Budgeting and planning software is designed to make executives' lives easier, but the number of systems on offer can make it difficult to choose the right package.
When French president Charles de Gaulle received Nikita Khrushchev on an official state visit in 1960, he asked the Soviet leader how he found so much time for foreign travel. Did he not have to devote some of his efforts to simple economics? 'I don't have to do anything,' replied Khrushchev. 'The five-year plan takes care of everything in advance.'
If only things were as simple for today's business leaders. Faced by operations of increasing complexity and sophistication, they have little choice but to invest in budgeting and planning software to keep everything on the right track. More and more of them are finding that this offers the best way to improve core business processes - not just to support improved performance, but also to comply with the demands of the EU, other governance regulations and Sarbanes-Oxley in the US.
THE AGE OF THE SPREADSHEET
The default solution has been to use spreadsheets, the well-established basic tool of financial analysis. They are a logical starting point, as financial managers use them so frequently for other tasks. However, many feel that spreadsheets pose as many problems as they solve, especially in mid- to large-scale businesses where budgeting data comes from several, dozens or hundreds of distinct work groups or business units. A spreadsheet that works well for the manufacturing unit, for example, might not work for the sales organisation, and vice versa. Consolidating a budget in an even mildly complex company can become a frustrating game of creating, tracing and fixing links and macros. Determining how changes in one corner of the business affect the bottom line ranges from difficult to impossible in the spreadsheet-based budget. This means that such budgets can become obsolete or inaccurate almost as soon as they are created.
Yet for many, the age of the spreadsheet is not yet over. 'The spreadsheet is evolving, in many ways,' says Microsoft's Andrew Hawkins. Hawkins is the public sector/professional services marketing manager in the EMEA region for Microsoft Dynamics, which is the business management arm of the company. 'The standalone spreadsheet does not give CFOs the information they need to make informed decisions. Whatever the sector, they are now under a great deal of pressure and need to be able to make decisions quickly. In the legal profession, for example, the whole market is changing dramatically and companies have to compete for business on a daily basis.'
Microsoft offers a number of software packages to help with budgeting and planning, including Microsoft Forecaster, Microsoft Dynamics NAV and Microsoft Dynamics EX. However, those familiar with Excel spreadsheets will not be too disoriented. Microsoft has been working on a project called 'Wave1', which is intended to make its Enterprise Resource Planning (ERP) products look and feel the same as the well-known Office software suite.
'The spreadsheet is now becoming the familiar front end to enterprise reporting and budgeting,' says Hawkins.
'It is becoming a dashboard for different types of information. With Excel, we can take a more complex ERP system and make it more graphical, more usable.'
This user-friendliness is essential as budgeting and planning begins to extend throughout the organisation, Hawkins adds. 'Budgeting and planning deals with enterprise-wide information gathering, but increasingly, it also means making that information available to more people. It's moved from an extremely specialist arena to a more general one. In a large company, there might be as many as 700 different departments or services, each one with responsibility for its own budget and for reporting on how it is spent. Those people are not specialist financial officers. So we need to look at how to get them to use the system - making budgeting and planning a bottom-up process as well as top-down.'
CHOICE OF SYSTEMS
At Hewlett-Packard (HP), the focus is on making life easier for the CIO. HP's product and portfolio management (PPM) system seeks to allow CIOs to compare projects and operational activities against budgets, manage resource capacity levels and align these with the business' needs. PPM standardises, manages and captures the execution of projects and operational activities, allowing IT managers to keep track of overrunning IT budgets, reduce the project funding procedure and make a better assessment of the risk associated with specific projects.
'When we talk about financial management, there are many possible solutions out there in the market,' explains Peter Barnes, marketing manager for HP's PPM package. 'Perhaps the most obvious ones are the financial applications contained within the dominant ERP packages such as SAP. These are full-blown financial management systems with the goal of delivering the financial reports that a company has to publish. Their remit is to account for every penny that the company spends and to understand the costs that are being incurred by the company.'
In addition, there are business intelligence or corporate performance management systems. They take a much more management-oriented view of budgeting and planning, 'slicing and dicing' exactly where money is going within the organisation rather than focusing on the statutory methods used to publish financial statements.
PPM is about how IT management, headed by the CIO, make the investments that they need in order to deliver on what the business requires, Barnes says. It differs from other packages in that it is concerned with how much a certain project cost the company and what the financially reported expenses are for that project. PPM also deals with how well projects are being executed. 'The main difference from an ERP financial management package is that on the ERP side, you are looking to account for everything the company spends,' says Barnes. 'It will record the cost of a particular employee, for example. On the PPM side of things, labour hours are tracked, so you can record how much time that employee spends on a particular project. It gives you the true costs that are being incurred on a daily, weekly or monthly basis.'
One further aspect of budgeting and planning involves executing a budget and measuring a company's success against it. 'Budgeting and planning is effectively about setting out where you think your business is going and what you are going to spend against what you are going to receive,' says Terry Wilcox, commercial director at spend control software specialist Proactis. 'You are projecting into the future what you think your performance is going to be as a business. Our software helps you execute your budget in a real-life way against both actual or committed spend.'
Proactis' spend control software incorporates e-procurement with spend management and spend visibility, enabling the CEO or the CFO to get a central view of their spending and committed spending.
'If there is a budget for marketing spend of £100,000 for the year, for example, and to date you have spent £80,000, then the management accounts will reflect that there is £20,000 of the marketing budget left,' says Wilcox. 'With Proactis, when anyone tries to place an order on the marketing budget, it will compare what is left with what you are actually spending.'
The advantage of using the system, Wilcox adds, is that spending commitments as well as actual spend can be tracked. 'Most commercial software does not include items where an order has been placed but payment has not yet left the company's account,' he says. 'This means that you run the risk of going over budget.'
Today's competitive business environment puts a greater emphasis than ever on accurate and responsible financial management, and budgeting and planning software can help executives know where they stand to run their business effectively.
