Taking the Pain out of the Budgeting Exercise

With the latest incorporation of budgeting and planning software tools into the Web, budgeting is no longer an annual ordeal.
Theresa W. CareyMay 23, 2001

Budgeting and planning used to be merely a once-a-year exercise. For most companies, that was a good thing, considering how painful a task it was.

But with the incorporation of the Web into the current generation of budgeting programs, that once-a-year task is being extended into a year- round process. Rather than causing an epidemic of migraines among corporate budget directors, the new trend is, if anything, making life easier.

Peter Urban, senior analyst at AMR Research states, “Planning is no longer a separate, one-time-a-year thing. The process will help you run your business better if it’s part of your daily routine.”

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AMR analyst Bettina Zwerdling endorses a term that has lately come into vogue in the budgeting world, “active financial planning,” which essentially means moving the budgeting and forecasting function into the corporation’s everyday package.

The value of the active financial planning software allows the enterprise to respond in strategic, collaborative, timely, and cost- saving ways when confronted with operational bottlenecks or bulges in demand or supply. A key component is collaboration, which propels financial planning throughout the corporation, beyond the finance team.

“We’re seeing intense customer interest in alerts, which give line managers immediate feedback on how the company is performing versus the plan,” Urban notes.

Existing budgeting methods usually involve long planning cycles and rigid, inflexible models. But several of the suppliers of high-end enterprise resource planning systems have also been touting their ability to handle budgeting and planning, but most corporate users find it more practical to buy a third party package that takes care of those separate functions.

For example, PeopleSoft’s product line includes an analytics function called Enterprise Performance Management, while Oracle and SAP sport a similar feature called Strategic Enterprise Management. The analytical tools give senior financial executives an overall view of their business’ operations, but they can also be used reconcile actual spending with budget forecasts.

Within these high-end applications, AMR Research expects future updates to provide more options, particularly Web-based features, to customers looking for a comprehensive planning system. ERP vendors are including software that provides constant monitoring of planned costs vs. actual expenses, using executive dashboards, scorecards, and performance measurement tools.

Still, the third-party publishers that specialize in budgeting systems appear to be making the most progress in Web-based budgeting and planning solutions. For example, Hyperion Planning, which is broader in scope than Hyperion Pillar, one of the early entries in the market.

Earlier this year, J.D. Edwards unveiled its Web-based Financial Planning and Budgeting Package, which, when combined with the software publisher’s Business Intelligence module includes planning, modeling, financial budgeting, and a data warehouse. But security is probably one of the chief concerns of any financial executive who commits her data to the Web, and J.D. Edwards has incorporated a network administrative function that lets network administrators control access to the system.

In addition, Adaytum Software recently introduced e.Planning, while Epicor is now publishing the Epicor eIntelligence Suite. But for budget directors who are comfortable working in spreadsheets, OutlookSoft continues to enhance its Financial Planning and Analysis (FPA) suite.

OutlookSoft’s appeal is partly based on its smooth integration with spreadsheets, which are still the most common application for corporate planning.

But spreadsheets aren’t easy to modify as a company grows. Aleks Rabrenovich, acting CFO and director of finance and operations at Covalent, a Web server infrastructure company, recently shifted his firm’s accounting from Intuit’s QuickBooks to Virtual Growth’s Web- based application service provider, or ASP, Virtual Accountant.

For high-tech companies, firms with short product lifecycles, and companies with an immediate need for assistance in the planning process, Web-based ASPs can provide a quick fix. The ASP model allows a growing company to add users on a contract basis rather than having to invest a large sum up front.

The use of an ASP doesn’t mean that Covalent has completely abandoned spreadsheets. “We can deal with Excel a while longer,” Rabrenovich says. As Covalent’s customer base has evolved, Rabrenovich says he’s built as many as 100 linked spreadsheets that are rolled out to individual managers.

“When you build a complex budget around Excel, you can’t change the underlying structure easily,” he notes. “But in the future I’d like to migrate to something that’s designed for budgeting and forecasting and planning, but without investing a lot of time and money.”

Mammoth Mountain, the ski resort in California’s Inyo National Forest, is in the process of specifying its needs for planning software. Scott Erwin, the resort’s controller, says that while the firm is still using Excel spreadsheets, “There is a need for us to do our forecasting in much more depth.”

The company recently migrated its accounting system to FRx Software, and Erwin is pleased with the reporting flexibility. But he’s still in the market for a budgeting and planning package, and Erwin says he “wants a budgeting package to be able to analyze one account or department on a screen, and compare last year’s actuals to this year’s budget and actuals. As the year goes on, I’d like to forecast out the remaining months by plugging actuals in and adding in the budgets.”

Erwin says he’d consider a module that integrated with the rest of the FRx system, but is open to considering other options.

PreNet Corp., which processes payments for cell phone carriers, moved away from Excel spreadsheets to a Web-based ASP from eBudgets, according to finance manager Arthur Steinhorn. Prior to implementing the service, Steinhorn reports that he had one full-time employee who managed the collection of Excel spreadsheets for budgeting and planning.

“We’re a startup and are constantly moving items from one cost center to another,” Steinhorn says. He likes the ASP model because it makes it easy to move cost centers and expense items around, and thus look at all the costs for a particular department or scrutinize how much each department spends on a particular line item, such as, for example, office equipment.

“We import the financial data from our accounting system, and eBudgets allows the line managers to review budgets and actuals quickly,” Steinhorn says. For example, the system lets him drill down to the details of each individual item in an invoice.

Steinhorn says he uses the ASP to set up multiple versions of a budget, such as rolling quarterly and 12-month comparisons, which allows line managers to re-evaluate their numbers on a new basis. PreNet was up and running on the system in two weeks, and conducts training sessions online. Another plus for Steinhorn is, “eBudgets is external to my financial software, so I don’t have to give anyone access to the corporate database.”

Looking to the future, Steinhorn says he’d consider a different package if it allowed him to build a range of budget scenarios by entering a variety of economic assumptions.

If anything, the latest wave of budgeting tools show just how much the whole budgeting process has changed. Thanks to the Web, the budgeting process is more central to the business than it was before.

As AMR’s Urban says, meaningful budgeting and planning is an ongoing process. “The idea there is that you don’t want to just do the plan once and have it sit there and gather dust — you need to continually plan and use it to run your business.”

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