forecast all the associated engineering, payroll, materials, and construction costs for each of them.

Despite the heavy workload of forecasting all the costs, Nepco was about to save itself a lot of trouble by farming it out via an ASP.

PreNet Corp., another eBudgets client, found itself in a bind of a different sort. The firm is a young start-up that processes payments for wireless carriers. Its specialty is handling pre-paid accounts for cell phone subscribers who are poor credit risks. With the PreNet system, a phone subscriber can walk into a retail outlet pay for the access in advance and have the amount credited to her or his account.

Arthur Steinhorn, a finance manager for the firm, says his firm subscribed to eBudgets ASP service essentially because it was a quick and low-cost means to getting on a budgeting system. PreNet has 50 line items for expenses spread among 25 departments, creating 12,000 potential data cells. Steinhorn says invoices are among the files that can be entered into the system, and the files can be used to produce monthly variance reports sent to each department head.

As was the case with Nepco, PreNet wanted to get up and running in a hurry at a relatively small cost. The company’s six-month contract cost $15,000, including a $3,000 start-up fee and a monthly charge of $1,500. “I didn’t want to invest a huge sum of money in order to facilitate the budget process, and this looked like an easy and inexpensive system,” Steinhorn says.

One of the advantages of the new system was apparent almost immediately. Managers can drill down into the individual line items on the variance report and see the specific expenses that were over or under budget.

“They used to get their variance reports in Excel,” Steinhorn explains. “Now they don’t have to call me and ask why they’re over budget.”