BUDGETING, FORECASTING AND BUSINESS INTELLIGENCEbudgeting

In most organisations today, it is quite common to come across complete automation in the areas of general ledger, accounts receivables, accounts payables, inventory control, sales and purchases, etc. In addition to this, some organisations even capture employee time and resources time for project based accounting. And then there are organisations where much of the sales process is automated through clever CRM systems. In Manufacturing environments, cost accounting has become more automated. Shop rates are analysed critically and adjusted as required to keep the product costing as accurate as possible. This further helps the valuation of stock.

We have indeed come a long way since the 1980s. Whilst all of this is absolutely fascinating, I sometimes wonder why there are organisations in this day and age that seemingly still struggle in one core area of their business. Budgeting and Forecasting.

I’ve come across many mid to large sized organisations that still use spreadsheets for their budgets. There are multiple budget spreadsheets prepared by various budget managers across multiple departments or divisions and invariably there is someone losing sleep trying to consolidate these budgets and make sense of it. Over the years, some of them have managed to build some form of logic into the spreadsheets to assist with forecasting. However, in the end, it’s only a standard P&L with one extra column for each budget period with a variance calculation. There is not much further insight.

Why is it that these organisations have not tried to simplify the annual budgeting process and save vast amounts of time and money? There are indeed many budgeting, forecasting and business intelligence solutions out there.  Could it be because there is a perception that this process is only done once a year and probably not worth the investment? In addition, many such organisations that work with complex budgeting spreadsheets lack the discipline to frequently analyse forecasts against actuals. They probably create a report once a month or once a quarter as part of the management reports. A visual of these reports end up as a piece of stale information, usually long after the event. This results in an inability to make well informed decisions and adjustments at the right time. Over a period of time, such behaviour could lead to a slow financial deterioration forcing management to over react and make drastic corrections, which is counterproductive and painful.

Implementing a robust budgeting and forecasting software tool can help organisations simplify the budgeting process immensely, save vast amounts of time and add significant value to the business. There are tons of software tools available, but to be successful, the software tool must be easy to set up and encourage end users to embrace it willingly.  I recommend Solver’s BI360 to most of my clients. The reason is simple. We are trying to get them off of Excel spreadsheets into a powerful budgeting and forecasting tool. BI360 is Excel based and therefore I find most end users easily embrace the technology, willingly adapt to the new process and the organisations see a very quick return on investment. There are not many weeks of having to learn a new piece of software.

Here are a few pointers to help you successfully implement a budgeting and forecasting solution.

  1. Ensure the software tool is an extension of your ERP system. It is very vital to ensure that the budget and forecasting data is reliable enough to provide you with a complete and accurate projection for the financial periods’ ahead.
  2. Ensure the solution is a database application and not just a very complex spreadsheet with miles of formulas. The budgets need to be written back into a robust database (eg: SQL) as multiple versions stored under multiple scenarios.
  3. Ensure the solution comes with standard templates that can be used for much of your management reports. These include budget vs actuals, forecasts, cash flow statements, P&L, etc.
  4. Ensure user defined reports can be generated with minimal to no coding or programming, easy drag and drop and end user friendly. Hence my recommendation of BI360. Most users easily adapt to BI360 since it is Excel based.
  5. Ensure the solution allows you to drag and drop the various dimensions and measures from a selection of modules. Example of modules would be General Ledger, Revenue, Payables and the likes. Examples of dimensions would be Account, Customer, Department, Category, Scenario, Period and so on. Examples of measures would be Monthly amount, Value, Quantity and so on. End users must be able to simply drag and drop the required dimensions and measures into rows and columns.
  6. Ensure the software tool allows for both top down and bottom up budgeting
  7. Ensure business intelligence functionalities are built-in and available for users to easily drag and drop. Example: To restrict values displayed in a column to only show budget ver1 or possibly only show figures from the same period last year. Another example would be allowing users to create hierarchical trees on the fly and use them in reports.
  8. Ensure the software tool allows you to easily import the chart of accounts into the system.
  9. Ensure the software tool has a connector to your ERP system or at least has a robust method to access actual data from your ERP system for easy analysis.
  10. Ensure the software tool allows users to both create standard reports AND dashboards. Dashboards are powerful and in a simple image can convey critical information to management executives, allowing them to make informed and strategic decisions just in time.

Experience gained out of many implementations and observing business processes within various organisations suggests that a robust, reliable and user friendly budgeting, forecasting and business intelligence software solution can add immense value to businesses. It provides valuable insight needed to make timely strategic business decisions, helps save costs, increase overall efficiency and increase profitability.

Santosh Chandran is the Business Development Manager for BI360 Business Intelligence at Olympic Software. He regularly blogs about business intelligence and corporate performance management. You can follow him on Twitter or on LinkedIn. Please contact him directly if you would like to find out how BI360 can improve your business results through better decision making, phone +649 980 3964 or email: santoshc@olympic.co.nz