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  • CFO Magazine

Budgeting in the Real World

More companies are writing budgets that reflect strategy and reduce frustration.

Consultants have been suggesting for years that greater accountability can improve the effectiveness of the B&P process. In 1998, only one-third of respondents told CFO that senior and mid-level managers were held visibly accountable for achieving the plan. Today, 60 percent say that is the case.

“The immediate availability of current data drives greater accountability throughout the organization,” observes Greg Bozigian, director of financial planning for Carnival Corp.’s Princess Cruises and Cunard brands, referring to the company’s Web-based Cognos planning tool. “All senior executives have access to their managers’ data and can view their subordinates’ latest forecasts and submissions at the touch of a button.”

During review meetings, says Bozigian, when executives and managers gather together, plans can be projected onto a screen, providing far more than just visibility. “If an operator’s [forecast] numbers are not in line with actual trends, or the operator cannot provide adequate justification for the current projection,” he says, “senior executives can change the numbers on the spot. On many occasions, we’ve changed budgets and forecasts in review meetings.”

Accountability can also be tailored to reflect corporate priorities. Two years ago, Hudson Advisors, a Dallas-based commercial mortgage servicer and real-estate asset-management firm, decided that IT expenses were so significant that each department’s IT budget and expenditures would be tracked by a special sub-budget in the firm’s Hyperion Planning system. While financial results are reforecast quarterly, IT spending is tracked, reforecast, and reported monthly by department, says chief information officer Janis O’Bryan. “Now everyone individually feels empowered by their forecast,” she says.

Software Helps

As the experiences of these companies suggest, new software systems can support an improved budgeting process, particularly by sharing consistent information. For example, enterprisewide software helps ensure that every division’s budget is based on the same assumptions. Princess Cruises uses its software to roll out standardized assumptions for interest rates, foreign exchange, fuel costs, and so on.

But the greatest contribution of software packages is their automation capabilities — the ability to free up more time for financial analysis by speeding data-collection efforts, and moving the management of that data out of loosely controlled spreadsheet environments (though many still strive to look like spreadsheets). According to an APQC benchmarking survey, companies that rely heavily on spreadsheets typically take 30 days longer to complete their budgets than those that don’t.

Nonetheless, spreadsheet use remains widespread. Some 67 percent of respondents to CFO’s survey say that, apart from spreadsheets, their companies do not use any enterprise or budgeting software. Relying on spreadsheets, however, means that on average, CFOs spend a third of their time inputting, validating, and correcting plan or budget data, while those with enterprise B&P systems spend a quarter of their time on such tasks.

At AAA Life Insurance Co., the percentage was even worse. Says CFO Jay DuBose, “We were spending 80 to 85 percent of our time making sure the spreadsheets were in sync and 15 to 20 percent analyzing the data.” DuBose is set to roll out a new Cognos system next month to fix the problem. And then you have to add in the wasted reconciliation time, says Clint Allen, Princess Cruises’s manager of financial planning. “You’d send your files out, wait to get your data back, and then lose a week or two just to aggregate it in a form that was useful.”


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