Strategy

Will Better Budget Software Give You Job Security?

Budget and planning software has been a relative latecomer to the Web revolution. Too late for this recession, but maybe just in time for the next ...
Joseph RadiganJuly 9, 2001

Last summer, by the time the scale of the current business slowdown became apparent, it was too late for many companies to cut their spending ahead of the curve.

Could better budget software have made a difference? Maybe. Hindsight is always 20/20, but too many companies found themselves in a situation were suddenly sales were falling short of forecasts, and there was nothing to do but slash their own inventories.

That set in motion, at first, a domino effect and, later on, a vicious cycle. As manufacturers across a wide range of industries cut their orders, suppliers felt the pain. By midyear a rockslide of earnings warnings hit Wall Street, and by early 2001 the warnings turned into an avalanche.

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Highly touted new economy systems in categories like supply-chain management were supposed to smooth out the rough spots in this scaling back. But instead of softening the blow, they new software compounded it. The problem was, manufacturers almost all reached the same type of cost-cutting decisions at the same time.

Exactly what accounted for the almost uniform response of cost cutting, just as the economic wheels were coming off the track?

“It was a panic response, not an informed response,” says Bettina Zwerdling, a senior analyst with AMR Research in Boston. At the heart of the panic, says Zwerdling, was the inability of most existing budgeting systems to allow for adjustment during the year as business conditions change. Today they don’t, but in the future, businesses may find such a function a life-and-death necessity.

For years, most businesses have been doing their annual budgets in spreadsheets, and then uploading them to their general ledger. But this left them with a once-a-year budget process that was too clumsy to be revised during the year.

As recently as a year ago, perhaps 95 percent of corporate America were dealing with this antiquated process, Zwerdling says. That limited their ability to react to the worsening business climate. A year later, the situation is little improved.

There is hope. Zwerdling notes that in the last 12 months, the majority of suppliers of budgeting-and-planning systems have modified their programs for the Web. The change in the technology has facilitated a process toward a year-round budget process, one that can be adjusted in response to changing business conditions.

For example, if sales from a particular customer start to trail forecasts by 10 percent, a Web-based, collaborative budget process could help a supplier cut its own orders by a similar amount within a week or so.

It’s not that companies couldn’t react to changing conditions with budgeting systems based on spreadsheets and general ledger accounting systems, but they’ve had trouble doing it in short order. By the time they could react, they’d suddenly have to slash inventories by 20 percent or 30 percent to catch up to the slowdown in sales. That aggravated the slowdown on the company’s suppliers.

Zwerdling argues that as budgeting technology switches to the Web, corporations can begin making informed decisions relatively quickly. But it’s going to be two to three years before the majority of companies have adopted Web-based budgeting systems.

“The change is about it being more continuous and collaborative,” Zwerdling says.

Exactly how does Zwerdling see this coming about? She says that Web-based budgeting systems can allow for rules and roles-based alerts, or E-mail warnings that will be sent out to selected executives as sales targets or other metrics miss their forecasts. The net result will be the ability to react within weeks, perhaps days — and not months — to a weakening economy.

“It is an essential area of financial control, but the budgeting process has been broken for a very long time,” Zwerdling says. “CFOs have literally lost their jobs because of their inability to meet the numbers.”

Adds Zwerdling, “People are searching for more control. Web-based technology is not rocket science, but it’s providing a number of useful tactics.”