• Strategy
  • CFO Europe Magazine

Rolling Along

Many finance chiefs aspire to a dynamic budget, but most companies ''just aren't planning and measuring the right things.''

Not many people have heard of European Metal Recycling. But since the early 1990s, UK-based EMR has been building a formidable empire, and is now one of the largest metal recyclers in the world. Its international network of 65 processing sites handles more than 8.5m tonnes of scrap metal a year, thanks to machines like its Liverpool shredder, the largest in the world, which Peter Armer, the company’s director of finance and IT, likes to boast can crush 350 cars an hour.

EMR’s record of profitable growth is equally impressive. Revenue at the privately held firm grew threefold in three years, from £200m ($324m) in 1999 to £600m in 2002 (the latest available). Operating profit grew even faster, from £8m to £33m, in the same period.

Pivotal to that growth is a real-time system that allows the firm’s five regional managers to monitor purchasing, stocks, sales and the like. That information is not only used to help set annual budgets, but also turned into detailed forecasts every month. Meanwhile, operations reports that are available to all operating managers are prepared at the end of each working day.

“In a sense, we’re ‘rolling’ the budget every day,” explains Armer. And in EMR’s world, this dynamic budgeting and planning process is a must. “We’re a slave to world metal prices,” says Armer, “so this isn’t the easiest business to budget for.” Armer is bringing in even more information support this November, when EMR goes live with web-based software from Coda that will help the entire company keep abreast of budgeted and forecast performance targets. The end result? A budgeting and planning process that he reckons will be “the lifeblood of the company.”

The “dynamic budget” — it’s the Holy Grail for finance chiefs. But, the fact is, a lot of corporate Europe’s budgeting and planning processes are ready to be sent to EMR’s shredding machines. “Companies just aren’t planning and measuring the right things,” says Michael Coveney, UK-based director of business services at enterprise-performance software vendor Geac, and a performance management lecturer at the American Management Association. “I’ve been helping organisations for 30 years….and nothing much has changed.”

That’s a worry, not least because of the vast amount of groundbreaking work that went into overhauling budgeting and planning in the late 1990s. Borealis, Svenska Handelsbanken, Volvo and Rhodia are among the companies that gained notoriety back then for their bold attempts to free themselves from the time-consuming, costly and often ineffective exercises that traditional budgeting requires. But more often than not, they did not reach their ultimate goal — to replace the fixed 12-month budgeting cycle with a dynamic, rolling process that continuously plans five or six quarters ahead. (See “There and Back Again” at the end of this article.)

The truth of the matter is that budgeting and planning have become more complex, not less. Pressured by boardrooms for more accurate forecasts, front-line managers and senior executives often have to juggle myriad processes and systems that combine both annual and rolling exercises. It’s becoming a huge frustration for everyone involved. Horvath & Partners Management Consultants in Germany found that nearly all of the 50 companies it recently polled said they want to reduce the complexity of their planning processes.


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