Few small corporations have the financial wherewithal to invest in those sorts of information repositories, known as data warehouses. And implementing and maintaining B&P software can get pricey, with ratios of licenses-to-implementation fees ranging anywhere from 3:1 to 0.5:1. Not surprisingly, big corporations have been the ones mostly gravitating toward real-time, companywide B&P programs. Meta’s Van Decker says such apps, also called enterprise business planning (EBP) software, can help finance chiefs better correlate expenses to revenue forecasts.
CFOs at a number of larger companies say they’ve been able to improve the accuracy of their forecasts by fostering internal partnering and collaboration. Expect to see that spirit of cooperation extend outside company walls, as well. Indeed, within two to three years, Van Decker predicts a raft of big companies will begin rolling out scalable EBP solutions linked to trading partners. The thinking: Knowing the forecasts of suppliers helps companies create more-realistic budgets.
Rolling, Rolling, Rolling
Until recently, CFOs could barely rely on the forecasts coming from their own operating units. After closing the books, finance department workers would often make like the Spanish Inquisition, meticulously probing managers about budget variances and line-item rekeys. Mike Sherratt, CEO at application vendor Armstrong Laing Group (ALG), says the introduction of collaborative budgeting software has redefined the finance department’s role in the process. Sherratt believes the programs make budgeting more visible to employees. When the budgeting process becomes more visible, CFOs spend less time playing numbers-cop. Instead, Sherratt says finance executives are freed up to act as operations advisors and management accountants.
One example: Teaming up with operations managers allows accountants to identify the back-office repercussions of increased sales — but from a resource standpoint, rather than an earnings management perspective. For instance, suppose the new Spider-Man movie boosts the sales of a company’s super-posable Spider-Man action-figure toys. What kind of impact will the increase have on fulfillment, return logistics, and customer service? And if those action figures are low-margin products, when do the increased sales pay for the increased back-office costs? “A traditional or dead budget can not handle this type of modeling or collaborative data gathering,” argues Sherratt.
Indeed, collaborative B&P software can bring actual excitement to the budgeting process — a development that surely ranks right up there with the invention of chocolate pudding and the Demerol drip. By Weinfurter’s lights, the 12-month budget process works fine for capital planning. He believes that a more dynamic budget is needed to respond to the realities of the marketplace, however.
As Weinfurter also notes, many public companies were heavily involved in ERP deployments a few years ago. Now, CFOs at many of those companies are realizing the next step is to mine the data collected by these systems — and to use that data to forecast and plan.
That’s exactly what finance managers at Western Digital Corp. are doing. Three years ago, executives at the Lake Forest, Calif.-based computer hard-drive maker replaced disparate departmental spreadsheets with a Web-based reporting system designed by Cognos. The program provides real-time, self-service information to the company’s management team. Eighteen months later, the company eliminated its annual operating plan, choosing instead to use a continuous rolling budget. “We’re never comparing results to old operating plans that were set months ago,” says corporate finance director Tami Vienna. Moreover, management-level executives aren’t squirreled away for months working on the annual plan, asserts Vienna.