{"id":10028,"date":"2021-01-13T15:22:00","date_gmt":"2021-01-13T20:22:00","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=10028"},"modified":"2024-09-26T07:25:56","modified_gmt":"2024-09-26T11:25:56","slug":"new-flexibility-in-budgeting","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/new-flexibility-in-budgeting\/","title":{"rendered":"New flexibility in budgeting?"},"content":{"rendered":"
\n\t
\n\t\t
\n\t\t\t
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\tFree guides and webcasts<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
\n\t\t\t\t\t

\n\t\t\t\t\t\tNew flexibility in budgeting?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t

\n\t\t
\n\t\t\t
\n\t
\n\t\t
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\n\t\t
\n\t\t\t\n\t\t\t\t\"Brian\t\t\t\tBrian Sommer<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

Flexibility<\/em> and Budgeting<\/em> rarely appear in the same sentence.<\/p>\n\n\n\n

And, that\u2019s a shame as better budgeting and planning tools can bring far more flexibility into the planning, forecasting and budgeting process. Those same tools can also help with integrating financial data and easing the workload of the managers who must submit and approve budgets. Let\u2019s look at the process, integration and flexibility needs that modern firms require of great budgeting and planning solutions.<\/p>\n\n\n\n

Repair the Process First<\/h2>\n\n\n\n

No planning\/budgeting tool will be a success if the firm\u2019s planning process is out-of-date, tedious and unloved by those who must use it.<\/p>\n\n\n\n

In \u201cThe Reengineering Revolution[1]<\/span><\/a><\/strong>\u201d by the late management guru Michael Hammer (and Steven A. Stanton) there is an amazing description of the budgeting process used by Amoco years ago (It starts on pg. 219). This excerpt really paints a picture:<\/p>\n\n\n\n

\n

\u201cThis nine-month gestation period virtually guaranteed that the results, when finally certified, would be obsolete or nearly irrelevant. Control budgeting also consumed the equivalent of 750 full-time employees, spread over a much larger number of people who were actually involved part-time. But no numbers can capture the contempt in which the process was held at Amoco.\u201d<\/em><\/p>\n<\/blockquote>\n\n\n\n

Thankfully, the book details the changes made to improve this process.<\/p>\n\n\n\n

A new budgeting\/planning tool should usher in a new process, new insights, and new metrics for running the firm. If the new solution doesn\u2019t produce this, then the implementation team has likely set its sights too low or has ignored significant value-creating and change opportunities.<\/p>\n\n\n\n

Ideally, the new solution should help each planning group identify how they will aid in increasing shareholder value via metrics or tools like DCF (discounted cash flow), MVA (Market Value Added), EVAtm [2]<\/span><\/a> <\/sup>(Economic Value Added), OKRs (objectives and key results), etc. When the focus is on driving the right corporate outcomes, then individual managers can move away from low\/no value-added concerns like tying their headcount or budget to their worth to the firm. Removing counterproductive behavior in the planning processes should always be an implementation goal.<\/p>\n\n\n\n

That example is an important one as many managers are often more concerned about their power or stature in the firm than the effect of their budget on the firm\u2019s fortunes. In companies where metrics like fees or people supervised are used to denote power or set a person\u2019s compensation, then corporate capital will be misallocated and overall corporate profitability will suffer.<\/p>\n\n\n\n

Likewise, without a connection to overall corporate direction and future company needs, many planners will continue to request capital and headcount for product lines that should be moved to harvest or wind-down status. When older solutions are not wound down well, promising new offerings are often starved for capital. The result is often a misallocation of capital and poor long-term performance for the firm.<\/p>\n\n\n\n

The best processes are ones that are timely, efficient, value creating and illuminating. If managers describe your processes as a \u201cchore<\/em>\u201d, it\u2019s time for a change.<\/p>\n\n\n\n

The Flexibility Problem<\/h2>\n\n\n\n

What planning technology you use and how you set it up are instrumental to your long-term planning success. There\u2019s a saying in the software industry that \u201csome products are quite flexible until implementation and then they behave like someone poured concrete in a gelatin mold<\/em>\u201d.<\/p>\n\n\n\n

Flexibility challenges begin the moment a firm selects its budgeting\/planning tool. The product brochure may tout all kinds of amazing capabilities but the way your firm configures and implements the tool may lock you into a very rigid process, a confining level of budgeting detail, and an inability to easily incorporate other data.<\/p>\n\n\n\n

Spreadsheets are often seen as highly flexible but these technologies often lack critical functions. They may have been built by one person and used as templates for other planners to modify. This creates an integration and reconciliation problem as many, slightly different spreadsheets and values must be painstakingly mapped to a single master spreadsheet and then entered or integrated into a financial accounting system. The work to create the spreadsheet may be small but all of the other work post-creation is significant, tiresome, frustrating and certainly not value-added.<\/p>\n\n\n\n

Planning & Budgeting software applications differ from spreadsheets. Application software must go through rigorous testing prior to commercial release. Spreadsheets usually don\u2019t. Application software has version and release management protocols. Spreadsheets often do not. Test data is often created for applications while spreadsheets may only get a cursory bit of test data. Better planning applications come with pre-built integrations to a financial application suite. This permits easy downloading of prior actual financial data, easy uploading of new planning data and, in some cases, sophisticated functionality to automatically manage the planning process, follow-up reminders, etc. Some of the most capable packages include functionality to tie budgets\/plans to OKRs, operational targets, sales plans and other metrics\/goals.<\/p>\n\n\n\n

Package planning\/budgeting tools also have security and controls while spreadsheets rarely do. This means that some sensitive information (e.g., employee salaries) is only available to those with the appropriate permissions. The best solutions use the security and control rules found in their financial application software.<\/p>\n\n\n\n

Where you also see a big difference between spreadsheets and budget and planning applications is in support for smartphones and in the level of collaboration built into the products. Packages handle the development of plans from top-down, bottom-up and numerous revision cycles. Packages can automatically push out the components of a plan to specific persons in your firm for their input. They don\u2019t send entire schedules as much of it may be irrelevant (Interestingly, some planning tools will send the budgeting form to business leaders in a spreadsheet format if that\u2019s the preference of the recipient. Otherwise, the recipient can edit their part of the plan over a cloud-based application.). Finally, better budgeting\/planning tools use collaboration and workflow technology to send, receive and follow up with planners.<\/p>\n\n\n\n

The bottom line is this: spreadsheets are great tools and are quite flexible. But spreadsheets aren\u2019t applications per se. Yes, you can supercharge a spreadsheet with macros, embedded links to other worksheets, etc. But all of this requires maintenance and knowledge of this embedded intelligence. Remember, not all of the people involved in a budgeting effort are spreadsheet mavens. A packaged application handles a lot of this behind the scenes and comes with training and a pre-populated help system.<\/p>\n\n\n\n

Integration Needs<\/h2>\n\n\n\n

A budgeting and planning tool that is tightly integrated with the core accounting applications can be a huge boost to planning productivity.<\/p>\n\n\n\n

In such an environment:<\/p>\n\n\n\n