In one of CFO Europe’s earliest issues, we wrote about how companies were galvanising around plans to bin budgeting, replacing the time-consuming, cumbersome annual process with various tools that promised to be more nimble and reflect fast-changing operating environments. One such company we profiled was Borealis. As Bjarte Bosgnes, head of corporate control at the petrochemicals company, explained at the time, the budgeting process, which took six months every year to complete, was bogged down in too much detail, not to mention “a lot of internal haggling and negotiation.” To help bin the budget, the company launched a series of projects in 2005 to introduce quarterly rolling forecasts looking five years ahead and balanced scorecards.
But over time, the old way of budgeting stuck around Borealis, albeit with some streamlining and support from new tools. “Organisations evolve and operate in different conditions, so I can certainly understand the decision to get back into a more formalised budgeting process,” observes Daniel Shook, Borealis’ CFO since last year. That said, “the budgeting process can be extremely painful because you can potentially spend a lot of time talking about things that don’t necessarily drive your business forward and help you perform better.”
So, although the budgeting process seems a firmly entrenched annual tradition at most companies, CFOs have helped make it more efficient. One way has been to keep a firm grip on the process. “It’s the art versus the science, making sure that you get the brakes in place,” says Shook. “You don’t want to spend a lot of time in your budget reviews discussing whether an allocation is up, down or sideways, when it is indeed just an allocation.” He adds that the ongoing transformation of finance staffers into business partners plays a big role in improving budgeting and planning. “We want to make sure that we give our people enough of a view of the business so that they understand what the numbers mean, not just what they are,” he asserts.
Thanks to steps such as these, companies have been making improvements, according to the Hackett Group, a benchmarking company. Since 2000, the average company has reduced the number of budget iterations from around five to four, while budget line items have also been reduced, from 455 to 270.
But the exercise remains a drain on time. The average number of days needed to complete an annual budget has increased from 108 to 120. There are several possible explanations, says Hackett. One is that companies have had other, more urgent projects competing for their attention. Another is the widespread use of spreadsheets, despite the growing availability of budgeting and planning technology that claims to be faster and more efficient.
Spreadsheets are still in use at Borealis, but Shook doesn’t see it as a problem. He hasn’t, however, ruled out looking around for better tools, including those that the firm’s ERP system could provide. Nor has he ruled out looking for more ways to make the budgeting and planning process less “painful.” Whatever happens, he concludes, “Budgeting shouldn’t be a zero-sum game.”