• Strategy
  • CFO.com | US

Major Miners

The concept of collaborative budgeting may be both a great idea and a royal pain. But it doesn't look like it's going away anytime soon.

Wolfgang Nickl, senior director of demand finance at Western Digital, says there’s another benefit to a rolling budget. A more frequent forecasting cycle, he points out, helps company management respond to market pressures by reducing cash conversion cycles and cutting operating expenses.

Data, Data Everywhere

Of course, finance executives at hard-drive maker Western Digital are probably not lacking for cheap storage capacity. For managers at smaller companies, hybrid budget software can be a less-costly alternative to real-time B&P systems requiring data warehouses. In essence, these applications lie somewhere between fixed budgeting software and real-time, transaction-based apps.

Sharon Garris, budget manager at Children’s Hospital of the King’s Daughter in Norfolk, Virginia, swears by flexible budgeting. Using a program designed by SRC Software, Garris is able to update the hospital’s annual plan by adjusting the budget for occurrences that create wide budget variances.

One for-instance: If the company’s fixed budget is calculated based on 20 patient days in the hospital, and the actual count rises to 25 patient days, budget variances will crop up in everything from staffing to lab work to medication costs. A flexible budget allows Garris to centrally adjust the budgeted patient day allocation. This, in turn, adjusts all tangential targets, leaving only true variances to ponder. “Because the data is all in one place,” Garris notes, “I can close my books in 10 days.”

The quick turnaround means the Children’s Hospital budget manager can spend her time on more important pursuits — such as assessing the total expense of a specific procedure, or identifying low-margin procedures that can be reduced through community education. “I work with hospital directors to turn data into meaningful information and effect change before the month ends,” she says. “I consider myself a business analyst.”

That’s part of the lure of B&P software. Less scut work often leaves more time for contemplating big-picture items. But Oscar Munoz, CFO of AT&T’s Consumer Services, notes that such contemplating tends to involve synthesizing all sorts of information. “The information increases the odds that you’ll make a good business decision,” he believes.

True, but only if everyone buys into the program. “It’s critical for operations people to understand the market intelligence that the financial data represents,” claims Munoz, “because they need to gauge their performance.” If the head of marketing runs a $100-million ad campaign, for example, that manager needs to be able to quickly access the before-and-after revenue numbers — not the financial metrics and data — to figure out if the campaign worked. That’s a ton of information. It’s also the type of easy-to-use report a B&P system can generate at a click of a button, says Munoz, who uses Eyeris software for budgeting and planning.

As with operational managers, though, it can be tough selling this sort of collaborative budgeting concept to higher-level managers. As Munoz points out, the old budgeting process often created an adversarial relationship between the finance department and operations managers. Thus, a CFO has to spend a lot of time soothing the worries of the company’s business leaders. Otherwise, some executives end up thinking that the collaborative budgeting process is actually intended to make them look bad. Generally, such thinking ends all hopes of true collaboration.

Marie Leone is a senior editor at CFO.com.

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