Tools

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The planning and budgeting process requires modeling tools that enable automation as well as track changing data. Frustration exists with current tools as many lack integration, are inappropriate to the data and process needs, and have poor access provisions.

Viewpoint A

Summary: All too often, frustration with tools is the result of the wrong tool being used, or the right tool being used by untrained or inexperienced hands. The challenge for organizations that have a great deal of data is to provide data search and retrieval tools that are up to the job. Just as more access to raw data presents challenges to users, the application of subtle and powerful data analysis tools can overwhelm even sophisticated users. In order to select the right tool, the organization must examine what type of data will need to be used and how it is to be analyzed. More...

Viewpoint B

Summary: Budgeting tools have been greatly improved in recent years, including greater modeling flexibility, more robust data management capabilities, and improved ease of use. These capabilities include: a central database; work flow management; data collection from widespread participants; integration; role-based security; auditability; and flexibility. Such tools can reduce the amount of time and number of people required for the budget process but maintain the ability to collect data and track multiple versions of the budget. More...

Viewpoint C

Summary: Too often, the approach to buying and deploying budgeting tools lacks rigor, which may result in software procurement and deployment adding costs and further exacerbates frustration with the budget process. Implementation demands careful acquisition planning which begins with a detailed mapping of the budget process. This mapping enables the procurement team to focus limited resources on the key requirements. More...

Recommendations, Benchmarks, Resources, Implications

Viewpoint A

A tool assists the user in performing work, such as providing leverage or torque, or focusing effort into a compact area or time. Hammers, screwdrivers, screws, and axes are common tools in our mechanical world. Likewise, in business matters, members of organizations use tools that enable them to effectively use resources such as data, decisions, or analysis.

Just as in the mechanical universe, tools in our businesses should be suited to the work to be done. While it is certainly possible to use a hammer to apply screws, for example, the experience does a disservice to the potential utility of both the hammer and the screw. Similarly, if the hammer is wielded against an appropriate nail, but the wielder is not adequately familiar with how to use the tool, then the result may again not be happy. Therefore, it is necessary to use a tool appropriate to the challenge at hand, and to use it properly to take advantage of the work it can perform for the user. All too often frustration with tools is the result of the wrong tool being used, or the right tool being used by untrained or inexperienced hands.

While it is true that business may use simple mechanical tools, in the realm of planning and budgeting axes and hammers are rarely called upon for their services – thankfully! Rather, tools are employed to manage, store, manipulate, and otherwise use data and its derivatives, such as analysis and decisions. Some tools perform simple storage tasks and add little value other than providing archival or ready access to large amounts of information. Nevertheless, the ability to store and retrieve large amounts of data may be the single most important boon to organizations in the past century. If decisions and processes can be no better than their information that drives them, then it is necessary to have ready access to large amounts of information. Although the quantity of information does not equate to its quality or usefulness, it is almost always better to have large amounts of data to confirm and underpin other, related data and interpretations. Whatever one’s view, large amounts of data are now available to users in organizations because of automation and inexpensive (and, sometimes, remote) storage of data. Thus, data storage is a central tool for all users of information, and it may well be the most significant tool available to them.

The challenge for organizations that have a great deal of data is to provide data search and retrieval tools that are up to the job. All too often poor indexing, inadequate search algorithms, or poorly maintained databases make access to relevant data difficult for business users. Similarly, those users may have inadequate training or reference materials as to how to get the most from the data that is available.

For those organizations that have access to information via data tools, the next step in the development of tools for organizations is advanced analysis. Even a simple spreadsheet permits the arraying of relevant data for decision makers and presenters. More advanced tools for business analysis can use multiple dimensions of data, cross complex periods of time, apply sophisticated algorithms and business rules, and present the data in compelling and meaningful ways. Just as more access to raw data, however, presents challenges to users, the application of subtle and powerful data analysis tools can overwhelm even sophisticated users. All too often, users with limited time to do thoroughgoing analysis chose an automated analysis that is “near enough” to what they want, or they focus on a narrow application or analysis and fail to survey the many opportunities available for deeper understanding of data that is available. A notable example of this type is the fact that cost accounting has typically focused on the activities of the organization but overlooked the embedded costs of waiting, dwell, congestion, or backlogs. A different type of accounting tool called “activity-based costing” (ABC) was introduced that counts not only what organizations do, but what they do NOT do, and allocates costs appropriately. ABC is a powerful tool that is still often overlooked by organizations because the answers currently obtained by conventional analytic approaches are “near enough” for many managers. Likewise, leadership in organizations may not fully appreciate the opportunities that sophisticated tools can provide them, even in a highly competitive environment.

Planning and budgeting in many organizations may not require ABC-level tools, but they certainly require at least the ability to display relevant data over a given period of time distinguished by line of business, object of expenditure or revenue, locale, and other such variables. Spreadsheets, along with an appropriately detailed data store of record, may suffice for many decisions during planning and budgeting. Therefore, part of the organization’s examination of its processes must include a frank examination of what type of data will need to be used and how it is to be analyzed. Only then can an organization determine the appropriate tools and training that will be needed to assist its members with the decisions they have to make. (dz)

Viewpoint B

Another significant problem with the planning and budgeting process is the amount of effort required to manage, manipulate and report data used in the process. Spreadsheets are typically the tool of choice, but they can require significant maintenance, and it can be difficult to maintain the various versions of the budget as it goes through iterations.

Budgeting tools have been greatly improved in recent years, including greater modeling flexibility, more robust data management capabilities, and improved ease of use. These capabilities include:

  • Central database to store data related to all versions/iterations of a budget. This is helpful for tracking/maintaining each “version of the truth”. Reporting is done against the central database; everyone views the same version of the data.
  • Workflow management for the review/approval/consolidation process. Budget requests are forwarded to the responsible person for review/approval and can also be used to monitor the progress of each participant. Workflow management typically includes the ability to send email notices when a step is completed or reminders to users who have not completed their assigned task.
  • For decentralized budgeting, data can be collected from a widespread group of participants. This typically involves a data collection template that participants access to input the data (and narrative) for which they are responsible. This data is stored in the application’s central database.
  • These tools can typically integrate spreadsheets into the process through uni- or bi-directional interfaces with the spreadsheet software. This allows users to work in a more familiar spreadsheet environment but maintain the advantages described above.
  • These tools usually have role-based security that gives specific individuals or groups the appropriate access to data. The security can restrict access to budget information for specific organizations/programs and also establish who has permission to edit data or restrict to viewing.
  • Audit trail functionality can provide a date/time stamp on updates and identify which user made certain changes.
  • Flexibility to change structure as organization changes.

These tools have the potential to address some of the problems described above – they can reduce the amount of time and number of people required for the budget process but maintain the ability to collect data and track multiple versions of the budget. They have the potential to change the budget process – for good or for bad. (rb)

Viewpoint C

Changing the budget process is a project and should be treated as one. However, too often the approach to buying and deploying budgeting tools lacks rigor. This may result in software procurement and deployment that adds cost and further exacerbates frustration with the budget process. Because budgeting tools have been greatly improved in recent years, their inherent complexity and resulting cost in both licensing and implementation demands careful acquisition planning, beginning with a disciplined approach to defining software requirements. This process should begin with a detailed mapping of the budget process that includes critical and non-critical activities, timing and cycle times, control points and process participants. Based on that work, a core group of activity owners can be facilitated through the identification of requirements, desirable characteristics (nice-to-haves) and system constraints. Doing so enables the procurement team to focus limited resources on the key requirements, evaluate proposed software solutions based need and allows potential vendors to focus proposals or demonstrations on those needs rather than on their individual software’s strong points. In other words, if a hand held hammer will do, don’t spend the extra money on a nail gun.

Implementation planning is also a key requirement. Publication of a detailed implementation guide should address the method and timing of acquisition, training requirements and timing, the requirement for parallel operations, any needed process changes, critical events and milestones, regular reporting to senior leadership, measures of success (for both the implementation project and ongoing operations), and of course a budget. (pt)

Recommendations

  • Understand the process before choosing planning and budgeting tools;
    • Have a disciplined requirements process to choose tools.
    • Identify where the organization's process has to change to accomodate tools.
    • Where beneficial, consider using integrated/common tools
    • When selecting tools, consider data management and retrieval capabilities.
  • Develop a comprehensive implementation plan.
    • Implementation of budgeting tools is a project; treat it as one.
    • Perform a disciplined requirements determination that includes process definition and triages requirements from desirable characteristics.
    • Ensure the plan considers acquisition, training, parallel operations, process changes, critical events and milestones, reporting, measures of success, and of course a budget.

Benchmarks

Drivers

  • Frequency with which the business entity performs the activity "prepare budgets and plans."
  • Budgeting and forecasting techniques used by business sites.
  • System/software used for the process "perform planning/ budgeting/ forecasting."
  • To what extent the business entity's "perform planning/budgeting/forecasting" system links with other systems.

Leading Practice Statements

  • Top class organizations automate the budgeting process across the company requiring fewer iterations and a cycle time of fewer than 100 days to complete the budget.
  • Using a single instance of ERP software and a common chart of accounts enables top quartile companies to decrease costs associated with the performance of planning, budgeting and forecasting. The use of multiple instances of ERP accounting software with a common chart of accounts more than doubled costs associated with planning, budgeting and forecasting. In addition, the single use of ERP can lead to a one-third reduction in budget preparation cycle time (from 90 days to 60 days).
  • Leverage robust IT applications and platforms for budgeting and financial planning rather then spreadsheets.

Metrics

  • Average personnel cost per FTE for the process "perform budgeting/planning/forecasting."
  • Systems cost of the process "perform planning/ budgeting/ forecasting" per $100,000 revenue.

Resources

APQC OSBC Research and APQC, State of the Art in Finance: An SAP/APQC Point of View (Houston, TX: APQC Publications, 2005)

Implications

(1) Poor planning and budgeting tools (2) Access to data is difficult (3) Poor tools (4) Lack of automation (5) Poor/inappropriate modeling tools (6) Budgeting requires modeling tools (7) Modeling tools are available that are valuable (8) Need to keep track of lots of changing data (9) There are many versions of budgets


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